As the mid-point of the year approaches, there is an important deadline that should be on the calendar of every freelancer with a U.S.-based business. This is the filing deadline for the Corporate Transparency Act (CTA) which is Dec. 31, 2024 and it applies to you if you have a corporation, S-Corp, LLC, or any other entity created by paperwork filed with a Secretary of State office. 

The purpose of The CTA is to help FinCen (the U.S. Treasury Department's financial crimes unit) monitor the activities of businesses more closely to reduce related crimes. All of the information provided by businesses will be included in a non-public, first-of-its-kind database maintained by the Financial Crimes Enforcement Network (“FinCen”) which is a part of the Department of Treasury. The information will be available to U.S. and international law enforcement agencies. 

The basic requirements for freelance businesses under the CTA include:

• Compliance with the CTA’s Beneficial Ownership Information Reporting Rule (Reporting Rule) and add your information to a non-public federal database.
• The Reporting Rule is separate from tax return filings.  
• There are significant penalties that will be assessed for non-compliance with The Act. The CTA and Beneficial Ownership filing is mandatory for most  businesses and non-compliance may result in significant fines of $500 per day (up to a maximum of $10,000 per violation) and up to two years imprisonment. 
• Freelance business owners will need to provide FinCen with the following information for the individuals that (i) exercise substantial control over the entity, or (ii) own or control 25% or more of its ownership interests (any of these individuals are termed “beneficial owners” under the CTA):

1. Full legal name of the individual
2. Date of birth
3. Current residential street address
4. Unique identifying number from a passport, state identification, or driver’s license
5. Image of the individual’s passport, state identification, or driver’s license

Updated CTA Requirements for Freelance Business Owners

There are additional updated requirements and clarifications in regard to the entities covered under The Corporate Transparency Act which were recently updated. These updates are summarized below:

S-Corporation compliance clarifications: S-Corporations are included under the BOI reporting mandates, with few exemptions such as surpassing specific financial thresholds. 

Some exclusions for non-traditionally formed entities: FinCen clarified that exemptions for entities not established through typical state filings, are not subject to the BOI reporting requirements. Be sure to check with a tax professional in regard to these and all other potential exemptions.

Inflation adjustments for penalties for non-compliance: The significant penalties for failing to comply, including civil penalties, are being adjusted for inflation. 

Important Deadlines for CTA Reporting Criteria for Business Owners

If you created a new business entity after January 1, 2024 you will have 90 days from the date of formation to provide this information to FinCen and submit any changes in the beneficial owners must likewise be reported within 30 days of the change. This includes changes to business owners’ licenses and driver’s licenses as well as any changes to the information listed above. 

Entities that existed prior to January 1, 2024, have until January 1, 2025, to comply with the CTA. Companies created or registered on or after January 1, 2025, will have 30 calendar days to file their initial CTA reports.

Watch for Additional Updates on the CTA Requirements 

The best way to determine your reporting requirements for the CTA is to speak with a tax professional. You can review additional information here. Please be aware that the CTA is separate from any type of business tax filings and you should file early to avoid potential non-compliance with this critical new requirement for your freelance business.