New Anti-Money Laundering Law Can Send Self-Employed Artists to Jail 

If you’re a solo artist, performer, writer, or creative with an LLC, you might assume that a new law meant to curb financial crimes such as money laundering and human trafficking has nothing to do with you. But it absolutely does. 

As of January 1, 2024, if you have an LLC, are considering forming an LLC, or formed an entity for your business through your state’s Secretary of State (such as filing a “DBA” or “doing business as”), you will need to take action.

The Corporate Transparency Act, which is the result of a years-long effort to combat financial crimes like terrorism, securities fraud, and money laundering, requires that all businesses formed through their Secretary of State (mostly LLCs, with some additions) file a new report called a Beneficial Ownership Information Report (BOI), identifying their “beneficial owners.”

While this may seem like something unrelated to your creative practice, the primary target of the law is small LLCs, like yours. In recent years, the US has overtaken traditional tax havens like the Cayman and British Virgin Islands as the primary source of shell companies, mostly LLCs with only one or two members or owners. Many US states do not require identification at the formation of an LLC, and therefore, prosecuting financial crimes committed through such entities is time-consuming and resource-intensive for law enforcement. The purpose of this law is to identify the “beneficial owners” of at least a 25% stake in these entities in a non-public database, available to law enforcement. The reporting will be done through the Financial Crimes Enforcement Network (FinCEN), which is part of the US Treasury.

As someone who helps self-employed artists set up to do business with all their legal and tax boxes checked, I’m concerned that DIY creatives may miss the memo. 

While the filing itself is free and simple, the penalties for failing to file are stiff: $500 per day up to $10,000, and up to two years in prison.

Here’s what artists, writers, and others with an LLC need to do.

First, you’ll need to determine if the law applies to you. All LLCs, corporations, and entities formed through a filing with their state’s Secretary of State must file a BOI report, unless they qualify for an exemption. Foreign entities that register to do business in the US through a state Secretary of State must also file. Remember that the target of this law is smaller entities, like single-member LLCs. Most of the organizations that qualify for an exemption are those regulated closely by another governing body. If you do need to file a BOI report, see if you qualify for an exemption. The most likely exemption you may qualify for is being an “inactive” entity. You’ll need to check the specific exemption rules on this government FAQ page.

If you don’t qualify for an exemption and aren’t considered an “inactive entity,” your next step is to determine who your beneficial owners are. For single-member LLCs, this is simple: It’s you. For partnerships and larger entities, you’ll need to determine everyone with at least 25% ownership in the entity, or “substantial control.” Entities in existence before January 1 have one year to file their initial report. New entities, formed after January 1, have a much shorter window of 30 days. If you are considering forming an LLC for the first time, please take note.

Finally, you need to file the report. The reporting is free through the FinCEN website, or you can reach out to an accounting or legal professional for guidance. 

You’ll also need to set up a reminder to re-file if any of the beneficial owners change: if you close down, gain a partner, or sell your business. You will need to file an updated BOI report within 30 days of the change.

The BOI report is not an annual filing. You simply need to file the initial report, and then an updated report anytime there is a change in beneficial ownership. 

New Yorkers, please note that New York State has passed its own law called the LLC Transparency Act, which takes effect on January 1, 2025. Unlike the federal law, the New York law’s scope is limited to only LLCs, but creates a publicly available database. 

The Corporate Transparency Act is a good law. It will affect about 32 million entities, hinder the use of shell corporations, and enable law enforcement to prosecute some of the most heinous crimes, like terrorism and human trafficking. The BOI reporting is straightforward and free. But you need to be aware of the rules, file the report, and update it when needed.

Editor’s Note: True tax advice is a two-way conversation, and your accountant needs to hear your full situation to apply the rules correctly in your case. This post is meant for general information only. Please don’t act on this alone.