Corporate Transparency Act and the Resulting Beneficial Ownership Reporting Requirements

Becky Brown
October 16, 2024
Podcast

Understanding the Corporate Transparency Act: What MSPs Need to Know

The Corporate Transparency Act (CTA) is introducing significant changes for business owners, particularly those in the Managed Service Provider (MSP) space. In the latest Stride Services webinar, tax expert Morgan Holmes, CPA, broke down the new beneficial ownership reporting requirements that go into effect on January 1, 2025. These regulations are designed to prevent tax avoidance and improve transparency. Below are the key takeaways from the session.

1. What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) was introduced to address the lack of transparency in ownership structures, especially in entities that may have been created to avoid tax obligations. According to Morgan, starting January 1, 2025, all business entities—such as LLCs, S Corporations, and partnerships—must file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN). This reporting requirement is aimed at identifying individuals who own or control at least 25% of a company’s equity.

Key Takeaway:

The CTA requires all entities registered with a Secretary of State, except for certain exempt organizations like banks or publicly regulated firms, to file this report.

2. Deadlines and Filing Requirements

Morgan explained the critical deadlines associated with the new filing requirements. For entities established before January 1, 2024, the BOI report must be submitted by January 1, 2025. For those starting new entities after January 1, 2024, the report must be filed within 30 days of incorporation.

Key Deadlines:

Businesses established before January 1, 2024: File by January 1, 2025.
New entities: File within 30 days of creation.
If changes in ownership or address occur, an updated BOI report must be submitted.

3. What Information Must Be Submitted?

The BOI report requires businesses to disclose critical details about their beneficial owners, including:

Full names
Date of birth
Residential address
Percentage of ownership
A government-issued identification document, such as a passport or driver’s license

Failure to file the BOI report comes with significant penalties. As Morgan highlighted, businesses that miss the deadline could face fines of $591 per day, up to a maximum of $10,000.

4. Who is Exempt from the CTA?

While the CTA applies to most business entities, certain organizations are exempt. These include regulated industries such as banks, publicly traded companies, and accounting firms under the jurisdiction of the SEC or PCAOB.

Pro Tip:
Most MSPs will not fall under these exemptions and will need to file a BOI report by the deadline.

5. Avoiding Penalties and Ensuring Compliance

As Morgan emphasized, failing to comply with the new reporting requirements can result in substantial fines. For MSPs, understanding these regulations is critical to avoiding disruptions in cash flow, which can have ripple effects on operations and long-term growth.

What You Need to Do:

Check if your business falls under the new requirements.
Gather the necessary documentation to file your BOI report.
Ensure all reports are submitted before the January 1, 2025 deadline, or within 30 days for new entities.
For businesses with complex ownership structures, consult with legal counsel to determine if you need to file.

6. Final Thoughts: Preparing for the CTA

The Corporate Transparency Act is a major shift in how businesses report ownership, and it’s important that MSPs take proactive steps to comply. The new BOI reporting requirements are straightforward but essential for maintaining compliance and avoiding costly penalties.

For MSPs, this new level of transparency is an opportunity to ensure that their business operations are not only compliant but built on a solid foundation of accountability and trust.

If you’re uncertain about how the Corporate Transparency Act impacts your business, or if you need assistance filing your BOI report, Stride Services can help guide you through the process.

Corporate Transparency Act and the resulting Beneficial Ownership Reporting requirements

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This Stride Live Webinar is hosted by Stride Services. Stride is a comprehensive financial solutions provider, specializing in outsourced bookkeeping, accounting, tax, and advisory services for Managed Service Providers.

If you’re interested in being a featured guest on our Live Webinars or if there’s a subject matter expert you’d like us to interview, please CLICK HERE and let us know!

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