The Corporate Transparency Act has recently come to light, a law that affects an estimated 32 million small business owners, including sole proprietors.
With this new measure set to take effect at the start of the new year, many may be unprepared for the reporting requirements that come with it.
Businesses must file information with FinCEN (the Financial Crimes Enforcement Network—a bureau within the U.S. Department of Treasury), including personal data associated with their business, or risk penalties for noncompliance.
This is all done in an effort to combat money laundering and promote national security, however there are 20 exemptions, such as publicly traded companies and those with 20 employees or more and $5 million in sales.
As such, it falls primarily on small businesses and solopreneurs to navigate this administrative hassle while trying to focus on productive economic activities.
Though FinCEN estimates three hours for initial compliance, tracking down the requested information can prove difficult and time-consuming, then they will need to inform FinCEN of future updates or changes made over time.
Not only does this create an unnecessary invasion of privacy for small businesses but also creates a potential security risk by having another database full of sensitive info available for cybercriminals and foreign adversaries to target–making it hard to believe any benefit from the law will justify its burden on these businesses.
Small business owners already face an immense administrative burden when it comes to paperwork requirements, and this new law is yet another hassle that takes away from their productive economic activities.
Not only is there a fee of $85 associated with the Anti-Money Laundering Act of 2020, but it is quite likely that entrepreneurs will have to hire advisers to assist them in understanding the law, further increasing costs.
Furthermore, very few people are even aware of its existence since it was passed through Congress with broad bipartisan support before being vetoed by former President Donald J. Trump and then overridden in both houses of Congress.
Though existing businesses have a year for initial compliance, starting a new business requires 30 days after creation.
Small business owners and those who service small businesses should pay close attention to this rule and consult their legal and accounting advisers about potential revisions or postponements as we get closer to 2024.
It appears once again that government officials prioritize gaining more power over the needs of small businesses — something which entrepreneurs must unfortunately bear the cost of.
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