For a supposedly business-friendly country, the USA certainly seems to have a bunch of fees.
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.
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.
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.
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.
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?
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 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.
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.
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.
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.
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.
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).
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.
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).
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.
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.
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.
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.
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.
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.
> 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.
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).
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).
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.