Calvin Wilder: Welcome back, Greg, to the Empowering Healthy Business podcast. Glad to have you back.

Gregory Reed: Thanks for having me.

Calvin Wilder: Yes, we got some breaking news to share that I think all small business owners in the United States have been hoping for. what's going on?

Gregory Reed: This BOI stuff is it's killing me. so it's been a roller coaster ride of it's on again, and now we are quasi off again.

Gregory Reed: Sounds like based on the latest news, Fininsen they are not going to enforce the penalties associated with non-filers which if you recall the previous episodes are pretty steep and also included some jail time. So obviously you wanted to make sure that happened.

Gregory Reed: So that's not happening anymore. right now this is just the fins coming out. and yep. Yep.

Calvin Wilder: which is under the US Department of Treasury,…

Calvin Wilder: So, they would be the ones who were in charge of, administering and enforcing the law. And so, they've said they're not going to be administering enforcing this law, but it's still the law and they're requesting legislation to be passed in Congress to eliminate the law. All right.

Gregory Reed: So, you're probably not done with me just yet.

Gregory Reed: I think we'll probably be on with a few more updates once we get some official legislation, but for now there is penalty for not filing. So I guess it doesn't give much incentive to go ahead and file. Yeah.

Calvin Wilder: Yeah. I mean, if you're 100% risk averse, you might want to still file, but realistically, it doesn't seem like you really need to. Yeah. Right.

Gregory Reed: Yeah. we have the March 21st deadline is still in and so we can expect some new legislation or announcements before then for sure. Yeah.

Calvin Wilder: But there were a couple exceptions though that I read in the press release. One of them was related to foreignowned businesses that were still going to need to comply with this BOI filing.  talking about that, right?

Gregory Reed: So I think if you are a foreignowned business, you probably will still have this filing requirement. I would strongly advise that if you have foreign owners that you are still filing. again, it's not a hard filing. It's just more of an annoyance than anything else. but I do think that's going to stick around for foreignowned businesses. So, …

Gregory Reed: as a word of caution, I would say if you have foreign members in your LLC or a foreign partner, absolutely continue to file.

Calvin Wilder: And that's in addition to some other special filing that you need to do…

Calvin Wilder: if you have any, significant foreign honors or if you happen to have signatory authority over an international bank account or something like that,  What's the kind of common list of filings you need to be aware of.

Gregory Reed: So, in general, if you have foreign bank accounts that aggregate over, $10,000, then you're going to be subject to the foreign bank account reporting. that's also under Fininsson, the Financial Crimes Enforcement Network. you may also have a FATKA filing requirement which is very similar to the FBAR but is administered by the Internal Revenue Service. And so similar information reporting but two different branches of government.

Gregory Reed: And also if you have foreign owners for a US entity or you have a US entity that owns foreign entities, then you might have a 5471 or 5472 filing requirement.

Gregory Reed: I think the short story here is that you gota if you have international anything in your entity structure, you should probably have a professional helping you. Yeah.

Calvin Wilder: right? And a CPA and/or an attorney who have done this many times before and know what needs to be filed, as you can get hit with many tens of thousands of dollars of fines and maybe even jail time. I mean, it seems harsh but then that could lead to risk and selective enforcement and just a lot of uncertainty. So, it's kind of scary when you get into these international filing requirements because of how high the penalties can be.

Gregory Reed: Yep. Yeah. And I mean the world's getting smaller now and so it's easier to have foreign investors or to own a foreign entity. And so, these are things that most business owners maybe aren't thinking about. but you certainly need to be. So, always good to get some professional help with international transactions..

Calvin Wilder: This is a topic that I really don't like talking about because it adds zero value to our clients aside from keeping them out of trouble, it doesn't produce more any tax savings, anything of tangible value to the business. So hopefully we're done talking about the BOI filing topic here. 

Calvin Wilder: You have another positive win to share, right, Greg? You were telling me about a tax planning exercise with a client that had a pretty nice outcome. What was that?

Gregory Reed: Yeah. So, we were going through a return. We saw an opportunity. We elected to pay individual state tax at the entity level. It's called a pass through entity tax. Most states have this now. And I think we were able to save them $29,000 in taxes this year just by where we paid the tax, at which level we paid the tax. The taxpayer really didn't have to do anything.

Calvin Wilder: So this applies to what, LLCs taxed as a partnership or scorp and scorps?

Gregory Reed: This is going to apply to pass through entities.

Gregory Reed: And like I said, most states have passed some form of this law. it's typically called a pass through entity tax. and every state's a little different on when you have to make your election and how you have to make the payments, so definitely something to be but for Massachusetts, as long as you make the election with the filed return and you make that payment, then you can get that deduction.

Calvin Wilder: And the reason this matters is, let's just be a little clearer about why this matters. So you've got limitations in what you can deduct personally what's the deal there?

Gregory Reed: Yep. Correct.

Calvin Wilder: So there are some of the personal limitations that would cause you to have to pay a lot more tax, but states have introduced these laws that allow your small business to pay the tax that you would otherwise owe and then it becomes fully deductible?

Gregory Reed: So, your itemized deductions, a piece of that is the taxes that you pay. and it used to be that you could deduct all your state taxes that you paid on as an itemized deduction. And so, you'd kind of get that benefit on your federal tax return.

Calvin Wilder: This would be like your real estate tax…

Gregory Reed: Real estate, income tax, excise tax on vehicles, all that would get added up and that was your deduction. With the Trump tax cuts in 2017, those got limited to $10,000.  So, especially if you're in a high tax state like California, New York, people are hitting that $10,000 real quick with property tax and income tax.

Gregory Reed: And so what the states tried to do is move at least a portion of that tax, your tax associated with your business income, to the entity level and take it as a federal tax deduction that passes through on the K1 and then you get the deduction at the personal level.

Calvin Wilder: All right. That's Good tax saving. I know you're a certified tax coach, recently minted with an official certification…

Gregory Reed: Yep. Lot more coming down the pipeline.

Calvin Wilder: So I know we'll be talking a lot more about other tax planning opportunities later in the year.

Gregory Reed: Yep, for sure.

Calvin Wilder: All right. Anything else to add today before we adjourn?

Gregory Reed: No, that's it.

Calvin Wilder: All I'll talk to you later, Greg.