First tax year with Stripe Atlas
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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.
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 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've seen good things about them; no affiliation otherwise)
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.
Could you share what was their reason for doing this? Any non-standard type of business or account activity?
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.
I agree that it's always a good idea to have multiple accounts.
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.
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.
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.
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.
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.
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).
Also, apart from the franchise fee, there doesn't seem to be anything else for the Delaware C-Corp.
https://www.nolo.com/legal-encyclopedia/how-llcs-are-taxed-2...
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.
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.
FWIW Canadian and US taxes are roughly equivalently complicated in my experience.
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.
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.
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.
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.
> "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.
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.
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.
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.
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 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.
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...
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).
The bad deal that american's get for their taxes is really sad.
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.
[1] https://www.canada.ca/en/revenue-agency/services/tax/individ...
[2] https://www2.gov.bc.ca/gov/content/taxes/income-taxes/person...
[3]: https://en.wikipedia.org/wiki/Sales_taxes_in_British_Columbi...
[4]: https://en.wikipedia.org/wiki/Sales_taxes_in_the_United_Stat...
The ACA is effectively an extremely large tax on the middle class.
And yes, if you get a significant amount of care, the out of pocket can be several thousand.
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.
Canada has payroll taxes too, so you'd need to add those in as well.
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.
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.
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.
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.
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%
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.
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
For example: how many users use your service? How many PB of backups are you currently serving? Stuff like that.
It could happen with any other bank as well.
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.
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.
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.
There are separate issues with how the US taxes money made overseas.
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.
It protects foreign taxpayers from double taxation, not expats. Expats most get relief from their home country for home source income.
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 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.
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.
Your being taxed as a US citizen, so a tax treaty wouldn't apply to your US income.
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.
Even so, LLC-as-a-C-Corp is usually the winner, not a full-blown Delaware Corporation taxed as a C-Corp.
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.
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%.
That being said, if your salary will be more than 80% of corporate expenses, that might attract unwanted attention from tax service.
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?
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.
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.
PS: funny both banks use the same color for their branding
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.
No US bank has approached ANZ in New Zealand for modern conveniences however.
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.
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: Just to clarify, It is not clear if digital goods will remain tariff free.
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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.
Which british banks allow remotely opening a business bank account without visiting the UK?
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.
Whoops, they should have gone with any other state!
Delaware's court of chancery is overrated.
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.
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.
Would appreciate the story if you shared it, we are still in a pandemic :)
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...
> 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.