Before we get into beneficial ownership, we’d be remiss not to mention that several tax deadlines are approaching for your business:
- January 31, 2024: Deadline to send out W-2s and 1099s.
- March 15, 2024: Tax filing deadline for partnerships, S-Corps, or multi-member LLC.
- April 15, 2024: Tax filing deadline for individuals, sole proprietors (Schedule C), C-Corporations, single-member LLCs, and LLCs taxed as a corporation.
The Beneficial Ownership Reporting Rule
Beginning this year, small businesses that meet certain criteria need to file a “Beneficial Ownership Information (BOI) Report” with the US Treasury’s Federal Crimes Enforcement Network (FinCEN). This is a new mandate that was approved when the Corporate Transparency Act (CTA) was passed in 2021. It went into effect this January.
That’s a lot of acronyms for a report that’s not all that complicated. The intent of the new requirement is to combat money laundering and illegal trafficking. According to FinCEN, it will “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.”
Your responsibility as a small business owner is simple. Provide FinCEN identifying information on any individuals who directly or indirectly control your company. You have until the end of the year to meet this requirement, but it’s a good idea to do it early. Filing is free and FinCEN has set up an online portal where you can submit your company and personal information.
More Transparency Rules Are Coming in 2025
Beneficial ownership reporting is in effect this year. There’s some other legislation that’s still tied up but will likely go into effect next year. That includes a mandate to report any payments of over $600 made through a third-party payment processor like Venmo or Zelle. The intent of this rule, like the beneficial ownership rule, is to prevent illicit financial activity.
Banks will be seeing some new transparency rules too. Beginning in 2025, they’ll be required to report income and demographic information for small businesses that take out loans. The push for this is coming from the CFPB, but advocacy groups are pushing back. They claim the new reporting could make it more difficult for businesses to acquire loans.
Despite opposition, both new rules should go into effect next year. Speak with your accountant this year to make sure your bookkeeper is prepared for the changes. Financial regulations and reporting rules are subject to change at any time. Getting ahead of those changes eliminates potential headaches that could prevent you from focusing on business.
Minimum Wage and Overtime Rule Changes
Twenty states are raising their minimum wage in 2024. The most dramatic increases are in Nebraska, which is going from $1.50 per hour to $12 per hour, and Florida, which is going from $1.00 per hour to $13.00 per hour. The state of Wisconsin, which has adopted the Federal minimum wage of $7.25, is not scheduled to make any changes.
On a related note, the Department of Labor is pushing for a new rule that would let 3.6 million workers qualify for overtime. The details of what that looks like are still being hammered out, but it could significantly change your cost structure in 2025 if you’re required to pay out more overtime. Review your personnel schedules carefully to see where this could affect you.
Depending on the type of business, labor costs should range between 20% and 30% of gross sales. Raising the minimum wage or changing overtime requirements could significantly skew those numbers. There’s a chance that neither scenario will change in 2025, but it’s certainly worth doing the math now to see what the impact would be if they do.
Retirement Plan Contribution Limits for 2024
The IRS sets maximum annual contribution limits for retirement plans every year. On the individual side, that limit is $23,000 for 401(k) plans and $7,000 for IRAs. On the employer side, the maximum contribution limit for a 401(k) is going up to $69,000 in 2024. For a SIMPLE IRA, the employer can contribute up to 3% of the employee’s annual salary.
These numbers are important for several reasons. Retirement plans are part of the compensation plan you offer to your employees. Matching their contributions helps you to improve employee retention and gives you a tax-deductible expense. That’s a win/win scenario for your company, particularly during challenging economic times.
Contributing the maximum to employee retirement funds essentially gives your employees an ownership interest in the company. It also decreases your company’s tax liability because those funds will not be a part of the net income you pay taxes on. This can get complicated. Contact our office today to make an appointment if you want to discuss this further.
Financial Planning Tips for the New Year
The month of January is usually consumed with tax filings and getting the workforce back on track after the holiday season. It’s also a good time to do some basic financial planning. No one knows exactly how the new year will progress, so these plans should be fluid. They’re likely to change as the economy evolves, particularly with this being an election year.
Our best tip for you is to spend less and save as much as possible. When interest rates come down, which should happen sometime this year, it will be tempting to start spending again. Small business owners should use lower rates as a good excuse to make bigger payments on high-interest credit card debt. Get rid of the red and get into the black. Keep an eye out for developments on the third-party payment rule, the business loan reporting rule, and the DOL push for new overtime rules. You’ll also want to watch for any new legislation on the state or federal minimum wage. Heightening your awareness of issues that may affect your business is some of the best financial planning you can do.