Self-employed creatives with LLCs (limited liability company) are struggling due to a new anti-money laundering law. Overall, the authorities first introduced the new law in 2021 to combat money laundering, tax fraud, and corruption. The law came into force on January 1, 2024. Experts are cautioning that artists who choose to disregard this, and don’t file the paperwork next year, could face legal repercussions.
Self-Employed Creatives are Subjects to the Corporate Transparency Act
Tax professional and artist Hannah Cole wrote an opinion piece for Hyperallergic on Tuesday. Overall, she demonstrated how independent artists are subject to the Corporate Transparency Act. She is the creator of Sunlight Tax, a company that teaches accounting and taxes to creative professionals.
“My biggest concern, as someone who helps creative people manage the taxes and business setup for being self-employed, is that a lot of artists may miss the memo on this law, or assume that it’s aimed at bigger corporations, and that it doesn’t apply to them”, Cole said. In order to combat financial offences that might be challenging for law enforcement to monitor, the law focuses mainly towards limited liability firms, founded by one or two people.
Some states don’t require identification of LLC benefit owners, which impedes law enforcement efforts. “This is a good law, and it will help law enforcement prosecute some of the most heinous crimes. But it’s important for everyone with an existing LLC or considering forming an LLC to know that they do have some paperwork to file. It takes about five minutes, and it’s free. But artists definitely need to know that the law does apply to them”, Cole added.
Get the latest articles delivered to your inboxSign up to our Free Weekly Newsletter
Newly Founded Companies Have 90 Days
All current businesses have to to submit the necessary documentation by January 1, 2025, according to a news release from the Financial Crimes Enforcement Network. Starting in 2024, newly founded corporations will have ninety days to file the necessary documentation. The FinCEN website states that the documentation needs to be submitted once. But according to a U.S. Chamber of Commerce article, business owners will need to submit the report to FinCEN at other times in addition to the first reporting period.
For the time being, artists and small company owners must supply details like as names, dates of birth, addresses, and a passport number or other officially designated identifier for an LLC’s beneficial proprietors. “This effort will equip law enforcement and other partners with the information they need to disrupt financial anonymity that enables crimes such as corruption, drug trafficking, and terrorism”, the Treasury Department said in a fact sheet.
Fines could go from $500 per day up to $10,000 or even face two years in prison. “One of the major benefits of LLC is that it provides a great deal of flexibility for its owners. Through an LLC, its owner, in this case the artist, has options in regard to structuring the management of their entity, and can assign management control to others”, Katarina Feder of the Artist Rights Society said.