2024 brings some interesting new tax regulations, notably the Corporate Transparency Act (the “Act”). In addition, we point out some updates to existing regulations that may affect you.
Corporate Transparency Act
The Corporate Transparency Act will introduce landscape-changing disclosure requirements for many entities in an effort to combat financial crimes. Entities subject to the Act will be required to report the personal information of their beneficial owners to the US Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
The Act applies to corporations, limited liability companies, and any other entity type that was created by filing a document with the secretary of state such as limited partnerships or family limited partnerships. Very few exemptions from the new disclosure requirements exist for small entities.
Reporting companies will be required to disclose information about their Beneficial Owners in an initial report soon. The due date of the initial report depends on when the entity was created and is detailed below:
- A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information (BOI) report.
- A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report.
- A reporting company created or registered after December 31, 2024 will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI report.
The Act describes the Beneficial Owners of reporting companies as any individual who, directly or indirectly:
- Exercises substantial control over the reporting company; or
- Owns or controls at least 25% of the reporting company’s ownership interests.
The report will provide basic information about the reporting company and information about the beneficial owners including their name, address, and proof of identification such as driver’s license or passport.
In addition to the initial report, there is an ongoing obligation to file an updated report within 30 days of any changes to the originally reported information. Notable events which could create an obligation to update the report include a beneficial owner obtaining a new driver’s license or an address change for the reporting company or any of its beneficial owners.
If you believe you meet the definition of a beneficial owner of a reporting company which has not filed its initial report, we suggest electronically filing as soon as possible on FinCEN’s secure filing website.
The report must be submitted electronically. There is no fee for the initial report or subsequent reports. The information furnished in the report is maintained in a non-public database managed by FinCEN.
Failure to comply with the reporting requirements can result in un-capped $500 per day civil penalty, criminal penalties of up to $10,000, or imprisonment.
You can find more information about the Corporate Transparency Act on FinCEN’s dedicated website or by reviewing their FAQs about the new reporting requirement.
Tax Law Updates
Following are some important tax law changes and adjustments for 2024 that may affect you:
- The federal lifetime estate and gift tax exclusion amount for someone dying in 2024 will increase from $12.92 million to $13.61 million. The exclusion amount is set to sunset after December 31, 2025 and will revert to the inflation-indexed exclusion amount from 2017, expected to be approximately $7.0 million in 2026.
- The Qualified Charitable Distributions (QCDs) limit for IRA owners 70 ½ and older is now indexed for inflation. The maximum QCD allowed in 2024 is $105,000.
- Starting in 2024, auto dealers are permitted to administer the Clean Vehicle Credit at the time of purchase by reducing the vehicle cost by the tax credit amount.
- Starting in 2024, taxpayers who have maintained a 529 plan for at least 15 years will be allowed to roll over 529 plan funds to the 529 plan beneficiary’s Roth IRA. Rollovers will be limited by the annual IRA contribution limit of $7,000 and the beneficiary’s earned income amount in the year of the rollover. There is also a lifetime limit on 529 Plan to Roth IRA rollovers of $35,000 per beneficiary.
- Starting in 2024, the California State Disability Insurance (SDI) removes the cap on employee wages that are subject to SDI contributions. Last year, SDI contributions only applied to the first $153,164 of employee wages but now all employee wages are subject to the 1.1% SDI contribution rate.
- The IRS announced another delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations such as Venmo or PayPal for calendar year 2023. The 2023 Form 1099-K reporting requirements will remain at either $20,000 or more in the value of transactions or 200 or more transactions.
- In 2024, the annual gift tax exclusion amount will increase to $18,000.
- Roth 401(k) owners are no longer subject to a required minimum distribution requirement, conforming to the rules for Roth IRAs.
Please note this post only covers a select list of provisions of the Corporate Transparency Act and 2024 tax law changes.
If you are interested in learning more about how these changes might affect you, please contact Parkside Advisors.
