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Is it better to start an ecommerce business in canada or the…

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Is it better to...

Is it better to start an ecommerce business in canada or the us?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

I'm a canadian citizen and I was wondering if it would be better tax wise and legal protection wise to start a business in the us or canada.

Submitted: 8 months ago.Category: Finance
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12/31/2017
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago
bkb1956
bkb1956, Finance Enthusiast
Category: Finance
Satisfied Customers: 7,025
Experience: IRS Enrolled Agent, 20+ years of experience in tax preparation with associated finance experience.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

Since it will be an ecommerce business, if you are a citizen and resident of Canada, it would be better tax wise and legal protection wise to start the business in Canada.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Customer reply replied 8 months ago
Would I have to pay more taxes if I start the business in the us? Is the tax rate higher there or higher here? I've heard that you don't have to pay sales tax if you're selling to us customers when your not in the us, but apart from that would I pay less taxes as a us company?
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago

Are you planning to be a sole proprietor or actually forming a business entity?

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Customer reply replied 8 months ago
LLC
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago

Sales tax is different than income tax. Canada's income tax rate is higher than the U.S. by a small margin.

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Customer reply replied 8 months ago
are there any significant additional taxes or fees I would have to pay as a non-us citizen starting a company vs a us-citizen starting a company?
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago

If you are a non-US citizen/resident starting an LLC in the U.S., but having a place of business in Canada (where you are located regardless of the fact that it's an ecommerce business), you will be considered to have nexus (physical presence) in Canada, and would pay taxes and collect VAT in Canada.

There are no additional fees to start a company in the U.S. as a non-US citizen vs. a US citizen.

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Customer reply replied 8 months ago
Ok last thing. I want to start an ecommerce dropshipping store(basically connecting factories with customers and never seeing the product) in the us. I am a single owner, and in the future I may open up more online stores or give partial ownership away. Eventually I would also like it to be possible to sell the entire company and the stores and assets in it's possession. I also want to have limited liability, and be able to pay for expenses before paying for taxes (as I believe some or all businesses do). What would be the best business type for this, corporation, llc etc? Apologies for my ignorance in probably phrasing the question wrong.
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago

Forming an LLC is the best entity type for you right now until you decide if you want to add owners/partners. An LLC will provide limited liability to you personally.

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Customer reply replied 8 months ago
I read that a LLC doesn't pay taxes, but it's members pay taxes on the profits as income tax. Is this true, and if so does that mean that if I reinvest all the money back into the business, I won't have to pay taxes on it?
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago

An LLC is a disregarded entity for tax purposes. Any profit/loss gets passed through to the member. If you show a profit, you pay tax on the profit whether or not you leave the money in the LLC or take it.

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Customer reply replied 8 months ago
would it still be possible to get tax write offs for business expenses such as buying a laptop for work?
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago

That's correct. You pay taxes on the NET not the GROSS.

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Customer reply replied 8 months ago
Is there anything stopping someone from writing almost all expenses off as business expenses then? For example can you write off everytime you eat out if you say you did some work while eating, or can you write off your car if you say you use it for business deliveries and meetings. And if this is possible, would writing these off as business expenses make them assets of the business or assets of the person?
Customer reply replied 8 months ago
Also, I forgot to mention, I am probably going to be the sole owner but I might hire employees in the future as well. In case that makes a difference to your recommendation.
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago

Yes. What's stopping someone from doing that is the guarantee of an audit.

There are many legitimate business deductions/expenses. They are not assets--they are expenses.

No difference to my recommendation if you're planning to hire employees.

I will be offline for several hours, but feel free to post additional questions, and I will respond later.

Thank you.

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Customer reply replied 8 months ago
What are the major pros and cons of starting an LLC in the united states instead of canada.
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago

LLCs cannot be set up in Canada.

See the following for the types of business entities available in Canada:

https://www.thebalance.com/can-you-set-up-a-limited-liability-company-llc-in-canada-2948227

Here are the pros and cons of forming an LLC in the US:

http://info.legalzoom.com/pros-cons-llc-3503.html

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Customer reply replied 8 months ago
What state would you recommend creating the LLC in? Also I read there are different types of LLCs such as single member or c or s corporation, which would you recommend for my situation for paying the least taxes. Also if I start an LLC in the states, would I have to pay taxes to both governments or only one? Would it be sales tax to the us, and income tax to canada? Thanks.
Customer reply replied 8 months ago
Also, for a small dropshipping business that's earning less than 35k revenue, how much would end of the year tax accounting roughly cost? How much would it cost for me with this LLC?
Financial Professional: bkb1956, Finance Enthusiast replied 8 months ago

LLCs are disregarded entities. If it is a sole member, the default is sole proprietorship unless you elect S corporation or C corporation status. S corporation is NOT available to you because you are a non-resident.

See the following:

https://www.limitedliabilitycompanycenter.com/llc/can-a-non-resident-of-the-united-states-form-or-own-an-llc/

https://www.lawtrades.com/blog/answers/tax-duties-non-resident-llc-owner/

There are many considerations for a nonresident forming an LLC in the US and a great deal of information regarding taxation, etc.

At this point, we are well beyond the scope of your original question, and I would ask that you please rate my answers thus far.

Thank you.

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