Tax

The Corporate Transparency Act (CTA) is upon us. It takes effect on January 1, 2024, and imposes a new federal filing requirement for most corporations, limited liability companies (LLCs), and other business entities.

Corporations, LLCs, and other entities subject to the CTA are called “reporting companies.” People who form new reporting companies must file a beneficial ownership information (BOI) report with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) within 90 days of forming the company.

The owners of reporting companies created before 2024 must also file a BOI report, but they have until January 1, 2025 (but think December 31, 2024).

Some businesses are exempt from filing—for example, large operating companies with over 20 employees and $5 million in income. There are other, more narrow exemptions as well.

The BOI report must contain the name, the birth date, the address, and an ID number and image of that ID for each “beneficial owner” of the reporting company. These are the human beings who (1) own or control at least 25 percent of the company or (2) exercise “substantial control” over the company.

The BOI report is filed online at a new federal database called BOSS (an acronym for Beneficial Ownership Secure System). There is no filing fee.

Government law enforcement and security agencies will use the data from BOI reports to help combat money laundering, tax evasion, terrorism, and other crimes. It will not be available to the public.

Naturally, people have lots of questions about the BOI report filing requirements—for example:

• Do you have to file a BOI report if you own a single rental property in an LLC? (Yes.)
• Do you have to file 10 BOI reports if you own 10 LLCs? (Yes.)
• Can certified public accountants, enrolled agents, and other non-lawyers file BOI reports for clients without running afoul of unauthorized practice of law rules? (Unclear.)
• Are registered agents responsible for filing the BOI report? (No.)
• Do the self-employed have to file? (No.)
• Do I need to list a street address in the BOI report? (Yes.)
• Do I need to list my Social Security number in the BOI report? (No.)
• Do I need to list my attorney in the BOI report? (Maybe.)
• Must I file an updated BOI report if a beneficial owner leaves the company? (Yes.)
• Do I have to list my minor child in a BOI report? (No.)
• Will criminals file BOI reports? (Who knows?)

I’ve provided some basic answers above. If you have further questions on the new BOI reporting, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• January 11, 2024

Are you interested in becoming a commercial or residential landlord?

If so, you’ll likely have to shell out plenty of money before ever collecting a dime in rent. The tax code treats some of those monies as start-up expenses.

Start-up expenses are some of the costs you incur before you offer a property for rent. There are two broad categories:

1. Investigatory
2. Pre-opening costs, such as advertising, office expenses, salaries, insurance, and maintenance costs

Your cost of purchasing a rental property is not a start-up expense. Rental property and other long-term assets, such as furniture, must be depreciated once the rental business begins.

On the day you start your rental business, you can elect to deduct your start-up expenses.

The deduction is equal to

• the lesser of your start-up expenditures or $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, plus
• amortization of the remaining start-up expenses over the 180-month period beginning with the month in which the rental property business begins.

When you file your tax return, you automatically elect to deduct your start-up expenses when you label and deduct them on your Schedule E (or other appropriate return).

Costs you pay to form a partnership, limited liability company, or corporation are not part of your start-up expenses. But under a different tax rule, you can deduct up to $5,000 of these costs the first year you’re in business and amortize any remaining costs over the first 180 months you are in business.

Note that the cost of expanding an existing business is a business operating expense, not a start-up expense. As long as business expansion costs are ordinary, necessary, and within the compass of your existing rental business, they are deductible.

The IRS and tax court take the position that your rental business exists only in your property’s geographic area. So, a landlord who buys (or seeks to buy) property in a different area is starting a new rental business, which means the expenses for expanding in the new location are start-up expenses.

You can’t deduct start-up expenses if you’re a mere investor in a rental business. You must be an active rental business owner to deduct them.

If you would like to discuss start-up expenses, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• January 2, 2024

Here’s a short overview to assist you, as a non-U.S. citizen, in understanding the essential tax and related issues you should consider while pursuing your business ventures in the United States.

U.S. citizenship. You can start a business in the U.S. without being a U.S. citizen. If you will be managing your business from within the U.S., you may need a valid work visa or green card.

Work visas. The E-2 visa is popular among entrepreneurs. It requires citizenship from a treaty country, significant capital investment, and a controlling interest in your business. Alternatives include F-1 OPT, H-1B, O-1, and L-1 visas, depending on your situation.

Green card option. The EB-5 visa provides a path to a green card for those ready to invest $800,000 to $1.05 million and create 10 full-time jobs in the U.S.

Business planning. Before starting, conduct thorough market research and choose the right business structure and location. Register your business at the federal and state levels, and obtain an Employer Identification Number (EIN).

U.S. taxation. Familiarize yourself with the U.S. tax system, including federal, state, and local taxes. Tax implications vary based on your entity type.

Sales taxes. Learn the rules for sales tax on goods and services, which vary by state and locality.

Employment taxes. Comply with federal and state employment tax requirements for employees and independent contractors.

International tax considerations. Be aware of international tax issues, including tax treaties and foreign tax credits.

Record keeping and compliance. To avoid penalties or business revocation, maintain accurate financial records and ensure compliance with U.S. tax laws.

Professional advice. We highly recommend seeking advice from a tax professional with expertise in international taxation and an attorney specializing in immigration and business visas.

We are here to assist you every step of the way. Please don’t hesitate to call me on my direct line at 408-778-9651.

• By Leon Clinton
• December 27, 2023