Small business owners across the US must report key ownership information to the federal government by January 1, 2025, under the Corporate Transparency Act (CTA) or face significant penalties, including fines and potential imprisonment, USA Today reports.
Many businesses, particularly smaller or single-member LLCs, may be unaware of this requirement, raising concerns about widespread non-compliance.
The Corporate Transparency Act, enacted in January 2021, became effective in January 2024. It mandates that eligible businesses submit a Beneficial Ownership Information Report to the Financial Crimes Enforcement Network (FinCEN) to combat tax fraud, money laundering, and other illicit activities.
According to the US Chamber of Commerce, businesses that miss the deadline or fail to update their information could face severe consequences, including:
- Fines up to $10,000
- Civil penalties of up to $591 per day
- Up to two years of imprisonment
Many business owners remain unaware of their obligation to report, particularly those who formed LLCs for small ventures.
“If you filed something with the secretary of state to create your entity, you’re required to file,” said Zach Chatlain, a CPA with Mizick Miller & Co.
This includes single-member LLCs, S corporations, and larger LLCs.
Roger Miller, president and CEO of Mizick Miller, noted that many business owners either forgot they registered an LLC or never informed their accountant or attorney.
“People just create their own LLC, and we don’t know they exist because they’re still filing under their Social Security number,” he explained.
The filing process is crucial even for inactive businesses.
“We’re recommending even if they’re inactive to file,” Miller advised.
Business owners can check their status with their state’s secretary of state office to determine if they need to submit the required information.
For those unsure about their obligations, consulting an attorney or accountant is recommended.
“The alternative is to wait and see how serious the federal government is about penalizing those who fail to comply… We don’t know what they’re going to do, but they sure scared everybody,” Miller warned.
The CTA aims to increase transparency in business ownership to help authorities combat financial crimes. The US Chamber of Commerce emphasized that the law is designed to capture ownership data to curb illegal activities such as tax evasion and the financing of terrorism.
As the January 2025 deadline approaches, small business owners should act promptly to avoid the risk of fines or legal action. Experts recommend proactive filing to ensure compliance, even if the business is no longer active.
