Stripe Atlas Taxes
Disclaimer: this blog post doesn't constitute accounting advice. When in doubt, talk to a lawyer/accountant and all that jazz.
For the uninitiated, Stripe Atlas is a service that allows you to remotely incorporate a legal entity in the United States, complete with a bank account and some perks.
I incorporated a C Corp in the State of Delaware using Stripe Atlas in February 2019. It was my first time dealing with the tax system in the US, as I've never lived or operated a business there.
Taxes must be one of the scariest aspects precluding folks from going into business. Below is an account of how I dealt with my first and subsequent tax seasons.
All usual disclaimers apply.
Why a C Corp instead of an LLC?
A single-member LLC, which is a pass-through entity by default, complicates the tax matters for non-resident aliens - a term-of-art for non-US citizens and residents (which I am). Pass-through means that a business income is treated as a personal income for the owners.
While C Corps are more complex to run, their tax treatment is relatively straightforward: they're only taxed on their profits. If you're paying yourself a salary, you can expense that amount, which will lower your taxable income (assuming you're not a US taxpayer; otherwise, it gets complicated fast).
If you're a US citizen or resident, an LLC is more apt if you want to bootstrap your business.
At the time of writing, Stripe has restricted LLCs to US founders only. Presumably, some folks have shot themselves in the foot too much, so they decided to pull the plug.
Companies formed in the State of Delaware are required to keep a registered agent in the state. Think of it as an address that state and federal agencies use to get ahold of you.
Somewhere around mid-January, you will receive an email from Stripe Atlas asking whether you want to renew your registered agent. If you don't explicitly opt-out, they will automatically renew your registered agent subscription by the end of January.
Unfortunately, the registered agent that comes with Atlas can't accept general mail. Some virtual address providers (CMRA) can act as your registered agent, thereby avoiding the $100 yearly fee for the default registered agent that comes with Atlas. To change the registered agent, you will have to complete a "Change of Address" form.
Delaware Franchise Tax
While Delaware doesn't have a sales tax, they do impose a Franchise Tax on registered businesses.
There are two ways to calculate the Franchise Tax: the Authorized Shares Method and the Assumed Par Value Capital Method. I won't get into the nitty-gritty, but suffice it to say that you can use one that minimizes your tax liability.
A lot of folks running C Corps get stupendously high tax estimates amounting to tens or hundreds of thousands of dollars (causing a drama on the Stripe Atlas forum every time). It happens because the State of Delaware uses the Authorized Shares Method that results in higher tax bills. Once you switch to the Assumed Par Value Capital Method, your tax liability will likely drop to $450.
You don't need an accountant to file an annual report, although the user interface leaves a lot to be desired, to put it mildly.
One thing that I wish I'd known is that you can save on the Franchise Tax by authorizing 5000 shares or less instead of 10,000,000 shares, which is Atlas' default. That way, your tax due will be $225 ($175 minimum tax + $50 annual report filing fee) instead of $450. LLCs in Delaware pay a flat $300 tax.
Keep in mind that you have to pay this tax regardless of how much you earned (or lost) during the previous year, so plan accordingly.
Corporate income tax
You pay corporate income taxes on the profits you make during the tax year. Even if you didn't earn a single cent from the business, you still have to file tax reports by mid-April (you can ask the IRS for an extension of the deadline).
Nothing precludes you from filing tax reports yourself. Unless you know what you're doing, you will probably screw it up (terribly) and waste a lot of time that you otherwise can spend on running your business (tax reporting shouldn't be that complex, but that's a topic for another day). Stripe Atlas has partnered with several accounting firms offering tax preparation services at a discounted rate.
Your accountant will ask you some questions and for your balance sheet and an income (P&L) statement for the previous financial year, so you will need to take care of the bookkeeping before talking to the accountant.
Because I'm a foreigner owning more than 25% of a US corporation, I also have to file Form 5472 (in addition to Form 1120). Inaccurate filing or failure to file it usually carries a $25,000 fine. Therefore, it's better to pay an accountant and not worry about it.
Make sure you have an EFTPS PIN code before tax season. However, judging by the number of discussions on the Stripe Atlas forum, many people outside of the US do not receive that mail. To add insult to injury, they do not give you the PIN code over the phone. If you are outside of the US, get yourself a mailing address in the US and ask the IRS to mail you the EFTPS PIN code.
Currently, you pay 21% of your profits as tax. You can either pay it yourself, using the EFTPS (recommended) or have the IRS withdraw it from your bank account (your accountant can arrange that). I recommend going with the EFTPS because delays can occur and you may be penalized for a late payment (even if you submit everything on time).
Just give me the numbers
|Registered agent in Delaware
|Delaware Franchise Tax (C Corp)
|Accounting service (discounted)
|$350 and more
So, with the default Stripe Atlas setup for C Corps, you're looking at a minimum of $900 for yearly maintenance (without corporate income taxes).
If you plan to incorporate towards the end of the year, wait until January. That way, you can skip one tax year and spend time building a business instead of doing soul-sucking administrative busywork.