Understanding the Impact of BOI Reporting on Small Businesses: A Financial Advisor's Guide
Introduction
As of January 1, 2024, small businesses across the United States are required to comply with a new federal regulation: Beneficial Ownership Information (BOI) reporting. This requirement, introduced under the Corporate Transparency Act (CTA), mandates that millions of businesses file detailed information about their beneficial owners with the Financial Crimes Enforcement Network (FinCEN). For many small business owners, this new reporting requirement may seem overwhelming. However, understanding the specifics of BOI reporting is crucial to avoid penalties and ensure compliance.
This guide is designed to provide financial advisors with a comprehensive understanding of BOI reporting. It will help you advise your clients on how to navigate these new requirements effectively. We will explore what BOI reporting entails, who must comply, what information needs to be reported, and how to avoid common pitfalls.
What is BOI Reporting?
BOI reporting requires certain businesses to disclose information about their beneficial owners to FinCEN. A *beneficial owner* is defined as any individual who owns or controls at least 25% of a company or has substantial control over it. The purpose of this reporting is to increase transparency in business ownership and prevent illicit activities such as money laundering, tax evasion, and financing terrorism.
Key Objectives of BOI Reporting:
1.Prevent financial crimes: By identifying the true owners behind companies, law enforcement agencies can more easily track illegal activities.
2. Increase transparency: The CTA aims to reduce the anonymity that bad actors exploit by using shell companies.
3. Improve regulatory oversight: With more accurate data on business ownership, regulators can better enforce compliance across industries.
Who Must File a BOI Report?
The BOI reporting requirement applies to most small businesses formed in the U.S. or registered to do business in the country. This includes corporations, limited liability companies (LLCs), and other entities created by filing paperwork with state authorities.
Types of Entities Required to File:
Domestic companies: Any corporation, LLC, or similar entity created by filing documents with a state or tribal authority.
Foreign companies: Entities formed in foreign countries but registered to do business in the U.S.
Exemptions from BOI Reporting:
Not all businesses are required to file a BOI report. The CTA outlines 23 categories of exemptions, primarily for entities already subject to federal or state regulatory oversight. Common exemptions include:
- Publicly traded companies
- Banks and credit unions
- Insurance companies
- Large operating companies with more than 20 full-time employees and over $5 million in revenue
- Tax-exempt entities such as charities
If your client’s business falls into one of these categories, they may not need to file a BOI report. However, it’s essential to confirm whether they qualify for an exemption before assuming they are not required to report.
What Information Must Be Reported?
For businesses required to file a BOI report, the following information must be disclosed:
Company Information:
1. Full legal name
2. Any trade names (DBAs)
3. Complete current street address of the principal place of business
4. Jurisdiction of formation
5. Taxpayer Identification Number (TIN)
Beneficial Owner Information:
For each beneficial owner (anyone owning at least 25% or exercising substantial control), businesses must report:
1. Full legal name
2. Date of birth
3. Residential address
4. Unique identifying number from an acceptable identification document (e.g., passport or driver’s license)
5. Image of the identification document
Company Applicant Information (for entities formed after January 1, 2024):
In addition to beneficial owners, newly formed companies must also report information about the *company applicant*—the person who files the formation documents with state authorities.
How and When to File a BOI Report
BOI reports must be filed electronically through FinCEN’s secure online platform starting January 1, 2024. The deadline for filing depends on when the company was created or registered:
Companies created before January 1, 2024: Must file their initial report by January 1, 2025.
Companies created between January 1, 2024, and January 1, 2025: Must file within 90 days of formation.
Companies created after January 1, 2025: Must file within 30 days of formation.
Once filed, businesses are not required to submit annual reports but must update their BOI report within 30 days if there are any changes in ownership or other reported information.
Penalties for Non-Compliance
Failure to comply with BOI reporting requirements can result in severe penalties. Businesses that do not file their reports on time or submit inaccurate information may face fines of up to $591 per day and even criminal charges leading to imprisonment for up to two years [2] [7].
It is crucial for financial advisors to ensure their clients understand these penalties and take timely action.
Common Questions Clients May Ask
What Happens if I Miss the Deadline?
If your client misses the deadline for filing their BOI report, they could face significant financial penalties starting at $591 per day until they comply [7]. In cases of willful non-compliance or submitting false information, criminal charges may apply.
How Will FinCEN Use This Information?
FinCEN will store all BOI reports in a secure database accessible only by authorized users for specific purposes such as law enforcement investigations [3]. This data will not be publicly available but will be shared with government agencies as needed.
Do I Need to Update My Report Annually?
No annual updates are required; however, businesses must update their reports within 30 days if there are any changes in beneficial ownership or other reported details [9].
Can I Delegate This Task?
Yes, many business owners choose to delegate this responsibility to their financial advisor or legal counsel. However, it is important that whoever files the report has accurate and up-to-date information about both the company and its beneficial owners [6].
How Financial Advisors Can Help Clients Navigate BOI Reporting
As a financial advisor, you play a critical role in helping your clients understand and comply with these new regulations. Here are some steps you can take:
1. Educate your clients: Many small business owners are unaware that they need to file a BOI report [7]. Start by informing them about this requirement and its implications.
2. Assess whether they need to file: Determine if your client’s business qualifies as a reporting company under the CTA or if they fall under one of the exemptions.
3. Gather necessary information: Help your clients collect all required details about their company and its beneficial owners.
4. File on time: Ensure that your clients meet their filing deadlines by assisting them with submitting their reports through FinCEN’s online platform.
5. Monitor for changes: Stay informed about any changes in ownership or other relevant details that would require an updated BOI report.
Conclusion
BOI reporting represents a significant change for small businesses across the U.S., but it also offers an opportunity for financial advisors like you to provide valuable guidance and support during this transition period.
By understanding the requirements and helping your clients comply with them effectively, you can protect them from costly penalties while strengthening your role as a trusted advisor.
Remember that staying proactive is key—start educating your clients now so they can meet their deadlines without stress or confusion.
Meet
Adam Dean
Hello there 👋🏼 I’m Adam a dedicated family man that is deeply involved in my community. I’m bilingual in English and Spanish and I enjoy connecting with my clients on a personal level, aiming to be seen as a friend rather than just a financial advisor.
Sources:
[1] https://www.reddit.com/r/smallbusiness/comments/1gptz96/boi_reporting_questions_tips/
[3] https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
[4] https://www.paycor.com/resource-center/articles/boi-report-for-llc/
[6] https://www.northwestregisteredagent.com/boi-reporting/faq
[7] https://www.patriotsoftware.com/blog/accounting/beneficial-ownership-information-reporting/
[8] https://www.journalofaccountancy.com/news/2024/aug/boi-reporting-requirements.html
[9] https://www.fincenfetch.com/frequently-asked-questions/
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.
Understanding the Impact of BOI Reporting on Small Businesses: A Financial Advisor's Guide
Introduction
As of January 1, 2024, small businesses across the United States are required to comply with a new federal regulation: Beneficial Ownership Information (BOI) reporting. This requirement, introduced under the Corporate Transparency Act (CTA), mandates that millions of businesses file detailed information about their beneficial owners with the Financial Crimes Enforcement Network (FinCEN). For many small business owners, this new reporting requirement may seem overwhelming. However, understanding the specifics of BOI reporting is crucial to avoid penalties and ensure compliance.
This guide is designed to provide financial advisors with a comprehensive understanding of BOI reporting. It will help you advise your clients on how to navigate these new requirements effectively. We will explore what BOI reporting entails, who must comply, what information needs to be reported, and how to avoid common pitfalls.
What is BOI Reporting?
BOI reporting requires certain businesses to disclose information about their beneficial owners to FinCEN. A *beneficial owner* is defined as any individual who owns or controls at least 25% of a company or has substantial control over it. The purpose of this reporting is to increase transparency in business ownership and prevent illicit activities such as money laundering, tax evasion, and financing terrorism.
Key Objectives of BOI Reporting:
1.Prevent financial crimes: By identifying the true owners behind companies, law enforcement agencies can more easily track illegal activities.
2. Increase transparency: The CTA aims to reduce the anonymity that bad actors exploit by using shell companies.
3. Improve regulatory oversight: With more accurate data on business ownership, regulators can better enforce compliance across industries.
Who Must File a BOI Report?
The BOI reporting requirement applies to most small businesses formed in the U.S. or registered to do business in the country. This includes corporations, limited liability companies (LLCs), and other entities created by filing paperwork with state authorities.
Types of Entities Required to File:
Domestic companies: Any corporation, LLC, or similar entity created by filing documents with a state or tribal authority.
Foreign companies: Entities formed in foreign countries but registered to do business in the U.S.
Exemptions from BOI Reporting:
Not all businesses are required to file a BOI report. The CTA outlines 23 categories of exemptions, primarily for entities already subject to federal or state regulatory oversight. Common exemptions include:
- Publicly traded companies
- Banks and credit unions
- Insurance companies
- Large operating companies with more than 20 full-time employees and over $5 million in revenue
- Tax-exempt entities such as charities
If your client’s business falls into one of these categories, they may not need to file a BOI report. However, it’s essential to confirm whether they qualify for an exemption before assuming they are not required to report.
What Information Must Be Reported?
For businesses required to file a BOI report, the following information must be disclosed:
Company Information:
1. Full legal name
2. Any trade names (DBAs)
3. Complete current street address of the principal place of business
4. Jurisdiction of formation
5. Taxpayer Identification Number (TIN)
Beneficial Owner Information:
For each beneficial owner (anyone owning at least 25% or exercising substantial control), businesses must report:
1. Full legal name
2. Date of birth
3. Residential address
4. Unique identifying number from an acceptable identification document (e.g., passport or driver’s license)
5. Image of the identification document
Company Applicant Information (for entities formed after January 1, 2024):
In addition to beneficial owners, newly formed companies must also report information about the *company applicant*—the person who files the formation documents with state authorities.
How and When to File a BOI Report
BOI reports must be filed electronically through FinCEN’s secure online platform starting January 1, 2024. The deadline for filing depends on when the company was created or registered:
Companies created before January 1, 2024: Must file their initial report by January 1, 2025.
Companies created between January 1, 2024, and January 1, 2025: Must file within 90 days of formation.
Companies created after January 1, 2025: Must file within 30 days of formation.
Once filed, businesses are not required to submit annual reports but must update their BOI report within 30 days if there are any changes in ownership or other reported information.
Penalties for Non-Compliance
Failure to comply with BOI reporting requirements can result in severe penalties. Businesses that do not file their reports on time or submit inaccurate information may face fines of up to $591 per day and even criminal charges leading to imprisonment for up to two years [2] [7].
It is crucial for financial advisors to ensure their clients understand these penalties and take timely action.
Common Questions Clients May Ask
What Happens if I Miss the Deadline?
If your client misses the deadline for filing their BOI report, they could face significant financial penalties starting at $591 per day until they comply [7]. In cases of willful non-compliance or submitting false information, criminal charges may apply.
How Will FinCEN Use This Information?
FinCEN will store all BOI reports in a secure database accessible only by authorized users for specific purposes such as law enforcement investigations [3]. This data will not be publicly available but will be shared with government agencies as needed.
Do I Need to Update My Report Annually?
No annual updates are required; however, businesses must update their reports within 30 days if there are any changes in beneficial ownership or other reported details [9].
Can I Delegate This Task?
Yes, many business owners choose to delegate this responsibility to their financial advisor or legal counsel. However, it is important that whoever files the report has accurate and up-to-date information about both the company and its beneficial owners [6].
How Financial Advisors Can Help Clients Navigate BOI Reporting
As a financial advisor, you play a critical role in helping your clients understand and comply with these new regulations. Here are some steps you can take:
1. Educate your clients: Many small business owners are unaware that they need to file a BOI report [7]. Start by informing them about this requirement and its implications.
2. Assess whether they need to file: Determine if your client’s business qualifies as a reporting company under the CTA or if they fall under one of the exemptions.
3. Gather necessary information: Help your clients collect all required details about their company and its beneficial owners.
4. File on time: Ensure that your clients meet their filing deadlines by assisting them with submitting their reports through FinCEN’s online platform.
5. Monitor for changes: Stay informed about any changes in ownership or other relevant details that would require an updated BOI report.
Conclusion
BOI reporting represents a significant change for small businesses across the U.S., but it also offers an opportunity for financial advisors like you to provide valuable guidance and support during this transition period.
By understanding the requirements and helping your clients comply with them effectively, you can protect them from costly penalties while strengthening your role as a trusted advisor.
Remember that staying proactive is key—start educating your clients now so they can meet their deadlines without stress or confusion.
Meet
Adam Dean
Hello there 👋🏼 I’m Adam a dedicated family man that is deeply involved in my community. I’m bilingual in English and Spanish and I enjoy connecting with my clients on a personal level, aiming to be seen as a friend rather than just a financial advisor.
Sources:
[1] https://www.reddit.com/r/smallbusiness/comments/1gptz96/boi_reporting_questions_tips/
[3] https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
[4] https://www.paycor.com/resource-center/articles/boi-report-for-llc/
[6] https://www.northwestregisteredagent.com/boi-reporting/faq
[7] https://www.patriotsoftware.com/blog/accounting/beneficial-ownership-information-reporting/
[8] https://www.journalofaccountancy.com/news/2024/aug/boi-reporting-requirements.html
[9] https://www.fincenfetch.com/frequently-asked-questions/
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.
