If You Have An LLC Or Corporation; Pay Attention To This New Law!

Many people think that the law is black and white; a rigid set of rules cast in stone. Being in the legal profession, I know the law is changing all the time. The changes in the law keeps me on my toes for sure as the law tries to respond to the ever-changing circumstances of our world. Sometimes those changes result in additional burdens; sometimes additional opportunities. Let’s look at two laws that have recently changed and how they may affect you.

If you have a beneficial interest in an LLC or a Corporation created before January 1, 2024, you are now required to file FinCEN’s Beneficial Ownership Information Form under the Corporate Transparency Act (CTA). Even if your LLC is dormant (you don’t use it); or even if the LLC only owns one piece of rental property, each beneficial owner must file the document or be subject to a fine of $500 per day up to $10,000. Ouch! Let’s not take a chance on paying fines. You are deemed a beneficial owner If you own or control 25% or more of a “reporting company.” This reporting requirement is separate and apart and in addition to any state or local filing done to form a new business entity.

If you create an LLC or a Corporation after January 1, 2024, within 90 days of forming that entity, you must file a report with the Department of the Treasury’s Financial Crimes Enforcement Network

Is There Any Good News for LLCs and Corporations?

I had to dig deep to find the good news. Good News: You don’t have to pay any filing fees. More Good News: One and Done. You only have to do this once per entity as long as the beneficiary ownership doesn’t change. Even More Good News: You can file online at the new federal database called BOSS (an acronym for Beneficial Ownership Secure System). Better Good News. The reporting is easy to complete. Given that the purpose of the reporting is to prevent the use of anonymous shell companies for money laundering, tax evasion, and other illegal purposes, you could think of yourself as a modern-day Robin Hood. I’m stretching high to pick that fruit.

You can satiate your curiosity here: Beneficial Ownership Information Reporting


Helping Your Grandchildren

We all know that there’s a special place in our hearts for grandchildren as they often bring joy and special moments to our lives. Well now it is easier for grandparents to help their grandchildren with educational expenses.

The FAFSA Simplification Act, which went into effect last month (Dec 2023), now makes it possible for grandparents to make contributions to a 529 college savings plan for your grandchildren without impacting the student beneficiary’s eligibility for federal financial aid. A 529 plan also applies to qualified vocational training and trade schools.

The 529 Account

A 529 college savings account is a special savings account designed to help individuals, including grandparents, set aside money for future college expenses. Although contributions aren’t federally tax-deductible, the earnings within the 529 account grow tax-free and remain untaxed when they are withdrawn for qualified education expenses.

What The New Rule Changes

When the account owner is a dependent student or custodial parent, the total value of the 529 plan is reported as an investment asset on the Free Application for Federal Student Aid (FAFSA). Previously, if a grandparent owned the 529 plan, any distributions were considered untaxed income for the student, potentially affecting financial aid eligibility. The upcoming change eliminates this concern.

In summary, a 529 plan owned by a grandparent will no longer require reporting on the FAFSA. Even more impactful, distributions from this grandparent-owned 529 plan will not be deemed untaxed income for the student. This allows grandparents to contribute to their grandchild’s education without jeopardizing financial aid eligibility.

Maximizing Grandparent Contributions

It’s important to keep the following in mind when you make contributions to a 529 account for a grandchild:

1 | Funds Must Be Used For Qualified Educational Expenses

Grandparents can use 529 plan funds for a range of qualified educational expenses, including tuition, room and board, books, supplies, laptops, and internet access. However, expenses such as insurance, student health fees, transportation, and extracurriculars are not covered and may incur a ten percent penalty if 529 plan funds are used toward these expenses.

2 | The Annual Gift Exclusion

While grandparents can contribute to their grandchild’s 529 plan, it’s essential to be mindful of the federal annual gift exclusion which currently stands at $18,000 for an individual ($36,000 if you file jointly with a spouse), which is the amount of money a person can gift to someone else without needing to file a gift tax return.

3 | Reconsider Payments Made Directly to The School

Distributions directly paid to the school from grandparent-owned 529 accounts will not affect aid eligibility. However, for now, it’s recommended to pay the grandchild directly.

4 | Timing Matters

The withdrawing of funds from the 529 plan must be done within the same tax year as the educational expenses in adherence to tax regulations.

5 | Watch Your Withdrawal Limits

The amount withdrawn from all 529 plans should be no more than the total cost of the qualified educational expenses billed by the school. Excess withdrawals may incur a 10 percent penalty, but there’s a 60-day window to rectify the situation without penalties.

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