M. Salman
You set up a USLLC. Now, people at this point, I can hear the question ringing: which state do I open it in? There's like fifty states. Ninety-five percent of my clients go with Wyoming because it's simple, it keeps your identity protected. So you do have that anonymity. And it's simple to file taxes every year as well, and it's a tax-free state.
Chase Clymer
Honest Ecommerce is a weekly podcast where we interview direct-to-consumer brand founders and leaders to find out what it takes to start, grow, and scale an online business today.
Hey everybody, welcome back to another episode of Honest Ecommerce. Today I'm welcoming to the show M. Salman, CPA. Sal, welcome to the show.
M. Salman
Hey, how are you doing? Pleasure to be here.
Chase Clymer
I'm excited to have you. I like the crossover here. You're more on the YouTubes and I'm more on the podcast land.
M. Salman
One hundred percent.
Chase Clymer
But we're gonna do both. We're gonna end up on each other's shows. So I'm very excited about that.
M. Salman
For sure.
Chase Clymer
So at the top, I just want to make sure we shout it out. I mentioned you're on YouTube. What do I search on YouTube to find your content?
M. Salman
Thank you. So, Sal Accounting CPA. That's it. So the first three letters of my name, Accounting CPA.
Chase Clymer
And it's also the name of your business, Sal Accounting. You guys are a one-stop shop for Canadian Ecommerce brands selling into the USA. Such an interesting niche. Your team takes care of the tax stuff on both sides of the border and helps out with the books. How did you end up in this weird little cross-section of Ecommerce?
M. Salman
Very good question. So I had a small Amazon store that was all right. It was not doing great. But I realized my expertise lied in what I studied, which is accounting and tax and all of that stuff. So I didn't continue with that. I sold it to my partner, but then I started Sal Accounting CPA, which is basically helping Ecommerce store owners realize that there are tax obligations on the Canadian side, but then there are tax obligations on the US side.
Now, on the US side, they might not know it, but there are savings when you open. For example, if you've got a Shopify store, you're selling to the US, which is majority of Canadians or majority of brands overall, a ton of their sales are coming from the US anyway. Now, if you're a Shopify store, you're going to get charged a fee, which is 1.5%, or if you're on the Plus plan, 1.25% Shopify fee, for international payouts. So your bank account and your company and everything is outside the United States. Shopify is going to charge you extra on top of their two, three percent fee to pay the money out to you.
People don't realize that just by having a USLLC, you can basically avoid that fee. Because we also do cross-border, which is US-Canada tax, we realize that Shopify sellers are the one niche that we can really help out, given my expertise in cross-border and my expertise in Ecommerce. Bring everything in one under one roof and offer that to folks. And I can talk about a bunch of those things, but I don't want to derail the conversation. So I'll flip it over to you.
Chase Clymer
No, no, absolutely, Sal. That's fantastic. So what you discovered through running your own business is kind of not necessarily a cheat code, but people love buzzwords, right? It's like, "How to instantly save one percent year over year," which is just doing some upfront work. And you kind of already mentioned it, it's setting up a USLLC.
And then I'm sure there's a lot more to it than that. But what, I guess first and foremost, at what size does something like this... and I'm saying, let's maybe just for the rest of the conversation, we're talking in US dollars, just to set the stage. I think that will make things a little easier. So, at what size of an Ecommerce business, and then I want to clarify too, are you only working with Shopify brands, or just Ecommerce in general? But what size business does looking into getting a US entity set up really make sense?
M. Salman
One hundred percent. Thank you for asking that question because that's very pertinent. So first thing, the first precursor to this, before you even get to size of revenue, is you either have to have one of these two things that necessitate you opening a USLLC.
One is that you're on the Plus plan. And why I say the Plus plan , because on the Plus plan you can have multiple entities from multiple countries. So you can have a USLLC set up on your US Shopify store, and you can have a Canadian entity on your Canadian Shopify store. Which means that you don't get charged the 1.5% fee in either country, because you have two entities, each of them local to that country. So Shopify doesn't charge you for disbursing the amounts in your local currency. So that's one thing , either you're on the Plus plan.
If you're not on the Plus plan, then you need to have at least 50%, more than 50%, of your sales in the United States. Because what happens is, if you're not on the Plus plan, you can only have one company set up on your Shopify store. So if you only have one company, you obviously want that one company to be the one that's in the country where you have the most sales. If you have most of your sales from the US, then it makes sense to put the USLLC on the Shopify store. And then all of the other countries, your sales from those countries, would get charged that fee.
But what happens with most Canadians is that 70, 80, maybe even ninety, ninety-five percent of their sales are from the US. So it makes sense for them to have the USLLC on the store and not have a Canadian company. At the start, when people start out, they put in the Canadian company and then they realize they're getting hit with that fee again and again and again.
One of my clients was doing twenty million in revenue, twenty million Canadian, so let's say fifty million US, and he was paying at least two hundred thousand dollars every year just for that one fee. And I helped him realize that, bro, you can literally get a G-Wagon for yourself with that money. So those are two things you want to keep in mind, either the Plus plan, or more than 50% of your sales to the US.
Now, revenue, it usually makes sense when you're doing at least 50K a month, 50K USD a month, from the United States. Because below that, you're paying more to your accountant in cross-border tax filing fees than you're saving in Shopify fees.
I mean, I get people who are coming to me that are making a hundred million a year and they haven't set it up yet, and I help them realize that. And it does come with its own set of problems, and we can talk about that once you get to it.
Chase Clymer
No, absolutely. So you'd say the floor would probably be around 50K, and where it really makes sense is if you're already on Shopify Plus and you have these different buckets of where your sales are coming in from. That's really good to keep in mind. Obviously, on the Plus plan, it makes things so much easier. We have helped people set that up before over at the agency, but we never got into the tax implication side of anything on that.
Okay, so let's pretend that my made-up store is doing well and we're on Plus and we're doing okay in America, and we have realized that this is a problem that we are looking to solve. What is the process like, as a Canadian company, to set up an American entity and take advantage of this way of selling?
M. Salman
So before I get into that, just reiterating that either you're on the Plus plan or you have more than fifty percent of your sales from the US. Right. Now the process is very simple to set up. You literally just open a USLLC and put that on. So you can set up the USLLC , which I have a video on my YouTube channel literally just showing you how to do that for free, and you can literally just do it yourself in probably ten minutes.
You set up a USLLC. Now, people at this point, I can hear the question ringing: which state do I open it in? There's like fifty states. Ninety-five percent of my clients go with Wyoming because it's simple, it keeps your identity protected. So you do have that anonymity, and it's simple to file taxes every year as well, and it's a tax-free state. So Wyoming's the best. You can set that up online, there's a YouTube video showing you how to do that.
Then you need bank accounts to be able to get those payouts. To open a bank account, your bank is going to ask you for two things. One is the articles, basically the documents that you got when you opened the LLC. And second, proof that you registered with the IRS, which is an EIN, an Employer Identification Number. Canadians would know this as a business number that they have in Canada, it's just for the US.
To get an EIN, it's pretty simple. Simpler if you're a US citizen, but for foreigners it's still fairly simple. And I've got a YouTube video on that as well. You just need to fill out a form, send it to the IRS. The only thing is that the IRS is super slow, so it takes about six weeks. In Q4, because there are so many Ecommerce sellers starting up at that time, it can even take up to eight or ten weeks. So just want to be mindful of that, until you have that IRS registration, the Employer Identification Number, you cannot open a bank account.
You can't open a bank account, can't put it in your Shopify store. Okay, so: open the LLC, get the IRS registration, get the bank account. For bank accounts, most banks do not accept foreigners because there's just a fraud risk. Slash Bank is one of probably the only banks/financial institutions that's accepting foreigners. So you open a bank account with Slash if you're okay with that, or Wise, and then you set it up on the Shopify store.
Chase Clymer
Man, you're making it sound a lot easier than it seems. Or is it kind of something that you could do yourself?
M. Salman
So, yeah, it is easier than it seems. It sounds easier than it seems. Where a lot of brands get it wrong as Canadians , and I'd say a majority of brands make this mistake, is that they put their own name on this, when they start an LLC, it asks who is the owner. And you're naturally inclined to put your own name on it.
What happens is, between the US and Canada, there's a tax treaty, and it exempts certain types of income from being double-taxed. Double tax means the IRS asks you for money and the CRA asks you for money. You basically get taxed on both sides of the border. The problem is this treaty was set up before an LLC, anything such as an LLC, was ever known to us. So the LLC is prone to double tax if you own it in your personal name.
But if you own it under your existing Canadian company, or you open a Canadian company and put it under that, then you're not subject to double tax. You're safe from basically paying tax on the same income twice. So that's a very big red flag to make sure that you put your Canadian corporation as the owner of the USLLC, not yourself. And that's where a lot of brands get it wrong.
Chase Clymer
I could see that being super frustrating.
M. Salman
You fill out the form on some website and it says, "Who's the owner? First name, last name," and you just put John Doe. And just that small thing, when it comes to filing taxes, it means you're basically paying double tax on both sides of the border.
Chase Clymer
I mean, I definitely get it. When you've been in business for ten years, you unfortunately learn a lot about taxes, and none of it is because you wanted to.
M. Salman
Yes, exactly. You stumble and then you learn from it.
Chase Clymer
Now, I've got a couple questions. And you and I can obviously talk all day, before this we were running off on tangents about so much fun stuff. But does your expertise, or your help when you're helping these Ecommerce sellers, go the other way? Are you helping US sellers sell in Canada as well, or is that not necessarily a thing you do?
M. Salman
Your earlier question was that you make it sound simpler than it is. In terms of when you open a USLLC, it's literally just making sure that your Canadian company is the owner of the USLLC, not you. What happens is people don't realize that when they open the LLC, there are also tax filing and reporting requirements that need to be done, both on the US side and the Canadian side.
Just putting it out there, any foreigner, not even just a Canadian, any foreigner owning a USLLC has to do this one disclosure requirement, and you can Google this, it's called Form 5472. Any foreigner owning a USLLC has to report it to the IRS. I'm not going to get into what it requires, because that's going to be a long topic, I have a YouTube video on that. But if you miss filing that, or you do it wrong, or you're late, even a day late, there's an automatic penalty of $25,000.
I've had clients that have gotten penalized $25,000, and we had to fight the IRS to basically get that waived, but it's very difficult. So be very, very careful, when you open a USLLC, you want to speak to a cross-border accountant who knows how to do these things. Because you don't want to miss that deadline. That's all I'm saying. And even on the Canadian side, there are things you need to report and there are penalties for that.
What we do is, in our plans, we've got our monthly plans, we do the opening of the USLLC, we do the opening of the Canadian company if that's needed. We do the monthly books, we do the tax filing in Canada and the US, and this form has that penalty. So it's just a one-stop shop, you don't have to worry about those things. That's for Canadians looking to expand into the US or who have expanded into the US.
Now, I can come to your question, which was, what about US brands that want to expand into Canada? If you're a US or any foreign brand that wants to expand to Canada, the moment you hit thirty thousand dollars in sales, you are required to collect Canadian sales tax. US brands don't realize this, because the thresholds in the United States are much higher, like New York, Texas, they've got half a million dollars of sales before you have to collect any sales tax. In Canada, it's literally thirty thousand.
So, yes, we do help US LLCs or foreign companies set up their accounts in Canada to be able to be compliant on the Canadian side as well as the US side. A small example, the gummy brand Haribo, which maybe you're used to eating, we're helping them set up in Canada for their Canadian sales.
Chase Clymer
Hey everybody, just a quick reminder , please like this video and subscribe if you haven't. We're releasing interviews like this every week, so don't miss out. Now back to the interview.
You mentioned before that you are also helping not only with people selling in other countries and setting that up the correct way, but also the main business. I don't know how to describe it, but it's like bookkeeping. That is what you're doing for these brands. So could you speak a little bit to that, and how you're helping them solve their annoying pain points there?
M. Salman
Yeah. So what we notice when just perusing through Reddit and Quora and all these forums is that brands don't always have visibility on how much they're making. Sure, they can check their cost per acquisition, CAC, and all of these things on Triple Whale or something. But really seeing what their bottom line is, brands don't have that visibility. And everybody wants to save tax, nobody likes Uncle Sam, but when it comes to accounting at the end of the year, how much can you really do? The year has ended, or it's about to end in a few weeks. There's no planning that can be done at that point. And you spend the whole year clueless.
Chase Clymer
Just making a mess with your purchases and your sales.
M. Salman
Exactly. Or, can I take money out of my business? What's the best way of taking money out , do I put myself on salary? Can I take out money like a dividend, which is take money out whenever you want? Or can I purchase a car, or lease a car for my business? Things like that.
If you come to accounting at the end of the year, there's hardly anything you can get support for, and hardly any tax savings. So what we do is, we've got monthly plans where we're doing your books, so you're getting a profit and loss statement sent to you every month. So you could be on the metro or whatever, in the subway, and you can check your numbers on your phone and know exactly how much you made last month. And it helps you plan and save taxes proactively, rather than at the end of the year when you don't have any opportunity to do anything. That's it. So, basically doing the taxes, doing the books, and saving your taxes all at the same time under one roof.
Chase Clymer
Absolutely. Just from our experience as an agency, we have a bookkeeper that we are talking with weekly, probably. Like, "What's this expense?" is usually what she's asking. And it really just takes some discipline to get your books set up the right way, your buckets set up the right way. And then, obviously, now with AI and automations, things can start to sort themselves out, but there's always new things.
That's just the busy work of running a business , you always need to be sorting these things and putting them into the right places. I see a lot of people that just don't do that at all throughout the year. Then they come up on taxes, or whenever they're doing the end of their fiscal year, and they create this nightmare for themselves of having to look at twelve months of expenses and receipts.
Just don't do that. Get somebody like Sal, or whomever, on a cadence of helping you with your books. Honestly, as a founder, you shouldn't be doing the books. Don't be spending your time doing your books. You should be reviewing what you get back, though. You should know your numbers and you should trust that these buckets are set up the right way, and collaborate on getting them set up. But that's an easy thing to get off your plate , one of the first things.
M. Salman
And I'll add something here. One of the first things that people do when they offload or delegate this is they go online and find the cheapest bookkeeper, for like $300, $400 a month. And what they don't realize is, number one, this bookkeeper is working for you, he's working for a restaurant, he's working for, I don't know, a gas station. And they don't understand your business. They're going to take payouts as income, because that's what they're used to doing at every other business.
Now, the problem is, when you report this to the government , either the CRA, the Canada Revenue Agency, or the IRS , they don't like it if Shopify is saying you made a million dollars this month, or whatever this year. But your payout was, let's say, eight hundred thousand, and they've taken the money that hit your bank account as your sales, that's completely wrong. The government's not going to accept that. If they open an audit, and your sales according to your QuickBooks and according to your tax returns say $800,000, but actually your Shopify portal says a million, they're going to disallow that, and they're going to penalize you on the fact that you've done everything wrong.
If you have more tax to pay, then they're going to penalize you and charge you interest, because you haven't paid that when the deadline was, whenever it was. And if you paid too little tax , well, if you paid too much tax, let's say they don't audit you, and then five years go by, nobody audits you, nobody checks on this. Every year you're just paying too much tax, because everything was done wrong. Because you wanted to save, I don't know, a couple hundred dollars a month on a bookkeeper who's taking payouts as your income.
So those are a couple things. That's one. The other thing is that standard, basic bookkeepers aren't tax accountants, they're not doing your books in a way that's going to optimize you for taxes. And when you come to your accountant at the end of the year, you want to pay them some peanuts to do your books, they're not going to look into your books, they're not going to spend three weeks looking into your books just to do your taxes. They're just going to take what the bookkeeper gave them. So basically, they're not saving any tax , you're paying just to get some paperwork done. So you end up paying more in taxes than you save in the fee for an accountant or a bookkeeper.
Chase Clymer
Absolutely. Yeah.
M. Salman
That was a long spiel for a simple thing that I was trying to convey.
Chase Clymer
Awesome. Sal, I cannot thank you enough for coming on the show and really just dumbing that down for me, this is what you should be doing. As a consultant for ecommerce brands, I'm going to be asking them this question moving forward, making sure they're saving some easy money in that regard.
Now, if I'm listening to this show and I find myself identifying with what you laid out earlier , I'm doing over fifty grand in America, or more than half my business is in America, I'm on Plus, all of this is just under my Canadian entity, I feel this pain. Where should I go to learn more about this process, to potentially speak with you?
M. Salman
Sure. I think the first thing would be, there are three things out there. There are so many videos I have on YouTube where, if you wanted to, you could do this yourself. So you could literally just go to YouTube, search for Sal Accounting CPA. But actually, there's one more thing. I think probably next week, I'm putting out a three-step blueprint, where people can go through a PDF guide that tells them, at every stage of their business, what the right step would be to take so that they're not having to face any of these penalties or interest or any of these issues.
So that's something that they can download by going to salaccounting.ca, and on the same website, they can book a call with my team and they'd love to help them out.
Chase Clymer
Absolutely. And by the time this episode comes out, that free resource will absolutely be available on Sal's website. We'll make sure to link to his YouTube channel and to his website in the show notes. Sal, thank you so much.
M. Salman
Thank you. Before we go, though, I want to flip it over to you. Who are the, what kind of brands get the most value from working with you?
Chase Clymer
Wow, let's see. I would say it would be ecommerce, direct-to-consumer first Ecommerce brands are usually our bread and butter. CPG consumables, that's the really fun stuff. When you have a flagship product, where you're selling one thing the majority of the time, that's super fun. Basically, anytime we can get really into the weeds around one particular problem and one particular solution, and that solution being a product. And by "the weeds" I mean into the data, we want to look at customer surveys, we want to look at the analytics, we want to look at heat maps, Heatmap.com, shout out , they might be sponsoring the podcast, I don't know. But those three things, tied with there being a decade of experience minimum behind the people on your team, all that stuff just creates compounding growth, and that's super fun.
Other than that, we do a lot of startup builds for funded startups. We do a lot of migrations , we do so many migrations to Shopify, it's like half our business right now. Funny enough.
M. Salman
Interesting. So there you go, now you know, if you're going to work with Chase's team, what size and what sort of brand you want to be.
Chase Clymer
Awesome. Yeah, you can tell , when you have another host on the show, they do a good job of making you plug yourself, which is a really funny thing to do. Sal, thank you.
M. Salman
All good, man. All good.