Case Study: Ashlee is starting a new e-commerce business and needs tax advice!

by margento | September 25, 2020

Facts about Ashlee’s tax situation

  • Ashlee has some great ideas for products and wants to sell them online via Amazon and Shopify. 
  • She has a full-time job where she earns a salary of $90,000 annually.
  • Wants a tax-efficient business structure that allows her to pay minimal taxes and reinvest her profits.
  • Her customers will be in Canada and the U.S.
  • Ashlee does not like paperwork and wants a cloud-based recordkeeping system.

Here are a few things we suggest to Ashlee.

Bookkeeping

Ashlee is going to need some accounting software.  As a cloud-based accounting firm, we highly suggest using Quickbooks Online.  This allows Ashlee to work with her accountant and bookkeeper in real-time.  As Ashlee’s bookkeeper, we can assist on monthly bookkeeping and provide monthly reports.  We will make sure Ashlee’s books are organized from day one and Ashlee knows exactly how her company is doing and what taxes are owing.

Sales Tax

Sales tax can be tricky, especially with customers located in various provinces across Canada.  There are different tax rules/rates for each province.  You will need your accountant to review the tax filing rules for each province and make sure you are filing returns if required to do so.  Depending on where your customer is located, the sales tax in that region will apply.

Shopify and Amazon do a great job at tracking sales tax based on your customer’s location, so make sure you integrate these settings in your online stores so that it is easy enough for your accountant/bookkeeper to pull reports and prepare the returns and bookkeeping.

If you are considering fulfillment by Amazon and warehousing your products in the US, you may create a sales tax nexus which triggers the requirement to file US state tax returns.  These rules can be complex and vary state by state.  Contact Argento CPA if you have questions regarding sales tax nexus.

Corporate structure

Since Ashlee’s goal is to have minimal tax, reinvest corporate profits and is already earning $90,000 from her full-time job, it would be best for her to incorporate this business and keep profits in the company.  Corporate tax is much lower than personal tax rates, and if you choose to leave the cash in the company, to reinvest or save, you take advantage of these low rates.  Ashlee should use her cash earned by employment for personal living expenses (since she pays higher personal taxes on that employment income) and retain all her corporate profits in the company to minimize overall tax.  Any initial start-up cash Ashlee invests into her business is treated as a shareholder loan and can be repaid at anytime tax-free.  (for more information on understanding a shareholder loan, check out our recent article “understanding the shareholder loan: how to use it to your advantage and stay compliant with CRA”).

Recordkeeping

We suggest using Receipt Bank in combination with Quickbooks Online.  We will help you digitize your records and integrate this app with your Quickbooks Online account.  No more saving paper receipts in your closet for years and years.  You can simply upload/forward receipts from your phone or email and we will handle the rest.  If CRA ever reviews your expenses, it will be simple enough for us to go online and access all the invoices CRA requests.  This makes a review or audit procedure with CRA painless and time efficient. 

Call Argento CPA today for a free initial consultation

We understand that everyone’s needs are different, and we all have unique tax situations.  One size does not fit all and that is why we tailor our services to exceed your expectations.  Call us today for a free initial consultation so we can explain how we will make your bookkeeping and taxes as simple as possible.  We offer fixed monthly fees that are fair, and we always deliver quality work with clear communication.   

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