First tax year with Stripe Atlas(tryhexadecimal.com)
tryhexadecimal.com
First tax year with Stripe Atlas
https://tryhexadecimal.com/journal/business-taxes
171 comments
Wait until you hear that the marginal income tax rate is about the same BC Canada as it is in California and you don't have a +$500/month health insurance payment to make yourself or through your employer.
The bad deal that american's get for their taxes is really sad.
The bad deal that american's get for their taxes is really sad.
+500/month health insurance payment? I heard it was more like $1400-2000 for CA startup founders and their families
Can confirm. I'm a healthy 30-something that's married with two kids in Nevada. No state income tax here, but we pay ~$1.6k/mo for what is considered mediocre-to-poor health insurance coverage.
My youngest (2.5 year old) is at the ER with my wife right now getting an x-ray (insurance & the pediatric urgent-cares all referred us to ER, no one else would x-ray <3yr olds) -- I'd guess it'll cost us at least $2-3k, assuming they say it's "not broken". Substantially more if it "is broken". Yay USA.
My youngest (2.5 year old) is at the ER with my wife right now getting an x-ray (insurance & the pediatric urgent-cares all referred us to ER, no one else would x-ray <3yr olds) -- I'd guess it'll cost us at least $2-3k, assuming they say it's "not broken". Substantially more if it "is broken". Yay USA.
From what I can find online[1,2], for a dual-income family earning 250k CAD/ 250k USD, tax in BC Canada[1,2] is 33% Federal + 16.80 % State = 49.8%. For California it is 24% Federal + 9.3% State = 33.3%. Is there a big difference in other taxes (like Payroll/Social Security) between California and BC that makes the overall marginal tax same?
[1] https://www.canada.ca/en/revenue-agency/services/tax/individ...
[2] https://www2.gov.bc.ca/gov/content/taxes/income-taxes/person...
[1] https://www.canada.ca/en/revenue-agency/services/tax/individ...
[2] https://www2.gov.bc.ca/gov/content/taxes/income-taxes/person...
Sales tax is worth considering but doesn’t contribute much to the delta: 12% HST in British Columbia [3] vs. ~8% sales tax in California [4].
[3]: https://en.wikipedia.org/wiki/Sales_taxes_in_British_Columbi...
[4]: https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_Stat...
[3]: https://en.wikipedia.org/wiki/Sales_taxes_in_British_Columbi...
[4]: https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_Stat...
Health insurance (USA; upstate New York) costs me $2,300/month in premiums plus $4,000 annually in copays for a family of four. I'd happily take the higher Canadian taxes.
That’s just because you’re in a higher income bracket. If your family of four earned less than ~$50k/year you would pay about 10% that amount for healthcare premiums and have lower deductibles.
The ACA is effectively an extremely large tax on the middle class.
The ACA is effectively an extremely large tax on the middle class.
Sure, but most people get it through their employer and have a premium of a few hundred a month (yes, some jobs it's much higher).
And yes, if you get a significant amount of care, the out of pocket can be several thousand.
And yes, if you get a significant amount of care, the out of pocket can be several thousand.
The health insurance offered by American tech companies tend to be very generous. To the point where health care costs are essentially trivial for most employees/families.
Are you sure? I work for a tech company but not a FAANGM and $2,300 plus a $4,000 out of pocket max is about spot on, maybe even slightly less. I’m often told my providers that I have “great” insurance.
Admittedly, I don't have a large sample size of health plans for tech companies.
Anecdotally, my tech-industry employer (disclosed in my profile) offers only one health plan. Always $0 employee contributions for the employee and dependents and no more than $200/month for the employee's partner.
For in-network: $0 deductible, 0% coinsurance, copays are either $30 or $50 for office visits, $250 copay for ER, and standard $15/$40/$75 tiers for drugs. Out of pocket max is $3k for individual / $7.5k for family.
Given the $0 deductible and 0% coinsurance, it would take a very high number of office visits (at least 60 for individuals or 150 for families) to hit the out of pocket cap. For healthy families, it's fairly difficult to spend more than a few hundred dollars on health care (dental/vision plans are similarly generous).
An interesting example the legal documents provide is pregnancy. The stated cost is $12,800 but the expected out of pocket cost is $60.
Anecdotally, my tech-industry employer (disclosed in my profile) offers only one health plan. Always $0 employee contributions for the employee and dependents and no more than $200/month for the employee's partner.
For in-network: $0 deductible, 0% coinsurance, copays are either $30 or $50 for office visits, $250 copay for ER, and standard $15/$40/$75 tiers for drugs. Out of pocket max is $3k for individual / $7.5k for family.
Given the $0 deductible and 0% coinsurance, it would take a very high number of office visits (at least 60 for individuals or 150 for families) to hit the out of pocket cap. For healthy families, it's fairly difficult to spend more than a few hundred dollars on health care (dental/vision plans are similarly generous).
An interesting example the legal documents provide is pregnancy. The stated cost is $12,800 but the expected out of pocket cost is $60.
depends on the company I guess. at $CURRENT_STARTUP we pay pennies per pay period (literally - I'm not really sure why, but roughly 60 cents) for top tier platinum HMO, zero deductible, $4k max out of pocket for copay. $PREVIOUS_STARTUP was the opposite, bottom tier HDHP and they only paid half the premium, $9k deductible.
Top tax bracket in BC is 53.5%. (The "proposed new tax bracket" is happening.)
Sales tax is 12% (5% federal, 7% provincial) on most products; basic groceries and rent are the most significant exemptions. Federal payroll taxes are 10.2% (pension) + 3.8% (unemployment) on the first ~$55k. BC has a 1.95% payroll tax (nominally earmarked for health care) with a small-business exemption.
Sales tax is 12% (5% federal, 7% provincial) on most products; basic groceries and rent are the most significant exemptions. Federal payroll taxes are 10.2% (pension) + 3.8% (unemployment) on the first ~$55k. BC has a 1.95% payroll tax (nominally earmarked for health care) with a small-business exemption.
Does that include the payroll taxes for the U.S. which are ~15%?
15% is employee plus employer. Employee alone is 8-9% and phases out at $137,000.
Canada has payroll taxes too, so you'd need to add those in as well.
Canada has payroll taxes too, so you'd need to add those in as well.
I feel like you should include the employer portion if you're talking about tax %. If we made you're employer pay all of your tax and quote you the post tax amount as your salary our tax rate wouldn't go to 0.
As a Canadian living and working in the US, I encourage all those that think Canada is somehow better than US, to go give living in Canada (and paying their taxes) a try.
US is a much more competitive and diverse market in every respect (even with it's shortcomings).
My parents (and other immediate family), would move to the US if they could.
US is a much more competitive and diverse market in every respect (even with it's shortcomings).
My parents (and other immediate family), would move to the US if they could.
Okay, I'll bite.
My partner and I lived in the US for 10 years, and decided to move back. We're very glad we did.
The US is much more competitive, I'll give you that, but it's not necessarily a good thing. I don't miss it. It's dog-eat-dog, every person for themselves.
I'm not sure how long you've lived in the US, but the first few years we were there were pretty peachy. But the problems just keep piling up.
I don't really have the patience to list everything, but the health care system _alone_ is reason enough to stick around in Canada. It's awesome. The US is a complete disaster. And I say this as someone who benefited from probably the best quality healthcare in the world during my time there.
My partner and I lived in the US for 10 years, and decided to move back. We're very glad we did.
The US is much more competitive, I'll give you that, but it's not necessarily a good thing. I don't miss it. It's dog-eat-dog, every person for themselves.
I'm not sure how long you've lived in the US, but the first few years we were there were pretty peachy. But the problems just keep piling up.
I don't really have the patience to list everything, but the health care system _alone_ is reason enough to stick around in Canada. It's awesome. The US is a complete disaster. And I say this as someone who benefited from probably the best quality healthcare in the world during my time there.
I get a bit annoyed at which is "best". It really depends on what you're looking for.
The US is great if you want a high-paying career working for world-leading company. Typically you'd make enough so that things like healthcare are an annoyance, not a financial nightmare.
Canada is great if your career is not #1 and you want a government that will provide a comprehensive social safety net.
Different stroke for different folks I guess.
The US is great if you want a high-paying career working for world-leading company. Typically you'd make enough so that things like healthcare are an annoyance, not a financial nightmare.
Canada is great if your career is not #1 and you want a government that will provide a comprehensive social safety net.
Different stroke for different folks I guess.
The trick is not to live or work in California.
Just for clarity on marginal rates ($250k income, single filer, no deductions).
Yes, I just arbitrarily picked $250k. No I ignored SSI+OAIS (US) because it phases out at $137,000.
CA: 35% (fed) + 9.3% (state) + 1.45% (Medicare) = 45.75%
BC: 33% (fed) + 20.5% (province) = 53.5%
Yes, I just arbitrarily picked $250k. No I ignored SSI+OAIS (US) because it phases out at $137,000.
CA: 35% (fed) + 9.3% (state) + 1.45% (Medicare) = 45.75%
BC: 33% (fed) + 20.5% (province) = 53.5%
C Corps definitely have a lot of fees, and if you have a lawyer or anyone involved, it's expensive, too. The thing is that it's kind of hard to generalize about this in the US, because business formation laws vary so widely by state.
I have an Ohio LLC from when I lived in Ohio, because I incorporated it and the requirements to keep it are basically nil, especially if you don't have revenue through it. Other states have different requirements, and C corps have pretty stringent requirements compared to LLCs anywhere.
So you can get a similar experience in the USA where you have a simple, low-cost business that's easy to form and easy to operate. But as far as I can see that's not the target for Stripe Atlas: it seems geared toward forming C corps, not toward LLCs, which means you start with a higher level of cost.
I have an Ohio LLC from when I lived in Ohio, because I incorporated it and the requirements to keep it are basically nil, especially if you don't have revenue through it. Other states have different requirements, and C corps have pretty stringent requirements compared to LLCs anywhere.
So you can get a similar experience in the USA where you have a simple, low-cost business that's easy to form and easy to operate. But as far as I can see that's not the target for Stripe Atlas: it seems geared toward forming C corps, not toward LLCs, which means you start with a higher level of cost.
Ohio LLC’s are a powerful vehicle. Pay $99 once and never pay again.
Plus Ohio is super business friendly (red state).
I use a registered agent that files on my behalf so it’s $250 all in to get it done.
If you know your idea will take a few years to manifest into revenue and you want to shelter the IP somewhere an Ohio LLC is the place to do it IMHO (not legal advice).
Plus Ohio is super business friendly (red state).
I use a registered agent that files on my behalf so it’s $250 all in to get it done.
If you know your idea will take a few years to manifest into revenue and you want to shelter the IP somewhere an Ohio LLC is the place to do it IMHO (not legal advice).
That's way better than most states. New Mexico is probably the best though - anonymous LLCs. $50
You don't need to file yearly taxes? I thought this is linked to the IRS rather than Ohio.
Also, apart from the franchise fee, there doesn't seem to be anything else for the Delaware C-Corp.
Also, apart from the franchise fee, there doesn't seem to be anything else for the Delaware C-Corp.
An LLC is a pass-through tax entity. All the gains and losses are reported by the owners in their personal returns.
https://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-2...
https://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-2...
Your state may still require you to file a 'corporate' return for your LLC. In my state you wouldn't pay anything if your receipts were under some level, maybe $100K. But if you didn't know you were supposed to file, they'll come looking for you after a few years.
How your membership is organized in an LLC matters too. I assumed pass through, no revenue no taxes no filing, but apparently in my state a two member LLC is a partnership for tax purposes and requires filing.
Okay, I think I have been understanding LLC wrong this whole time. I thought they are the equivalent of SARL in France.
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In the UK the company registration fee is 12£ and then you pay another ~12£ yearly for the "confirmation statement" to keep the company on the register.
Beyond that, the taxes depend on your profits and the documentation is fairly straightforward (I can bitch all day about the amount of tax I'm paying, but at least they are very good at helping you figure out what you have to pay and why) and is very impressive for a government website.
I do have an accountant, but after a year of talking to them and using the provided accounting software (FreeAgent) I would be comfortable in doing all of it myself. The only reason I keep them is because the license for the software is included in their fees and because I'd feel bad dropping them as they are amazing, but if you are a smaller operation and have more time on your hands it's definitely possible to do everything yourself from the start and just pay for the software (or even use something free like GNUCash).
Beyond that, the taxes depend on your profits and the documentation is fairly straightforward (I can bitch all day about the amount of tax I'm paying, but at least they are very good at helping you figure out what you have to pay and why) and is very impressive for a government website.
I do have an accountant, but after a year of talking to them and using the provided accounting software (FreeAgent) I would be comfortable in doing all of it myself. The only reason I keep them is because the license for the software is included in their fees and because I'd feel bad dropping them as they are amazing, but if you are a smaller operation and have more time on your hands it's definitely possible to do everything yourself from the start and just pay for the software (or even use something free like GNUCash).
In Poland you pay 4349 USD/year (72% of net minimum wage).
It's required for literally any recurrent economic activity, even selling old things on classifieds sites.
That's just for basic sole-proprietor. Private limited company is much more complicated. I wouldn't dare to register it. So it doesn't exist.
It's required for literally any recurrent economic activity, even selling old things on classifieds sites.
That's just for basic sole-proprietor. Private limited company is much more complicated. I wouldn't dare to register it. So it doesn't exist.
This is such FUD.
I run a company in Poland and pay flat 19% on profits.
You can also choose to pay 32% but you can then include a lot more expenses.
If somehow you feel neither option is good enough for you, you can run your business from Estonia or Czech Republic or any other EU country.
Businesses developing and selling their own software products can easily reduce the effective income tax rate even further to 5% with the new IP Box regulations.
This is an extremely low rate for a developed country and there are plans to make tax avoidance by limited companies even easier in 2021 by incorporating solutions from the Estonian tax system.
This is an extremely low rate for a developed country and there are plans to make tax avoidance by limited companies even easier in 2021 by incorporating solutions from the Estonian tax system.
[deleted]
Can you share any source on this, I am very curious, is it tax?
He's talking about a social insurance required to be self-employed. Apples to oranges.
Yeah, he is also presenting it from a perspective of someone running a side businesses with low revenue.
As a sole proprietor you pay only 16255 PLN/year for your health and social insurance. This is no matter how big your income is and what your health condition is. You could be making millions while suffering from a chronic disease and you would be still paying the same minimal amount for your insurance. There are also some ways to reduce it even further, e.g. if you are starting your first business.
As a sole proprietor you pay only 16255 PLN/year for your health and social insurance. This is no matter how big your income is and what your health condition is. You could be making millions while suffering from a chronic disease and you would be still paying the same minimal amount for your insurance. There are also some ways to reduce it even further, e.g. if you are starting your first business.
The federal government charges nothing for an EIN to establish your corporate entity. It's the individual states which have turned corporate filings into an archaic profit center.
The most frustrating part is that in theory every state expects a business to file as a foreign company if you are "doing business" in that state, which by their definition usually includes selling your product to anyone living in the state, even if the sale is done online. However, I personally don't know of any small startups that actually do this, and accounting costs of filing that many state tax returns would be absurd.
The most frustrating part is that in theory every state expects a business to file as a foreign company if you are "doing business" in that state, which by their definition usually includes selling your product to anyone living in the state, even if the sale is done online. However, I personally don't know of any small startups that actually do this, and accounting costs of filing that many state tax returns would be absurd.
When I did startup M&A (for a larger corp) we found out the hard way that many profitable startups would not be if they actually paid the right taxes. They didn’t know and were too small (sub $10m in revenue) for the tax authorities to care but we walked away from deals because the cost of bringing them to compliance would kill the deal returns and we were too big to get away with it
> The most frustrating part is that in theory every state expects a business to file as a foreign company if you are "doing business" in that state, which by their definition usually includes selling your product to anyone living in the state, even if the sale is done online. However, I personally don't know of any small startups that actually do this, and accounting costs of filing that many state tax returns would be absurd.
That’s not how it works at all.
You pay taxes based on where you have a nexus, such as an office. Having customers in other States does not mandate you pay corporate tax for their States. That would violate the interstate commerce clause.
It’s even more of a stretch than trying to claim sales tax from out of State merchants.
That’s not how it works at all.
You pay taxes based on where you have a nexus, such as an office. Having customers in other States does not mandate you pay corporate tax for their States. That would violate the interstate commerce clause.
It’s even more of a stretch than trying to claim sales tax from out of State merchants.
I’d be very interested in reading a legal opinion on this specific topic.
For example here’s one article discussing just CA for several pages [1] which includes a provision where you have to file if you have sales in-state in excess of $500,000 or 25% of your total sales, or paid compensation in excess of $50,000.
It’s frankly an absurd situation even if you just wanted to figure out for yourself where you should file and how much you would have to pay. Paying someone to “do it right” nationwide would probably be a six-figure proposition. This is why, mostly, it isn’t actually ever done until you get past a certain size — maybe by 8 figures of revenue you consider possibly maybe dealing with it.
Presumably the same laws apply even to international corporations “doing business in CA”, not just domestic US companies.
[1] - https://sdcorporatelaw.com/business-newsletter/when-to-regis...
For example here’s one article discussing just CA for several pages [1] which includes a provision where you have to file if you have sales in-state in excess of $500,000 or 25% of your total sales, or paid compensation in excess of $50,000.
It’s frankly an absurd situation even if you just wanted to figure out for yourself where you should file and how much you would have to pay. Paying someone to “do it right” nationwide would probably be a six-figure proposition. This is why, mostly, it isn’t actually ever done until you get past a certain size — maybe by 8 figures of revenue you consider possibly maybe dealing with it.
Presumably the same laws apply even to international corporations “doing business in CA”, not just domestic US companies.
[1] - https://sdcorporatelaw.com/business-newsletter/when-to-regis...
> You pay taxes based on where you have a nexus, such as an office.
That's true as far as it goes, but the requirements for "nexus" were significantly weakened a few years back by South Dakota v. Wayfair. It is no longer a constitutional requirement that a company have a physical presence in a state in order for there to be nexus. Having a sufficient number of customers in a state can definitely subject you to taxation by the state.
That's true as far as it goes, but the requirements for "nexus" were significantly weakened a few years back by South Dakota v. Wayfair. It is no longer a constitutional requirement that a company have a physical presence in a state in order for there to be nexus. Having a sufficient number of customers in a state can definitely subject you to taxation by the state.
IMO one of the biggest impediments to remote work is this -- as soon as you have a remote employee, there is a good chance you need to register locally. That means time, money, and potentially fines for weird steps (tech platforms like gusto are insufficient in practice here.) 10-20 remote employees at 10-20 diff states, and more if they ever move, is such a PITA relative to small team size.
I wish there was a service like Atlas, but for Canada.
I wasn't gung ho about incorporating a business abroad, as it introduces unnecessary complexity and costs money in the early stages. But as someone who didn't have access to the modern financial infrastructure (to accept cards on the Internets), there weren't that many options available (and most of them involved traveling to foreign countries).
I use Tarsnap daily!
I wasn't gung ho about incorporating a business abroad, as it introduces unnecessary complexity and costs money in the early stages. But as someone who didn't have access to the modern financial infrastructure (to accept cards on the Internets), there weren't that many options available (and most of them involved traveling to foreign countries).
I use Tarsnap daily!
Try founded.co!
(I've seen good things about them; no affiliation otherwise)
(I've seen good things about them; no affiliation otherwise)
Most Provinces require at least 1 Canadian (PR or Citizen) director.
[deleted]
https://www.ownr.co/ (RBC) + Stripe might be close
Yeah, the same. We have a SAAS product in Colombia and considering if is better to incorporate abroad, but wish to be in better than USA (mostly because the litigious nature of USA system).
There are other options like Singapore and Estonia, but the last time I checked, you had to travel there to open a bank account.
IIRC Revolut Business is available in Estonia, so probably no need to travel.
Please do not rely exclusively on one of the new fintech "banks" as your only bank. It is a recipe for disaster.
Revolut for business closed my account with very short warning and fucked up sending me my remaining balance.
Lukcy for me, previous issues had meant I was loyal to the concept of having at least two banks at any given time, because one might crash/throw you out etc, so it didn't cause me too many problems.
Now I have a boring, expensive local bank which is stuck in the 80s (but presumably safe) and Transferwise for all the online stuff.
Revolut for business closed my account with very short warning and fucked up sending me my remaining balance.
Lukcy for me, previous issues had meant I was loyal to the concept of having at least two banks at any given time, because one might crash/throw you out etc, so it didn't cause me too many problems.
Now I have a boring, expensive local bank which is stuck in the 80s (but presumably safe) and Transferwise for all the online stuff.
It's not that I have a lot of trust in the challenger banks, more of the opposite -- I don't trust the old banks much more than I would trust Revolut. It's very easy to exit their (broken) state machine, e.g. if you use the eID card for 2FA login and it expires.
The thing with Revolut, Transferwise, etc is they don't rely on having physical offices.
I agree that it's always a good idea to have multiple accounts.
I agree that it's always a good idea to have multiple accounts.
> Revolut for business closed my account with very short warning
Could you share what was their reason for doing this? Any non-standard type of business or account activity?
Could you share what was their reason for doing this? Any non-standard type of business or account activity?
There is very little to tell...
Pure software development/consulting business for other business clients in EU countries. As clean as it comes, I think.
I was never told what the problem was. This is standard operating procedure for banks, I am told. So I still have absolutely no clue what the problem was.
Pure software development/consulting business for other business clients in EU countries. As clean as it comes, I think.
I was never told what the problem was. This is standard operating procedure for banks, I am told. So I still have absolutely no clue what the problem was.
Yeah. Incorporating abroad is easy, but remotely opening a bank account for the business is something that seems possible in the US only, AFAIK.
> The notion of spending $1000/year just to keep a company in existence seems crazy to me.
That's good, because in the vast majority of US states it doesn't cost anywhere near $1,000 per year to keep a company in existence.
That's good, because in the vast majority of US states it doesn't cost anywhere near $1,000 per year to keep a company in existence.
Way late to the party.
US is a business-friendly country because it a large population, which for many products operate as one demographic, with comparably high spending power.
It is NOT tax/fee friendly by any means especially for non-US based owners as the author notes. If you go the LLC route is quite cheap to own/operate an empty business for citizens.
The tax code alone is beyond any one person's understanding. Even for the individual, it is far from straight forward.
US is a business-friendly country because it a large population, which for many products operate as one demographic, with comparably high spending power.
It is NOT tax/fee friendly by any means especially for non-US based owners as the author notes. If you go the LLC route is quite cheap to own/operate an empty business for citizens.
The tax code alone is beyond any one person's understanding. Even for the individual, it is far from straight forward.
It's per state. For example, Texas has zero taxes due until you exceed approximately $1.1M in gross receipts, and then it maxes out at 1%, and no annual fees of any kind (unless you forget to file your usually one-page tax return and information reports, in which case it's $50 each.) Combined with an S-Corp and relatively low U.S. federal taxes, your combined tax bite can be very low indeed.
I think we need more details, because the same can be applied to the Delaware C-Corp.
1- Registered agent: I'm assuming you live in BC, Canada. If that was the case in Delaware, you shouldn't need a registered agent.
2- Franchise Tax: Can be minimized to $225 according to OP blog post. But you are not specifying whether you incorporated an LLC-equivalent or a C-Corp-equivalent.
3- Filing Taxes: This is a tricky one. You are comfortable with taxes in Canada, and probably also making a balance sheet. US taxes might seem complicated (and scary!) but you probably can get comfortable with them. The additional form that the OP is submitting is related to him being non-resident. I assume Canada has also its rules about non-residents.
So in total: $50 vs. $225. Seems negligible to me to care about.
1- Registered agent: I'm assuming you live in BC, Canada. If that was the case in Delaware, you shouldn't need a registered agent.
2- Franchise Tax: Can be minimized to $225 according to OP blog post. But you are not specifying whether you incorporated an LLC-equivalent or a C-Corp-equivalent.
3- Filing Taxes: This is a tricky one. You are comfortable with taxes in Canada, and probably also making a balance sheet. US taxes might seem complicated (and scary!) but you probably can get comfortable with them. The additional form that the OP is submitting is related to him being non-resident. I assume Canada has also its rules about non-residents.
So in total: $50 vs. $225. Seems negligible to me to care about.
By the language they are using, it's roughly equivalent to a C corp, the thing closest to an LLC is what they call a "sole proprietorship" in BC, unless I've missed something. Typically there you would register in the province you are doing business in, or multiply in the case you are doing business across the country.
FWIW Canadian and US taxes are roughly equivalently complicated in my experience.
FWIW Canadian and US taxes are roughly equivalently complicated in my experience.
Ahh, TOO Many fees :(
I incorporated through Stripe Atlas for 2019 hoping to start and begin to develop the business, but dissolved the company after the first year because of these fees. Will try again when idea/product is more mature.
I incorporated through Stripe Atlas for 2019 hoping to start and begin to develop the business, but dissolved the company after the first year because of these fees. Will try again when idea/product is more mature.
Hey Colin! Did you write anything about your business recently? I've been following you for a while and would love to read more about Tarsnap.
Edit: by the way, I knew your background was good, but didn't realize it was THIS good: [0]
> Dr. Colin Percival studied mathematics at Simon Fraser University, entering at age 13
[0]: https://www.tarsnap.com/about.html
Edit: by the way, I knew your background was good, but didn't realize it was THIS good: [0]
> Dr. Colin Percival studied mathematics at Simon Fraser University, entering at age 13
[0]: https://www.tarsnap.com/about.html
I don't think I've written much about Tarsnap recently. What would you like to know?
Sometimes I read posts like the ones from Backblaze, where they share a lot about the technical stuff they discover, etc, from their unique vintage point. It would be interesting if you could share more of your business, etc, without revealing things that you don't want to share too openly.
For example: how many users use your service? How many PB of backups are you currently serving? Stuff like that.
For example: how many users use your service? How many PB of backups are you currently serving? Stuff like that.
You're taking one state and applying it to all. Most states don't cost $1000/year, or anywhere close to it.
Exactly, and American single-owner LLCs can pay taxes very simply on their personal 1040 tax form.
It's only if you elect your LLC be taxed as an S-corp or C-corp, or incorporate as a real corporation that taxes need to get complicated.
It's only if you elect your LLC be taxed as an S-corp or C-corp, or incorporate as a real corporation that taxes need to get complicated.
But if you are an online company with even just customers in California or a single employee, the CA tax board will chase you to the ends of the earth to get their $800 minimum franchise tax. That is whether you make a single dollar or not. Doesn't matter if you live there, are registered there, or have offices there. If you have an employee or a minimum level of sales or even contractors in CA, they want the greater of $800 annually or a tax on the proportion of profit made from California customers.
In India, it's around $150 + some other charges and requirements annually for popular options afaik.
Although, there are cheaper and more friendly option to individuals such as OPC (one person company) limited to single ownership. The turnover limit is decent and much less paper work. It costs around $99 + some other charges annually.
Although, there are cheaper and more friendly option to individuals such as OPC (one person company) limited to single ownership. The turnover limit is decent and much less paper work. It costs around $99 + some other charges annually.
My LLC in Oregon is only 100/yr. It's kind of ridiculous how much some other states charge.
Depends on the state. Some are more business friendly than others. Michigan's LLC annual fee is $25. Arizona has a one-time LLC formation fee of $50 and no annual fees or filings. Each state is different.
How do you file the income tax, do you use a program for that? I have a BC company and it cost me $450 last year to file a non operating tax of $0. I'd love to know how to do it myself.
I download fillable PDFs. As long as your income (or was it revenues?) is under $1M/year you're allowed to file on paper.
Corporate tax forms change very little from one year to the next, so you can complete 99% of next year's tax return by "look at last year's return and put numbers in the same places". When all the numbers are zeroes, it's even easier.
Corporate tax forms change very little from one year to the next, so you can complete 99% of next year's tax return by "look at last year's return and put numbers in the same places". When all the numbers are zeroes, it's even easier.
You can do corporate taxes with the usual programs like ufile or turbotax, there may be other options.
These are different versions than the personal one, so you have to pick the right option based on your business type. If you are incorporated it might force you into the more expensive option, but last time I did that I think it was about $99.
On the other hand you can always do it by hand for free. If you are just keeping an entity alive, it's probably pretty simple; more complicated if you are using it for deductions etc. I imagine once you have done 1 year, the next are almost cut and paste.
These are different versions than the personal one, so you have to pick the right option based on your business type. If you are incorporated it might force you into the more expensive option, but last time I did that I think it was about $99.
On the other hand you can always do it by hand for free. If you are just keeping an entity alive, it's probably pretty simple; more complicated if you are using it for deductions etc. I imagine once you have done 1 year, the next are almost cut and paste.
I pay $10/year to file annually in Colorado. Granted, it's not as nice for business as Delaware is, but it does the job just fine.
If you’re doing corporate taxes by hand you’re probably paying more than an accountant could have you get away with.
The notion of spending $1000/year just to keep a company in existence seems crazy to me.
According to my accountant, if you can't spend $1,000 a year to keep a company in existence, then it's not a business. It's a hobby.
She says there's some minimum level of commercial engagement required in my jurisdiction before the tax authorities get antsy and start wondering if your company is just a way to dodge personal taxes by shifting money around. I never looked into it, so I'm not entirely sure what she's talking about. That's what I have her for.
That said, the total of the yearly government burden on my small company is less than the $1,000 you quote. "The USA" is a big place with lots of different taxes. It's part of the philosophy of competition that keeps the place moving.
According to my accountant, if you can't spend $1,000 a year to keep a company in existence, then it's not a business. It's a hobby.
She says there's some minimum level of commercial engagement required in my jurisdiction before the tax authorities get antsy and start wondering if your company is just a way to dodge personal taxes by shifting money around. I never looked into it, so I'm not entirely sure what she's talking about. That's what I have her for.
That said, the total of the yearly government burden on my small company is less than the $1,000 you quote. "The USA" is a big place with lots of different taxes. It's part of the philosophy of competition that keeps the place moving.
Of course an accountant would give a condescending non-answer like that. The clients who give her the most money for the least trouble are the ones for whom that's true. We shouldn't let them or her speak for new businesses, though. People trying to get into business have the clearest view of the problems they face.
For an organically grown start-at-the-bottom business, $1000/year to declare a company is bad (it's much less outside of California, but still). The constant threat of the IRS deciding you aren't serious-business enough and sending you a bill for 30% of your revenue in the last 5 years is bad. Not profit, revenue. The fact that "serious business" is defined about as well as my memetic language would imply is doubly bad. We should fix this.
For an organically grown start-at-the-bottom business, $1000/year to declare a company is bad (it's much less outside of California, but still). The constant threat of the IRS deciding you aren't serious-business enough and sending you a bill for 30% of your revenue in the last 5 years is bad. Not profit, revenue. The fact that "serious business" is defined about as well as my memetic language would imply is doubly bad. We should fix this.
If you want to run your business as as start-at-the-bottom business, then run it as a sole proprietorship. Then the incremental annual costs outside of some initial start-up costs are near zero. You'll probably still have to apply for a business license in the place where your office resides, which might very well be your house.
That's probably fine for a software business where capex and COGS are peanuts. Unfortunately for me, that's not how my sector works. I repair and resell lab equipment while I do R&D towards making my own. I have five-figure revenue, capex, and COGS. I also have a day job because the side business doesn't support me yet.
Here's the rub: because of my capex and COGS, paying tax on profits is very different from paying tax on revenue. I get to pay tax on profits if I'm a business, but I have to pay tax on revenue if I'm a hobby (to put it crudely). If the IRS decides I am retroactively a hobby, my entire business goes from "growing steadily, maybe my day job soon" to "life lesson wipeout." So how do I make sure I'm a business not a hobby? The rules aren't much better than "I'll know one when I see one." They're a joke. A bad joke that keeps me up at night and stunts my business growth because I want to make sure my liquid assets could absorb the IRS dropping a bomb on the whole thing.
Tax ambiguity shouldn't be this kind of threat. My accountant isn't concerned, but he's also not on the hook, so I don't take much comfort in that.
Here's the rub: because of my capex and COGS, paying tax on profits is very different from paying tax on revenue. I get to pay tax on profits if I'm a business, but I have to pay tax on revenue if I'm a hobby (to put it crudely). If the IRS decides I am retroactively a hobby, my entire business goes from "growing steadily, maybe my day job soon" to "life lesson wipeout." So how do I make sure I'm a business not a hobby? The rules aren't much better than "I'll know one when I see one." They're a joke. A bad joke that keeps me up at night and stunts my business growth because I want to make sure my liquid assets could absorb the IRS dropping a bomb on the whole thing.
Tax ambiguity shouldn't be this kind of threat. My accountant isn't concerned, but he's also not on the hook, so I don't take much comfort in that.
Welcome to the world of administrative law, nothing is black and white. This is true for a ton of government domains, but tax is the one people interact with most.
Do not be terrified of the hobby vs. business designation. If you take some reasonable, intentional steps, you'll be safe. To be specific: do you segregate the materials for your business separate from your personal property? Do you maintain books for your business? Do you have a separate bank account for your business? Do you regularly operate your business to attempt to make a profit, e.g. selling things for more than you pay for them? If so, it's highly, highly unlikely that the IRS will retroactively characterize your business as a hobby. If you're really worried, get an accountant or tax lawyer to review your practices and give you an "opinion letter" stating that you're operating it as a business. If the IRS ever audits you, you can submit this to show that you were acting in good faith.
Also, what you wrote implies that you might not be aware of this, but you can deduct all of the costs of operating your business vs. your profits, even if it's just a "hobby". The only difference tax-wise between a business and a hobby at this scale is that you can't deduct hobby expenses that exceed hobby revenue, e.g. a hobby can't generate tax losses, while a business can. If you think you'd be stuck paying taxes on the entire profits of your business without deducting your cost of goods sold and expenses, you've been poorly advised.
Do not be terrified of the hobby vs. business designation. If you take some reasonable, intentional steps, you'll be safe. To be specific: do you segregate the materials for your business separate from your personal property? Do you maintain books for your business? Do you have a separate bank account for your business? Do you regularly operate your business to attempt to make a profit, e.g. selling things for more than you pay for them? If so, it's highly, highly unlikely that the IRS will retroactively characterize your business as a hobby. If you're really worried, get an accountant or tax lawyer to review your practices and give you an "opinion letter" stating that you're operating it as a business. If the IRS ever audits you, you can submit this to show that you were acting in good faith.
Also, what you wrote implies that you might not be aware of this, but you can deduct all of the costs of operating your business vs. your profits, even if it's just a "hobby". The only difference tax-wise between a business and a hobby at this scale is that you can't deduct hobby expenses that exceed hobby revenue, e.g. a hobby can't generate tax losses, while a business can. If you think you'd be stuck paying taxes on the entire profits of your business without deducting your cost of goods sold and expenses, you've been poorly advised.
Yes, I am taking those steps.
> "Opinion Letter"
Thanks, I didn't know to ask for that, and now I do.
> The only difference tax-wise between a business and a hobby at this scale is that you can't deduct hobby expenses that exceed hobby revenue
I used to file as a hobby under that framework, but my understanding (and my accountant's understanding) is that the TCJA nixed it right as its importance-to-me started to heel upwards, forcing me to formalize my intention of becoming a business.
I've been putting all of the profit back into the business, but I haven't grown the stones to fully account for my costs and generate a tax loss against my day-job income.
Anyway, thanks for taking the time to reply. Knowing what an Opinion Letter is changes things. The fact that I sort of asked after such a thing and my accountant didn't point me in the right direction makes me think I might want to shop around on that front too.
> "Opinion Letter"
Thanks, I didn't know to ask for that, and now I do.
> The only difference tax-wise between a business and a hobby at this scale is that you can't deduct hobby expenses that exceed hobby revenue
I used to file as a hobby under that framework, but my understanding (and my accountant's understanding) is that the TCJA nixed it right as its importance-to-me started to heel upwards, forcing me to formalize my intention of becoming a business.
I've been putting all of the profit back into the business, but I haven't grown the stones to fully account for my costs and generate a tax loss against my day-job income.
Anyway, thanks for taking the time to reply. Knowing what an Opinion Letter is changes things. The fact that I sort of asked after such a thing and my accountant didn't point me in the right direction makes me think I might want to shop around on that front too.
Two more quick things. One, you probably know this, but a business must make money a certain number of years in a period (I think it’s 2 out of 5, but I haven’t checked that in a while), or else you lose the business presumption. You only have to make $1 in those years, so it’s an easy enough test to meet. Two, if your major business is buying and selling things, even if you treat it as a hobby, you could deduct the cost of goods sold against your revenue. You can always deduct the basis cost of something you sell, people do it all the time for cars, houses, art, horses, etc etc. If COGS is the major cost of your business, then you should always be able to deduct that even if you can’t deduct incidental costs like internet service and accountant’s fees. If your accountant doesn’t agree, time to get a new accountant.
OP's running a C Corp. Organically grown startups should start as a sole proprietorship or an LLC.
LLCs don't have to pay the California franchise tax? Are you sure about that?
https://www.ftb.ca.gov/forms/2020/2020-3522.pdf
https://www.ftb.ca.gov/forms/2020/2020-3522.pdf
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According to my car salesman, if you can't spend $50k on a car, it isn't a car, it's a bicycle.
The advantage of Stripe Atlas was that they would open a bank account for you which was a big plus for foreigners because of the KYC rules. But now that Mercury bank is a thing and everyone can open a bank account online, there is no advantage to Stripe Atlas. Especcially now that Atlas does not allow foreigners to open a LLC. Everybody can form Wyoming LLC online for 100 bucks and pay 25$/year for an agent/mail address, or if you want someone else to do it there are reliable services to do that for around 350$.
I know for the fact that Mercury was closing accounts for the residents of Belarus because it was too costly for their partner bank to figure out who's on the sanctioned list. In that case, you will have to travel to the US to open a bank account, which kinda defeats the whole point of remote incorporation.
It could happen with any other bank as well.
It could happen with any other bank as well.
Any recommendation/guides for a service that lets you form a Wyoming LLC online from overseas?
With a mercury account is possible to setup stripe from abroad? Not in a country listed for stripe?
Yes. You can open a Mercury account only if your company is registered in the US, so for Stripe's purposes you are just a US company like all the others.
Note that Stripe is quite expensive if you want to accept payments globally rather than just from the US.
I considered the Stripe Atlas route because I wanted someone to handle things for me & make it easy.
I ended up finding a friend recommended accountant who could handle my taxes & help me setup everything.
An option I didn't know about that seems to work out really well for tiny 1 or 2 person startups not looking to raise money is a LLC taxed as an S-Corp.
I would recommend both finding a good accountant (or 2) and having them help you set it all up with you. This way you have a person you can bounce questions off of throughout the year.
Another item I learned. Pick your bank wisely. A lot of people were left high & dry for a long time when looking to get the PPP loan this year. You need a bank that's actually going to care about you and doesn't think you're not worth their time. I heard a lot of people who couldn't get a hold of their bank & the bank didn't return their calls.
Also don't expect anyone to loan you money for a mortgage or personal reason until after running the business for 2 years. Your income won't be counted, no matter what to most banks.
The USA has a lot of hurdles & pains if you want to run a business but once you cross the moat, it can be much better than being a W-2 employee for someone else.
I ended up finding a friend recommended accountant who could handle my taxes & help me setup everything.
An option I didn't know about that seems to work out really well for tiny 1 or 2 person startups not looking to raise money is a LLC taxed as an S-Corp.
I would recommend both finding a good accountant (or 2) and having them help you set it all up with you. This way you have a person you can bounce questions off of throughout the year.
Another item I learned. Pick your bank wisely. A lot of people were left high & dry for a long time when looking to get the PPP loan this year. You need a bank that's actually going to care about you and doesn't think you're not worth their time. I heard a lot of people who couldn't get a hold of their bank & the bank didn't return their calls.
Also don't expect anyone to loan you money for a mortgage or personal reason until after running the business for 2 years. Your income won't be counted, no matter what to most banks.
The USA has a lot of hurdles & pains if you want to run a business but once you cross the moat, it can be much better than being a W-2 employee for someone else.
How do you tell before the crisis whether your bank is going to care about you?
Pretty much any small bank or credit union will work with you. All large banks are complete garbage to all but their wealthiest customers.
1. On taxes, a C Corp might be the right choice, but he didn't say enough to reject an LLC that elects to be taxed under Subchapter S. A C Corp taxed under Subchapter C creates the classic "double taxation" problem, where any profit distributions are taxed twice before hitting the founder's pocket.
2. A CMRA (virtual mailbox) is not a good registered agent. The "registered agent" is the place the sheriff or process server delivers a lawsuit to a real person. If your mailbox address doesn't accept hand-delivery, they'll reject service.
And if that happens, you may not hear about any lawsuit until the court has already ruled against you and entered a judgment. Most states say that if you don't have a place for hand-delivery, the person suing you can mail it to the Secretary of State, who then mails it to your last known address. You rarely get the suit in time to answer.
You can find registered agents cheaper than $100. But don't assume your virtual mailbox is a good solution.
2. A CMRA (virtual mailbox) is not a good registered agent. The "registered agent" is the place the sheriff or process server delivers a lawsuit to a real person. If your mailbox address doesn't accept hand-delivery, they'll reject service.
And if that happens, you may not hear about any lawsuit until the court has already ruled against you and entered a judgment. Most states say that if you don't have a place for hand-delivery, the person suing you can mail it to the Secretary of State, who then mails it to your last known address. You rarely get the suit in time to answer.
You can find registered agents cheaper than $100. But don't assume your virtual mailbox is a good solution.
The calculus of c Corp double taxation has actually shifted in the last few years due to the lower corporate tax rate of 21%.
Situations vary, of course, but if you paid yourself as a founder a base salary and then paid dividends, those dividends could be received at a 0% tax rate up to the first $77k for a married couple filing jointly.
So effectively, you would be paying only 21% tax on that 77k.
The traditional s-corp passthrough could shield some of the income from SS tax. But you are still going to pay full personal income tax on all of it because I don't think that dividends paid from an s-corp can count as "qualified dividends".
Additionally, c-corps have more leeway with fringe benefits. For example, I believe a c-corp can pay for a healthcare plan with pre-tax money where as you can't deduct that for an s-corp.
Situations vary, of course, but if you paid yourself as a founder a base salary and then paid dividends, those dividends could be received at a 0% tax rate up to the first $77k for a married couple filing jointly.
So effectively, you would be paying only 21% tax on that 77k.
The traditional s-corp passthrough could shield some of the income from SS tax. But you are still going to pay full personal income tax on all of it because I don't think that dividends paid from an s-corp can count as "qualified dividends".
Additionally, c-corps have more leeway with fringe benefits. For example, I believe a c-corp can pay for a healthcare plan with pre-tax money where as you can't deduct that for an s-corp.
Yes, I hedged because C-Corp taxation sometimes makes sense now. A few years ago it never made sense.
Even so, LLC-as-a-C-Corp is usually the winner, not a full-blown Delaware Corporation taxed as a C-Corp.
Even so, LLC-as-a-C-Corp is usually the winner, not a full-blown Delaware Corporation taxed as a C-Corp.
Agreed on LLC as a C-corp. Though I am not sure if LLC as a C-corp can qualify for the tax free sale of the company after 5 years rule. Which gives you a tax free windfall up to the first $5m.
They did cover 1 quite clearly. At least to me, an American that lives outside America with some US income. You do not want pass through outside the US. Unless you just like paying taxes.
Edit:
Just to clarify why I said this. The US has a “anti-double taxation” treaty with most countries. Except that it doesn’t really apply fully to businesses. For example, I basically paid almost 50% income tax on income made from the US last year. I’m trying to figure out how to restructure to fix this.
Edit:
Just to clarify why I said this. The US has a “anti-double taxation” treaty with most countries. Except that it doesn’t really apply fully to businesses. For example, I basically paid almost 50% income tax on income made from the US last year. I’m trying to figure out how to restructure to fix this.
I think you're discussing a different problem from the parent post. Depending on how you form your US company, you can end up in a situation where the company pays corporate income taxes on any profits, and then when you distribute those profits to yourself you pay personal income tax on them too -- so the same income is essentially taxed twice.
There are separate issues with how the US taxes money made overseas.
There are separate issues with how the US taxes money made overseas.
Hmm. Yeah, I see your point. The point I was making though is that pass-through causes /all/ income to be taxed as personal income. When outside the US, you also have to pay income tax in your country (most likely). So now you’re paying income taxes for all revenue (not profits) in both countries. Even with the tax treaty, you’re still looking at an extra ~15% tax on whatever you pay in your own country.
With a C Corp, you pay US taxes via the company. You control how much goes to you, personally, which you pay income taxes on. Depending on the amount, you may not have any issues with US income tax.
With a C Corp, you pay US taxes via the company. You control how much goes to you, personally, which you pay income taxes on. Depending on the amount, you may not have any issues with US income tax.
A tax treaty would not apply to that situation.
It protects foreign taxpayers from double taxation, not expats. Expats most get relief from their home country for home source income.
It protects foreign taxpayers from double taxation, not expats. Expats most get relief from their home country for home source income.
With a corporation, you have three choices on how to be taxed.
One, you can pay yourself a salary up to any amount, even potentially making a loss for the corporation (as long as someone will give you the money to stay solvent). That salary is an expense for the company, so you won't pay corporate tax on that amount. You'll then have to pay personal income tax, as well as payroll tax and probably some unemployment insurance and other fees on that.
Two, you can distribute money to yourself as dividends. Dividends are cash-neutral to the corporation, so they won't deduct from the company's tax liability. Usually they come out of profits, so indeed they are post-tax money. Whomever receives the dividends will pay personal income tax on them, but at a lower rate than most people's tax on wage income (often much lower).
Third, the corporation can hold all of the profits internally, which will increase the value of the company, and thus the shares held by the owners. The shareowners can eventually sell those shares for a profit, which will be taxed as long-term cap gains if held more than a year.
In brief, yes, there is double taxation, in the sense that income is taxed more than once, but it's not taxed at the full rate used for wages both times, and it's possible to defer that second tax bill indefinitely.
One, you can pay yourself a salary up to any amount, even potentially making a loss for the corporation (as long as someone will give you the money to stay solvent). That salary is an expense for the company, so you won't pay corporate tax on that amount. You'll then have to pay personal income tax, as well as payroll tax and probably some unemployment insurance and other fees on that.
Two, you can distribute money to yourself as dividends. Dividends are cash-neutral to the corporation, so they won't deduct from the company's tax liability. Usually they come out of profits, so indeed they are post-tax money. Whomever receives the dividends will pay personal income tax on them, but at a lower rate than most people's tax on wage income (often much lower).
Third, the corporation can hold all of the profits internally, which will increase the value of the company, and thus the shares held by the owners. The shareowners can eventually sell those shares for a profit, which will be taxed as long-term cap gains if held more than a year.
In brief, yes, there is double taxation, in the sense that income is taxed more than once, but it's not taxed at the full rate used for wages both times, and it's possible to defer that second tax bill indefinitely.
> the same income is essentially taxed twice
What about if you pay yourself as a W2 employee? Then, isn’t your salary treated as an expense of the corporation and thus only taxed at the personal level?
What about if you pay yourself as a W2 employee? Then, isn’t your salary treated as an expense of the corporation and thus only taxed at the personal level?
Top Federal rate for W2 income: 37% + 2.9% Medicare + 12.6% on the FICA portion.
Top Federal rate for dividend/profit distribution: 20%
All other things being equal, as the company earns more than your base wage, you want it to be treated as dividend income.
Top Federal rate for dividend/profit distribution: 20%
All other things being equal, as the company earns more than your base wage, you want it to be treated as dividend income.
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That's correct, if you pay yourself, that's an expense for the company and deducted from taxable income. And you'll pay personal income tax on it.
Tax treaties definitely apply to businesses... And foreign taxpayers.
Your being taxed as a US citizen, so a tax treaty wouldn't apply to your US income.
Your being taxed as a US citizen, so a tax treaty wouldn't apply to your US income.
If you lived in California, and do business in California, and you incoporate in Delaware you still have to pay $800 tax per year for California. You cannot escape it.
Can't you just leave California?
Yup. We encountered this exactly on our initial set up for our company. This made us decide to domesticate our company from Delaware to California, with a little bit of money lost for this learning process.
As a US Citizen living in the US, I've created ~5 LLCs in the last fifteen years.. 2 with Stripe.. I didnt really see an advantage of Stripe over doing it myself. A decent CPA seemed to be cheaper and more personal.
That said, only the Stripe ones were created as Delaware corps which was probably unnecessary for both of them, but made them infinitely more complex.
That said, only the Stripe ones were created as Delaware corps which was probably unnecessary for both of them, but made them infinitely more complex.
We have chosen Estonia E-residence program. Very friendly, filing taxes is easy, and one can hardly beat 0% tax on corporate income.
I thought the 0% tax only applied on invested income in Estonia did it not?
https://taxsummaries.pwc.com/estonia/corporate/taxes-on-corp...
That is once you want to distribute the income then you do have to pay corporate income tax of 21%.
https://taxsummaries.pwc.com/estonia/corporate/taxes-on-corp...
That is once you want to distribute the income then you do have to pay corporate income tax of 21%.
Why would you ever want to distribute income? I mean, why not just reinvest it?
Eventually you'll have to buy food, and maybe, for some really lucky ones, have kids and house.
Companies buy delivery or dining for their employees all the time. Real estate could be owned by the company, same for cars. The feasibility of this probably differs a lot by country, depending on how anal the tax laws and authorities are.
This really does not work anymore in most civilized countries, and most of the time they have explicit limits on that kind of stuff, unless you can REALLY justify that (hospitality industry etc).
You can pay yourself a salary. This doesn't count as 'distributing income' and is taxed according to the laws of your residence location.
That being said, if your salary will be more than 80% of corporate expenses, that might attract unwanted attention from tax service.
That being said, if your salary will be more than 80% of corporate expenses, that might attract unwanted attention from tax service.
In general, paying out dividends would have a lower total tax rate than paying the same amount to yourself as salary.
True, but not everywhere. In my particular country it would be far lower due to some loopholes.
Startups rarely distribute income. When a company gets to that stage, it can probably afford any tax lawyers and any jurisdiction it might want.
Could you not just transfer income to a LLC in your home country as company-to-company sales? And then retain the 0% tax in Estonia, while paying regular income tax in your home country.
Typically you also pay franchise tax to California if you live and work there.
Some states like Massachusetts have you pay into an unemployment insurance fund.
Usually you will pay for QuickBooks and a payroll processor like Gusto, which is $960/yr together. So for not profitable entities $800 CA FTB + $450 DE FTB + ...
C Corps enjoy a 21% flat tax rate. They are a very attractive way to conduct business on that alone, if you are actually profitable. The little taxes and fees may make your effective tax rate compared unfavorably to pass through, however if you’re making that little money what was the point then?
Some states like Massachusetts have you pay into an unemployment insurance fund.
Usually you will pay for QuickBooks and a payroll processor like Gusto, which is $960/yr together. So for not profitable entities $800 CA FTB + $450 DE FTB + ...
C Corps enjoy a 21% flat tax rate. They are a very attractive way to conduct business on that alone, if you are actually profitable. The little taxes and fees may make your effective tax rate compared unfavorably to pass through, however if you’re making that little money what was the point then?
The reason to not have a C Corp if you are small is double taxation - if you are small you would be paying payroll taxes, corporate income taxes, and personal income tax all on money that is going to you.
That, and LLCs tend to be easier to run.
When I moved to the US from Europe, I was suprised by how complicated everything is (and I thought the EU was unnecessarily complicated).
Yes, you have the same language and the same currency, but other than that you’re pretty much dealing with 50 different countries all with their own laws and taxes. Sales taxes can be different even on the county and city level. Luckily everything has been done and solved before but it means you’re gonna have to rely much more on lawyers and accountants to get things done.
Yes, you have the same language and the same currency, but other than that you’re pretty much dealing with 50 different countries all with their own laws and taxes. Sales taxes can be different even on the county and city level. Luckily everything has been done and solved before but it means you’re gonna have to rely much more on lawyers and accountants to get things done.
I’m not an accountant so confirm with one:
1. C Corp with S corp taxation would be ideal, but if you don’t have that, make sure you store all of your legitimate expenses including accounting, taxes, ads, etc. You can save any losses as NOLs and use them to offset future gains for a while. Many SV startups don’t have a profit for a long time but the losses are still worth something (some get acquired for the losses).
2. Small number of initial stock issuing below 5000 helps reduce expenses until you get a valuation that matters.
3. A Delaware CCorp that doesn’t yet make money with founder in California who owns property will spend close to $2000 annually between 800 california FTB tax, delaware minimal tax, turbotax, registered agent, etc.
1. C Corp with S corp taxation would be ideal, but if you don’t have that, make sure you store all of your legitimate expenses including accounting, taxes, ads, etc. You can save any losses as NOLs and use them to offset future gains for a while. Many SV startups don’t have a profit for a long time but the losses are still worth something (some get acquired for the losses).
2. Small number of initial stock issuing below 5000 helps reduce expenses until you get a valuation that matters.
3. A Delaware CCorp that doesn’t yet make money with founder in California who owns property will spend close to $2000 annually between 800 california FTB tax, delaware minimal tax, turbotax, registered agent, etc.
SVB account is free for 3 years if you do it directly with them. But Atlas cost is lower than the cost of opening with a good lawyer.
SVB was a horrible antiquated banking experience. It was heavily recommended for my last startup so I signed up without shopping around. It was literally the worst online banking experience I’ve ever used, straight out of the 90’s. And there were fees for every little thing. Maybe they’ve improved in the last 5 years, but I will never try them again.
My online banking experience in the latter 90s was quite good, at least at Charles Schwab.
No US bank has approached ANZ in New Zealand for modern conveniences however.
No US bank has approached ANZ in New Zealand for modern conveniences however.
What did you transition to? It's true that everyone recommends them.
Stay away from SVB. Mercury or Azlo are much better start-up focused banks.
https://mercury.com/
https://www.azlo.com/
https://mercury.com/
https://www.azlo.com/
Are they kinda like Brex?
PS: funny both banks use the same color for their branding
PS: funny both banks use the same color for their branding
Azlo and Mercury are more traditional banking. They're fintech companies offering banking services while backed by regulated banks on the backend (a common setup to avoid the years long regulatory hurdle of starting a new bank).
Brex started with corporate credit cards and now also has the "Cash" banking product but its not quite the same. It's more like a corporate paypal account that looks and feels like a bank account. It's also another good choice.
Brex started with corporate credit cards and now also has the "Cash" banking product but its not quite the same. It's more like a corporate paypal account that looks and feels like a bank account. It's also another good choice.
The business didn’t last very long so we never got around to switching banks. But whenever I do my next startup I will shop around more. I would love to hear any recommendations people might have to share.
Question is, would you use their UI/services a lot if you also had a Stripe account connected to it?
Sending wires, depositing checks, transferring between accounts, bill pay, etc. They all require the terrible mobile app or online UI. Banks are all the same until you're a big company, better to go with one with modern tools.
For Comparison: I'm a 5yr old WA C-Corp, have lawyer and accountant and nexus in three states - all in I'm at $4k/yr for the fees and the labor to process this.
Slightly off-topic, but is there something similar to Stripe Atlas for other jurisdictions?
I run a privacy-focused WordPress hosting company, and while in closed alpha, I registered a personal company in the country where I live to be paid, but I would like to register a proper company before launch, as I do not wish to register it in the country I live in — especially since I want to leave the country once the pandemic is over.
The other founders and I have been researching and looking into incorporating in Romania, as the country seems to offer good opportunities for new companies and even make moving there easier if you incorporate, but the amount of shady lawyers we found is worrisome.
A service like Stripe Atlas for jurisdictions in Europe would be much appreciated — not necessarily for Romania, as we also looked into Germany and Finland, just something less fishy than random lawyers on the internet.
I run a privacy-focused WordPress hosting company, and while in closed alpha, I registered a personal company in the country where I live to be paid, but I would like to register a proper company before launch, as I do not wish to register it in the country I live in — especially since I want to leave the country once the pandemic is over.
The other founders and I have been researching and looking into incorporating in Romania, as the country seems to offer good opportunities for new companies and even make moving there easier if you incorporate, but the amount of shady lawyers we found is worrisome.
A service like Stripe Atlas for jurisdictions in Europe would be much appreciated — not necessarily for Romania, as we also looked into Germany and Finland, just something less fishy than random lawyers on the internet.
Have you looked at Estonia?
https://e-resident.gov.ee/
https://e-resident.gov.ee/
I did, although, I cannot remember why it was ruled out.
EDIT:
Okay, reading past mailing lists inside the company, it seems like key disclosure laws may apply in Estonia, which raised a few eyebrows here.
As a hosting company it is obvious that we will deal with bad actors at times, and we already have procedures in place to disclosure the little information we have to authorities if asked.
However, I read more than one account on authorities raiding data centers for drives without talking to anyone before doing so, and we want to have the legal right to deny them access to the encryption keys in court.
EDIT:
Okay, reading past mailing lists inside the company, it seems like key disclosure laws may apply in Estonia, which raised a few eyebrows here.
As a hosting company it is obvious that we will deal with bad actors at times, and we already have procedures in place to disclosure the little information we have to authorities if asked.
However, I read more than one account on authorities raiding data centers for drives without talking to anyone before doing so, and we want to have the legal right to deny them access to the encryption keys in court.
Strip atlas vs a UK Ltd company, assuming you have the choice, what’s best for a SaaS?
I am from the UK, so I am biased. I've also never used Stripe Atlas myself so I am ignorant of how easy or hard it is to wind things up there.
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Stripe Atlas appears to tie you in to a bunch of services(?) and I'm guessing it would be hard to re-incorporate in another state for friendlier tax treatment or whatever, whereas a UK Ltd company doesn't tie you into anything and the regulatory fees are minimal.
Most of the expenses are in business banking and accountancy services once you start making money. It only costs £12 ($16) to register a company in the UK, and then £13 ($17) each year for the annual filing.
Business banking will cost £5-10 ($7-13) each month. Accountants will cost a lot more, and you may not need them if you're a small company prepared to do all your own bookkeeping, etc.
Our tax laws are uniform across the jurisdiction and we have a lot of double-taxation treaties set up with other countries, as well as a culture that accepts foreign ownership of companies.
The hardest part would be acquiring a business bank account because of the Know Your Customer anti-money-laundering regulations and checks, but that can be dealt with by most banks and you don't need to visit the UK or live here for that.
A UK Ltd would give you a lot of flexibility, and is easy to wind up if things don't pan out. I don't have any experience of Stripe Atlas so can't comment on the ease of winding the company up there, but it seems difficult based on other comments in this topic.
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Stripe Atlas appears to tie you in to a bunch of services(?) and I'm guessing it would be hard to re-incorporate in another state for friendlier tax treatment or whatever, whereas a UK Ltd company doesn't tie you into anything and the regulatory fees are minimal.
Most of the expenses are in business banking and accountancy services once you start making money. It only costs £12 ($16) to register a company in the UK, and then £13 ($17) each year for the annual filing.
Business banking will cost £5-10 ($7-13) each month. Accountants will cost a lot more, and you may not need them if you're a small company prepared to do all your own bookkeeping, etc.
Our tax laws are uniform across the jurisdiction and we have a lot of double-taxation treaties set up with other countries, as well as a culture that accepts foreign ownership of companies.
The hardest part would be acquiring a business bank account because of the Know Your Customer anti-money-laundering regulations and checks, but that can be dealt with by most banks and you don't need to visit the UK or live here for that.
A UK Ltd would give you a lot of flexibility, and is easy to wind up if things don't pan out. I don't have any experience of Stripe Atlas so can't comment on the ease of winding the company up there, but it seems difficult based on other comments in this topic.
> The hardest part would be acquiring a business bank account because of the Know Your Customer anti-money-laundering regulations and checks, but that can be dealt with by most banks and you don't need to visit the UK or live here for that.
Which british banks allow remotely opening a business bank account without visiting the UK?
Which british banks allow remotely opening a business bank account without visiting the UK?
I used neither. Not sure about the lock in, but the Stripe cloud credits seem very generous.
Isn't business office required in the UK? Also mail forwarding if one is outside of the UK. It is still way lower than anything I researched, but all these service costs keep adding up and I can't help wondering about some real nasty landmines further down the road. Like what happens when something goes wrong? Getting caught up in some legal matter in a foreign country I have no presence in nor any knowledge how their legal system works sounds like a recipe for disaster.
Isn't business office required in the UK? Also mail forwarding if one is outside of the UK. It is still way lower than anything I researched, but all these service costs keep adding up and I can't help wondering about some real nasty landmines further down the road. Like what happens when something goes wrong? Getting caught up in some legal matter in a foreign country I have no presence in nor any knowledge how their legal system works sounds like a recipe for disaster.
It's very easy to open a UK limited company online and it costs £12 plus £13 a year subsequently. If your business activities are simple you can file accounts through HMRC (tax authority) website without any software or necessarily needing an accountant. https://www.gov.uk/guidance/corporation-tax-use-hmrcs-free-f...
And even if you require software, there are lots of really good options, from £15 to around £150 per return. All listed on HMRC site.
Any idea if you can continue to sell software to EU residents, given (?) a hard Brexit?
edit: Just to clarify, It is not clear if digital goods will remain tariff free.
edit: Just to clarify, It is not clear if digital goods will remain tariff free.
> While Delaware doesn’t have a sales tax, they do impose a Franchise Tax on registered businesses.
Whoops, they should have gone with any other state!
Delaware's court of chancery is overrated.
Whoops, they should have gone with any other state!
Delaware's court of chancery is overrated.
How do you close down a Stripe Atlas LLC? Stripe has since opened up in my country and I don’t see the need for the added complexity and expense any more.
Please talk to a finance/tax professional first before doing anything.
While you can get a good overview of the various corporate structures online, there are so many complexities and unique details about your business that you just won't know by trying to do it yourself and these formation tools usually default to the lowest-common denominator.
Surprise taxes and fees can kill your business before it ever starts.
While you can get a good overview of the various corporate structures online, there are so many complexities and unique details about your business that you just won't know by trying to do it yourself and these formation tools usually default to the lowest-common denominator.
Surprise taxes and fees can kill your business before it ever starts.
I've been considering taking the leap for quite a while. Is there anyone from India here who has used Stripe Atlas? Would love to chat!
So all in and assuming the company gets charged the Silicon Valley Bank monthly account fee, the annual cost of existing is $1,100. Which honestly doesn't seem that substantial to me (someone who's never founded a startup).
Is the only reason international founders, who otherwise have lower fees/admin for an entity in their home country, incorporate in Delaware just to become investment-friendly for VCs?
How does it make sense to pay taxes to another state when your business doesn't even operate from there? I would assume your home state doesn't like that very much.
[deleted]
What about tax in the home country?
Is there a Stripe Atlas equivalent service for Canada?
How’s the initial business formation process compared to Clerky?
With Atlas, I filed a form and received an email with docs (to sign) a few days later. I got my Certificate of Incorporation and a bank account (got blocked, but that's a different story) the same day I signed docs. Then, they invite you to issue the stock via the web form, and that concludes the process on their end.
The only hiccup was with receiving an EIN confirmation later, so I had to call IRS so they could fax it to the third-party designee.
Haven't used Clerky, but the biggest perks with Atlas are a bank account (which is generally a pain to open for non-residents) and $5k AWS credits.
The only hiccup was with receiving an EIN confirmation later, so I had to call IRS so they could fax it to the third-party designee.
Haven't used Clerky, but the biggest perks with Atlas are a bank account (which is generally a pain to open for non-residents) and $5k AWS credits.
You can get a Revolut USD account with no hassle that supports local ACH transfers and 100.000 usd in AWS credits with a compelling startup story. Stripe atlas has become obsolete already if these are your needs.
https://www.revolut.com/en-US/help/profile-plan/verifying-id...
> We are currently only supporting legal residents of the European Economic Area (EEA), Australia, Canada, Singapore, Switzerland, Japan and the United States
The problem is that if you're not from the "right country", you're pretty much locked out from the finanical infrastructure needed to process payments on the Internets. I wasn't that gung ho about incorporating a business abroad but didn't have much choice.
> We are currently only supporting legal residents of the European Economic Area (EEA), Australia, Canada, Singapore, Switzerland, Japan and the United States
The problem is that if you're not from the "right country", you're pretty much locked out from the finanical infrastructure needed to process payments on the Internets. I wasn't that gung ho about incorporating a business abroad but didn't have much choice.
> I got my Certificate of Incorporation and a bank account (got blocked, but that's a different story) ...
Would appreciate the story if you shared it, we are still in a pandemic :)
Would appreciate the story if you shared it, we are still in a pandemic :)
Shortly, the Silicon Valley Bank blocked my account access because their telephony service couldn't reach my foreign number via SMS/Phone call 5 times in a row. Had to make several calls to unblock my account.
You'd think that a bank that claims to "work with the brightest minds in technology" would have a better 2FA mechanism than a phone number...
You'd think that a bank that claims to "work with the brightest minds in technology" would have a better 2FA mechanism than a phone number...
Tarsnap is incorporated in BC, Canada. I pay less than $50 to file an annual report with the government (basically just a "the company still exists and the mailing address and directors haven't changed"); there's no franchise tax; and Tarsnap's corporate income tax is easy enough for me to do by hand (it takes about 2 hours and I usually file in the first week of January).
The notion of spending $1000/year just to keep a company in existence seems crazy to me.