New this year: Many businesses now required to report BOI
BY JUSTIN SMITHbFOR THE OBSERVER
AUBURN — Business are required to report their ownership interest to the Federal Government beginning in January.
A little known but highly impactful rule is taking place in 2024 that most businesses are not aware of. The Corporate Transparency Act requires that nearly all companies report their beneficial ownership information to the federal government (specifically, the U.S. Treasury’s Financial Crimes Enforcement Network – FinCEN). The rule is known as the BOI Rule.
The goal of the rule is to help reduce money laundering and tax fraud, but with little advertising, the 10+ million estimated businesses that are subject to it may not even know about it.
The rule sounds simple enough – business entities such as LLCs, S Corporations, C Corporations, Partnerships and other legal entities are required to submit certain ownership information to FinCEN such as the legal name and address of the company, jurisdiction of formation, Federal Employer ID Number, and the legal name, date of birth and address of all beneficial owners. Additionally, photo identification will be required such as a passport or driver’s license. If you are a small business owner and have any kind of legal entity, this rule applies to you.
Entities that are in existence as of December 31, 2023, have until December 31, 2024 to submit their report. Entities that are created during 2024 will have 90 days to submit their report, and entities created in 2025 and after will only receive 30 days to report.
Generally, companies only have to file once unless something changes in the future.
The Corporate Transparency Act imposes stiff penalties on intentional noncompliance in reporting, including up to $500 per day for failure to report, and a possible 2-year prison term.
According to FinCen, such information will “permit Federal, State, local and Tribal officials, we well as certain foreign officials who submit a requested through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement.”
As of December 2023, FinCEN has not released any forms regarding the required reporting documentation, and no guidance has been issued regarding allowing third-parties (such as CPAs and Lawyers) to handle reporting on their clients’ behalf. As a result, many accountants and lawyers are declining to offer any reporting services until and unless formal guidance is issued that includes liability protections. Further, neither the American Institute of CPAs (AICPA) nor the American Bar Association has issued guidance on how to provide such services.
The AICPA and other concerned stakeholders have requested Congress and FinCEN to delay reporting requirements to help protect the millions of small businesses nationwide that are subject to this rule. However, as of the date of publication, no action has yet been taken.
Visit www.fincen.gov/boi for more information, including FAQs for small businesses and a small business compliance guide.
Justin Smith is a licensed Certified Public Accountant in Opelika, specializing in individual and small business tax and accounting. He can be contacted at 334-400-9234 or Justin@JSmithCPA.net. His Web site is www.jsmithcpa.net.
Develop financial statements through good bookkeeping
AUBURN — Bookkeeping is an important administrative task that business owners should employ. It is the process of tracking income and expenses for your business, tracking your cash flow and understanding your overall financial picture. Accounting is referred to as the language of business, and proper bookkeeping is the foundation of this.
For small businesses, bookkeeping typically involves preparing basic financial statements in the form of an Income Statement and a Balance Sheet (a Cash Flow Statement is also important). The Income Statement tracks revenues, expenses and profit/loss over time, whereas the Balance Sheet provides a point-in-time statement of Assets (such as cash, accounts receivable and fixed assets), Liabilities (such as accounts payable, credit card or other debts and loans) and Equity (such as shareholder contributions and distributions, retained earnings and current-year earnings). The Income Statement and Balance Sheet are equally important, and one should not be developed without the other.
The process of business bookkeeping includes organization your financial data such as bank and credit card transactions, classifying them into appropriate revenue, expense, asset, liability and equity accounts, reconciling these records against the bank statements to ensure that all data has been imported, and then preparing the financial statements. While this can be done on a variety of different frequencies, the most common is monthly since bank and credit card statements are provided each month.
Bookkeeping also includes preparing and posting journal entries to the General Ledger, making necessary adjustments, researching errors, recording assets, debt and depreciation, and handling any other unusual or uncommon accounting transactions.
Quickbooks is the most commonly used small business accounting software, but other solutions are also available. Modern cloud-based accounting software will import bank and credit card transactions, allow the user to easily classify them, facilitate reconciling the bank and credit card statements and support generating financial statements. They will also provide other functions such as invoicing customers, collecting payments, paying bills, running payroll and paying/reporting payroll taxes, aid in budgeting as well as other administrative actions.
Throughout the year and at year-end, using accurate and timely prepared financial statements allows the owner to fully understand how well the business is doing.
Large organizations have fulltime accounting staff and prepare their financial statements in accordance with stringent rules and regulations, but small business owners often face a disproportionately heavier burden in maintaining good accounting records. They can perform in-house bookkeeping or engage a professional to handle it on their behalf. The benefits of in-house bookkeeping are lower costs and sometimes quicker access to information, whereas the benefits of professional bookkeeping include convenience, accurate information and a trusted business partner who understands the accounting language and offers advice. Either way, good bookkeeping provides accurate information that helps business owners to make informed decisions, prepare for tax time and measure the success of the business.
