Entrepreneurship & Small Business

Looking for accounting/tax/corporate advice on starting a company that "manufactures and sells" in the US

  • Last Updated:
  • Aug 20th, 2018 11:38 pm
[OP]
Newbie
Sep 20, 2016
55 posts
17 upvotes

Looking for accounting/tax/corporate advice on starting a company that "manufactures and sells" in the US

I know the answers to all my questions are "consult a qualified professional", but I don't even know where to start out finding one. Also I like to learn about things on my own so that I have a general understanding and then can defer to a professional when its time to get the details right. So many people complain about their accountants getting them into trouble...

I invented a product, and I want to discover its' viability by way of a kickstarter or indiegogo. I figured it would be easiest if I made it in the US (injection moulding), and did fulfillment there as well since the US is the big market and shipping over the border is insanely expensive.

I am becoming aware that a significant operation with a "business presence" in the US is going to have to at least register with the IRS and maybe create US corporation. But what about a kickstarter raising say $15,000 USD to pay a company to make 1000 units that get blasted out to backers by a fulfillment company and which ultimately delivers it's inventor a $2000 profit if all goes well?

I want to figure out how to "do this small" but still legit enough to scale up without having major headaches if it turns out that people like my product. I don't want the IRS issuing me $10,000 fines for failing to fill out some bit of paperwork. It seems that tax authorities generally want to go easy on small startups but all I see online are warnings about not screwing around when running a "manufacturing business" in the US.

I have found some resources for Canadians doing US Fulfillment By Amazon type businesses, but they are all bringing in their product from China rather than making it onshore.

Can anyone recommend:

- Books
- websites
- Canadian accounting firms that deal very specifically with my kind of scenario


Somewhat related, can anyone point me to resources about advantages/disadvantages of incorporating in Canada federally vs Provincially?


Thanks for any advice.


I'm in Calgary BTW
20 replies
Newbie
Jan 18, 2017
81 posts
51 upvotes
This can actually be answered in two steps:

Step 1. Do your Kickstarter campaign. See if it actually gets money or not.

Step 2. Worry about all the other stuff if the kickstarter makes money.

Starting a US corporation own by a non-resident individual creates complicated reporting requirements. Not saying it can't be done, just that the compliance costs can be expensive. And for a small "Testing the waters" type of business, those costs might become prohibitive. Again, I'm all for people starting a business - What I don't like is those people going "Oh look, I made $800!" and then the accountant hands them a bill for $6-8,000 in professional fees for the owner's "simple" corporation.

As for the Federal vs. Provincial incorporation, the short answer is you'll need to register your corporation provincially anyway, because you have to file your provincial taxes as well as your federal taxes. Federal incorporation just protects your corporate name Canada-wide.
______
Canadian & US tax guy
[OP]
Newbie
Sep 20, 2016
55 posts
17 upvotes
Thanks a lot for the info crossborderguy.

I'm on the same page as you as far as wanting to just throw it out there and see if there is any interest before I spend money on complex structures. I'll be quite happy if someone tells me they need $8000 to straighten out my $250K per year business after the fact :) I just want to make sure I don't step in anything really big in the meantime :) When you google search this stuff you quickly get the impression that the IRS is waiting with a $10K fine for every minor paperwork misstep.

Its looking more and more to me like Canadian Corp + registering with the IRS as a foreign entity doing business in the US is the way to go (after kickstarter success). As you mention, it sounds like compliance costs can get mighty cumbersome if you have a US company and kickstarter supports Canadians ventures now anyway (only downside is its a Canadian dollar account in Canada and my expenses are all in USD so I will get raped pretty hard on two currency conversions).

Fun fact: Even if you make a US corp, kickstarter still wants a SS number for an individual citizen to associate with the campaign. So you are still screwed unless you can find a local to front for you (and then watch them run off with your money).

Also, thanks for the Provincial vs Federal info. I'm worried about liability here and honestly Id rather have contact with the IRS through a company rather than as an individual.

I realize its not the same thing but Ive met many a US expat who CANNOT get the IRS off their backs no matter how many times they explain that they never set foot in the US a single time in their lives. Perhaps I'm paranoid.
[OP]
Newbie
Sep 20, 2016
55 posts
17 upvotes
If you don't mind another question, Whats the process for incorporating after a successful kickstarter?

I need a bank account for the KS and that would be made in my own name. Is it not hard to make a corporation after the KS and then say, "OK the product and the KS money goes into the company now"?
Newbie
Jan 18, 2017
81 posts
51 upvotes
The "incorporating post-kickstarter" is actually an easy process, as is the transfer of the funds. Functionally speaking, the cash goes Kickstarter -> You personally -> Loan to Cdn Corp -> Loan to US corp. The books are drafted as such.

If you were looking at doing a US corporation, generally speaking you'd be looking at compliance costs for the Canadian corp filing, the Canadian personal filing, the US corp reporting, and the Foreign ownership reporting. Then you deal with State taxes, plus the US presence/Manufacturing stuff. None of this is a huge problem - It just takes time and money, and usually startups are pressed for funds.

It sounds like you're a details/planning kind of guy, and that's a good thing. But the first step in this whole process is getting seed money. Focus just on that right now, and if it works, then worry about how to put together the rest of the puzzle.
______
Canadian & US tax guy
Deal Fanatic
Nov 17, 2004
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Toronto
You can get a US bank account from RBC/BMO/etc... it is a real US bank account so it should work with kickstarter or any other US company that demands that you have US bank account for depositing payment.

For shipping, you can look into crossborder services like chit chats express that brings packages over the border and gives them to USPS. I use chit chats and they charge around $1 CAD to bring a package over.
I workout to get big so I can pickup bricks and ****.
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Aug 2, 2010
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SuddenlyStalin wrote:
Jun 12th, 2018 3:57 pm
Thanks again

For the benefit of others, I found a link with a discussion of my exact issue. This guy sounds like he knows his stuff, but of course every individual has their own situation:

http://ustax.bz/non-us-entrepreneurs/
That guy provides a bit of useful information but proves that he simply does not 'know his stuff' at all! He is just very good at convincing people who don't know anything about doing business in the US that he actually does know a lot. He is wrong on the most major and critical points, namely:

He states that Operating through a US LLC has all sorts of benefits:

'have your own US bank account' - This is patently wrong. You do not need to set up a US LLC in order to facilitate this. As I have explained in many other threads on this forum about setting up a bank account in the US all that is required is you file a IRS Form W-8BEN-E (https://www.irs.gov/pub/irs-pdf/fw8bene.pdf). I have been operating for years with a BMO Harris US bank account and many other RFD members have recently done the same as a result of my posts. I use a US payment processor (Elavon) to process my US credit card payments and deposit them right into my BMO Harris bank account, right cheques to transfer the US funds directly into my BMO Canada US bank account (no wire transfer fee, no hold) and the odd time I receive a US cheque I use the BMO Harris mobile app to deposit the cheque using my iPhone (no trip or mailing it to BMO Harris).

An LLC provides a liability shield for your business. - This does not provide any additional liability beyond that which you would have as a result of the Canadian corporation. In fact, not having a US LLC is likely better from this point of view as the plaintiff would have the additional hassle of having to sue a Canadian company rather than a US one.

'US buyers like to buy from US sellers.' - True. However, you don't need a US LLC to have a US address. If you operate either totally or partially through a logistics warehouse or have a return address using a company that receives shipments on your behalf (such as usaddressinc.com) in the US that provides you with a US address. Then if you ship from Canada always or partially you just use a service like chitchats.com which allows you to ship USPS from Canada and use your US address as the return address. That makes it look like you are shipping from the US when you are actually not.

'A US LLC can get access to credit either from Amazon itself, a US bank, or other sources.' - Possibly but it's a lot easier to just get the credit in Canada, then us Norbert's Gambit to convert to USD at pretty well the spot rate (no currency exchange mark-up) and xfer the USD to your US bank account.

'Setting up a US LLC and bank account can be a little tricky. There are lots of little details to get right, and you have to approach a bank in the right way to have any hope of getting a bank account opened in a timely manner. Also, new for 2018, your LLC will need to file IRS Form 5472.' - Not tricky at all! With BMO Harris you just need to fill out the forms and it's all done on the phone then they mail you some forms to fill out. Easy peasy. No need to file IRS Form 5472 either! Also, their cheapest business account is free is you have a daily average on a monthly basis of a measly $1,500 balance. Wire transfers to anywhere in the world cost $50 (less to US). Those you owe money to in the US can use ACH can pull payments from your account at no charge to you.

This guy is pretending to be an expert in an attempt to get you to use his services to set up an unnecessary US LLC. He's leading people astray.
Last edited by eonibm on Jun 16th, 2018 11:24 am, edited 2 times in total.
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Aug 2, 2010
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toalan wrote:
Jun 16th, 2018 1:24 am
You can get a US bank account from RBC/BMO/etc... it is a real US bank account so it should work with kickstarter or any other US company that demands that you have US bank account for depositing payment.

For shipping, you can look into crossborder services like chit chats express that brings packages over the border and gives them to USPS. I use chit chats and they charge around $1 CAD to bring a package over.
RBC - worst choice as it's $150/mos
BMO Harris - free with a minimum average daily balance of $1,500 on a monthly basis
Last edited by eonibm on Jun 16th, 2018 9:48 am, edited 1 time in total.
Deal Guru
Aug 2, 2010
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Also, remember with Kickstarter they have really tightened the requirements so you need a prototype that looks exactly like the finished product and works in order to start a campaign.
[OP]
Newbie
Sep 20, 2016
55 posts
17 upvotes
I appreciate all the extra info (especially the stuff that veers off topic a bit since its of interest to me :))

At the moment, Im thinking that US incorporation would be a huge waste of time for me and as mentioned above might leave me defending myself in a US court instead of a polite Canadian one.

I also appreciate the mentions of some Canadian shipping options because thats something I'm having trouble with. The cost to ship for Canadians is brutal compared to what Americans get. So far I found a nice American fulfillment company (shipbob) who is pretty low cost for domestic shipping but for international their costs to Canada are really high (they can ship to pretty much any "non-warzone" country from a US warehouse *way* cheaper than they can ship to Canada from the US). It may just be that Candians pay loads for shipping. Thats been my experience as a consumer anyway.
[OP]
Newbie
Sep 20, 2016
55 posts
17 upvotes
eonibm wrote:
Jun 16th, 2018 9:48 am

RBC - worst choice as it's $150/mos
BMO Harris - free with a minimum average daily balance of $1,500 on a monthly basis

...

Also, remember with Kickstarter they have really tightened the requirements so you need a prototype that looks exactly like the finished product and works in order to start a campaign.
It looks to me like I need a Canadian bank account anyway for Kickstarter since they started supporting Canadian campaigns. Sucks because all my expenses are in USD so I will be hosed on conversions. It doesnt appear to be possible to do an American kickstarter without a Social Security Number.
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SuddenlyStalin wrote:
Jun 16th, 2018 11:43 am
It looks to me like I need a Canadian bank account anyway for Kickstarter since they started supporting Canadian campaigns. Sucks because all my expenses are in USD so I will be hosed on conversions. It doesnt appear to be possible to do an American kickstarter without a Social Security Number.
You don't have to get hosed on conversions. Just convert the funds using Norbert's Gambit.
Deal Guru
Aug 2, 2010
12569 posts
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SuddenlyStalin wrote:
Jun 16th, 2018 11:41 am
I appreciate all the extra info (especially the stuff that veers off topic a bit since its of interest to me :))

At the moment, Im thinking that US incorporation would be a huge waste of time for me and as mentioned above might leave me defending myself in a US court instead of a polite Canadian one.

I also appreciate the mentions of some Canadian shipping options because thats something I'm having trouble with. The cost to ship for Canadians is brutal compared to what Americans get. So far I found a nice American fulfillment company (shipbob) who is pretty low cost for domestic shipping but for international their costs to Canada are really high (they can ship to pretty much any "non-warzone" country from a US warehouse *way* cheaper than they can ship to Canada from the US). It may just be that Candians pay loads for shipping. Thats been my experience as a consumer anyway.
Fullfil Canadian orders yourself from Canada.
Newbie
Jan 18, 2017
81 posts
51 upvotes
I stopped reading at US LLC has benefits. Anyone on the Canadian-side of this business knows that US LLC = Double tax. For a Canadian resident that's likely the worst way possible to set something up these days.
SuddenlyStalin wrote:
Jun 12th, 2018 3:57 pm
Thanks again

For the benefit of others, I found a link with a discussion of my exact issue. This guy sounds like he knows his stuff, but of course every individual has their own situation:

http://ustax.bz/non-us-entrepreneurs/
______
Canadian & US tax guy

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