Canadian Ecommerce Sellers: The US Tax Mistakes That Are Costing You Thousands — Salman Salat | Why US LLCs Risk Penalties, How Canadians Save 1.5% Fees, What Tax Nexus Means Now, Why Double Taxation Hits Sellers, How to Scale US Sales (#479)

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What a lot of basic bookkeepers are. Non e-commerce focused bookkeepers do is they take your payouts as your income. So when they're doing the bookkeeping let's say you earn in a month, you got only got 80 K as a payout because obviously this fees refunded all of that stuff. They're going to take that 80 K is your income and KRA is completely disallow that.

I have audit letters on on my file where KRA has asked for income to be reported from the shop five portal. They need a download from the Shopify portal from the reports to see that.

Hello and welcome to another episode of the eCommerce Coffee Break podcast. If you're a Canadian e-commerce seller, a big chunk of your revenue likely comes from the United States. Sounds great until you realize what it's costing you. Hidden fees, wrong set ups, missing filings. These small mistakes can quickly drain thousands from your business. And the worst part? Most brands don't even see it happening.

So today we're breaking this down. What's going wrong, what actually matters, and how to expand into the U.S. without creating expensive tax problems? Joining me today on the show is Salman Salat is a CPA and founder of Sul Consulting Accounting. He spent years as Ernst and Young and now helps Canadian sellers handle cross-border tax, U.S. entities and bookkeeping.

Salman, welcome to the show. Pleasure to be here. How you doing? Let's start simple. When a Canadian brand starts selling in the United States, what's the first mistake they make? That's the first mistake. On day one, there's nothing as such. But what happens is that as people start to sell more and more, they don't realize that. And what happens with most Canadians is that 70 to 90% of their sales, or even higher, are coming from the US.

Normally. And they don't realize that they're paying this fee to Shopify that they can completely avoid, like, just like that. And that is a 1.5% international PR fee that they're like for every hundred dollars of sales, you're paying $1.50 for no reason. Shopify. And it's very easy to avoid that. I think that's the mistake people make when it doesn't buy them, when they're too small.

But as you start to go like let's say 20 K a month and above in sales to us, it starts to bite hard. Definitely 1.5%. That cuts right into your profit margin. And if you can avoid this, obviously you're better off. Now there's more things to it and that can become, as you said, once a growing can not only cost your money, it can make your life very difficult when it becomes to Texas and so on, so forth.

Give me a scenario, an example on what you see, how companies are getting into these problems. Yeah. So it's literally a case of not knowing that there's a solution out there. I mean, sellers see the fact that, okay, they're paying the whatever 2.6%, 2.8% normal fee for Shopify, right. Assuming you're on their growth plan or the advanced plan, but then they just see that fee, like, let's say, for just taking a small seller $20,000 a month in sales, that's $300 every single month that you're paying.

And people just absorb that without even realizing. And then there's others that don't even realize they're paying that fee. I remember I got in a call with somebody who's now my client. His is revenues about 20 million. Majority of that coming from the US. He paid about 300 K in a year to Shopify for no reason that he could have just avoided USC.

And what happens is nothing. Nothing that. I mean, here's the thing. Most centers are in the 20s, maybe early 30s. They start a store and then suddenly they get explosive growth, especially from the US. And they're trying to all manage fulfillment and all of that. Those things ads grow as all of this stuff at such a young age.

And they don't they're not able to sort of keep people on campus with all of these things. And before you know it, you've spent thousands or maybe even hundreds of thousands sometimes on these extra fees that you could have avoided. Not quite right. I mean, it can become very complex when it comes to Texas and companies set up.

And it's not only that you're losing money through the fees, but there's also a penalty involved if you do things wrong. Can you talk me through this? What does says 100%? So yeah, I, I breakdown my clients into, let's say do we keep it simple. Stage one and stage two. So stage one people are the folks that don't realize that they are charged the fee, or they don't realize the distribution out there.

Stage two people are when they realize the solution. And that's the USOC. So the opera USC and they put that on the Shopify store. And now all your US sales are going to Shopify to the USC. And you're not going to charge for perfect. They've probably read somewhere online. I've seen some TikTok video where it says you have zero taxes to pay to us in the USA, but they don't realize is that there's still filings that need to be done.

And I'll give you small example. There's a phone call for 54 something to do. That phone just in of itself has a $25,000 penalty every single year that it's missed. And so many cases don't realize that, for example. So normally the deadline for that is April 15th. Somebody opens a USA, LLC on the end of like let's say, last week of December.

They don't think about taxes until a year later, but because they opened it, let's say, in January, say, last week of December, the deadline is April 15th, 2027, literally four months into open bell. I'll see. And before they realize it, they missed the deadline. And now they're automatically on the hook for you offer 25,000 or 20 plus literally yesterday client of mine got the letter for that penalty and be like in their case.

The good thing was that they reached out to us in time. We filed it in time. So we fought with the IRS and we got it was like a two hour phone call. We told them that filing is done. They could see it on their end, got the LTE raise, but there's so many people that don't realize it and they do get it to the county.

No, no store can afford $25,000. That's true. You don't want it. You have sleepless nights. $25,000 really hurts. Now, obviously if you go to a certain size, revenue services, no matter which country you are in, they have to have it that they want to get to your money. So if you end up getting text in both countries, in Canada and in the US, how does that look like?

Yeah. So yeah. So that is something that's not commonly known as double taxation happens is but the US like so let's say you have a user like and you pay $5,000 in taxes to the IRS.

Now in Canada what happens. So let me let me give you a little bit of a history lesson before we get into that, into the nitty gritty, the U.S. kind of tax treaty, which is a treaty between the two countries, saying that we're not going to tax you each other's residence, the same amount as you taxing them. So, for example, if the US is taxing them, the guy that's not going to tax some of the same income and end up with a products.

That treaty was signed in 1980, in Washington, the US, like at that time, was like literally it was something that had just started. So it wasn't in it was a factored into the tax rate at that time. And unfortunately, they've not updated the treaty to include anything for the U.S. what happens is the US just treats the US as a floating entity.

That means that I, as an owner of a like, are you when you pay tax for the US, like let's say $10,000, the LLC stopping the tax, you're filing a personal tax return in the US in your name, and you're making the payment when you report that in Canada, what you're supposed to do or what you want to do is take foreign tax credits.

That means taking credits for the tax you pay to the foreign government IRS, when you show them the proof that I paid, what happens is a lot of times when you take foreign tax credits in your tax return, you'll get audited. And when it opens up, CIA wants the Canada Revenue Agency wants proof that you've paid to make this payment.

Now, when you show them the proof that I paid this $10,000 for the US income, because you made you because you file a personal tax return. Because that's how it's required to do to be done in the US. They're going to say that this, this, this payment and this stuff that's filing is for you, not the US. Slick.

And you could explain to them for hours long that this is how it gets tax in the US. They're not going to take it. Even though I don't. It's been years and years been decades since these have been around. But they don't take that. They're like, this payment is for you right? You could have made any other income.

And this is payment is for you. We want to see some proof that the LLC paid some tax. And there is no such proof. And they want you doctor and.

so when it comes to international business, obviously there's also international cross-border bookkeeping. And when you're basically running your business, maybe from one Shopify account, that can become complicated. How does that work? Yeah, 100%. So for example, so what I do with Canadians, right, is that step one, before we even get into the bookkeeping, I have them on the U.S., LLC, not in their own name.

I have it owned by their Canadian corporation because it happens is double taxation is one problem. But even before you get to double taxation, even before you get audited with by the kind of Canada Revenue Agency, the c.r.a. putting putting a usb-C in your own name, you your personal tax rate can go up to 53% to 53% tax rate for any income that profit did you for much smarter to own the US US's by the Canadian corporation.

And that avoids double taxation as well.

The LLC is treated as a corporation in in Canada. If it's owned by the Canadian company that you would own, then it all gets reported under the Canadian company. So it's fine for the US because in the US you're not paying any income tax on it. In the Canadian side on the on the Canadian side, it it's all reported under the under the Canadian Corporation.

And that's fine for us. That's fine for Canada. And it also lowers your tax rate. So you're not paying 53% tax. You're paying 12.2% I'm assuming you're in you're in Ontario. But it's about 1212 to 13%. Now you get now getting to your, question, how do you do the bookkeeping for it? So what you would do is let's say you're using QuickBooks or your bookkeeper is using QuickBooks.

You would set up QuickBooks under the Canadian company and link all bank accounts, the cleaning company's bank accounts, and also the US's bank account under the same QuickBooks account. Why? Because at the end of the year, when you do the corporate tax return for the Canadian company, you would you would include all the income and all the expenses of the GST as if it never existed.

It's like literally it's literally passed through. So the US is just like a veil. Everything else is reported on the Canadian company side and everything. It's all the bookkeeping happens in one roof. Does that answer the question? It makes perfect sense. And I think that's a very elegant solution to to this issue. And I think most of our followers, of our listeners can follow this trend.

Now, obviously, you're specialized on this for Shopify, for ecommerce sellers. Who's your perfect customer? What kind of brands to you work with? Yeah, so normally we are working but well, we do. You take brand as small as as small as they want, but usually we see brands get real value from us. Is a brand that's doing about 50 gain sales worldwide per month, all the way up to, for example, we've got one one company that's doing 100 million a year, so about 10 million month, right.

Something exciting that just got signed. Yes, yes, the gummy company Haribo. They're starting to work with us for the Canadian side. So that's obviously a huge feather in our cap that a global company. So probably gonna be $1 billion company very soon. So anywhere from 50 K all the way to 100 million a month. Haribo is very well known.

I'm from Germany, so. But we know Brant very, very good. Exactly, exactly. I mean, it's sort of typical onboarding process when a new client comes to you, what steps are involved? How long does it take to get up and running? Yeah, yeah I said so. First. There's obviously the boring stuff, the paperwork and the invoicing and all that.

That stuff. Once that that's sort of way. We usually book a onboarding call two weeks after you start with us. So an onboarding call is where you meet my team. You probably see if you're £50 above a month in sales, your initial call when you want to have a discovery, call me book by me would be with me.

But then when you start, then the onboarding call would be with somebody in my team, so I would be there. My date with ops will be there. My corporate tax manager will be there. They would explain the scenario next steps. And usually what they do is they set up a QuickBooks account for you. It's on our tab.

So you're paying for it. The connect all your apps. For for Shopify. One app that we like to use a lot is A to X. It's basically an ad that helps you. So it helps you connect your income from Shopify directly to your QuickBooks. What a lot of basic bookkeepers are non e-commerce focus bookkeepers do is they take your payouts as your income.

So when they're doing the bookkeeping let's say you earn okay in a month you've only got 80 K as a payout because obviously there's fees refunded. All of that stuff they're going to take that 80 is your income and CRE gander. And it is completely disallowed that I have audit letters on on my file where CRA has asked for income to be reported from the Shopify portal.

They need a download from the Shopify portal from the reports to see that. So make sure that that's taken care of, because obviously, the biggest thing for Shopify sellers is that they want the peace of mind of knowing that this is all taken care of. So we don't have to think about these things. So in the onboarding call, we set up all the apps and then the team goes away.

We're doing the monthly bookkeeping and sending. And every month you get sent a monthly profit loss that shows you exactly how much you made, including everything done directly from the Shopify data, and so that you can take decisions with clarity, not by gut feeling. I like this approach. I'm doing online business for a long time and having someone on your site an expert specifically when it comes to bookkeeping and to accounting, and to Texas who understands online business, e-commerce, specifically Shopify.

That is so important because, as you said, a lot of experts out there, they don't have too specific knowledge and that things can go wrong very, very quickly. I have experienced this on my own. So you want to make sure you have someone on the site who knows what they're talking about. How does your pricing structure work? How do you charge?

So before I get to the pricing, talk about the value of it. So the idea of sell accounting is to be a one stop shop, right? It's exactly what you're saying that because because the account, the the accounting your dad referred you or have you doesn't really know about Shopify, just like you rightly said. So we saw that gap in the market and nobody's filling out filling that.

So we realized that we're good with US taxes. We've been doing that. And I ran my own ecom store years ago. So I was like, let's bring that knowledge and the US tax knowledge and obviously Canadian tax knowledge and bring it all in one house. That's a one stop shop for Shopify centers. The other thing is that as we talk more with more and more centers, and we've got dozens of brands that are working with us, you learn from one brand and then you apply to the other.

So, for example, I can now have conversations with brands talking about you're spending on meta. Are you are you white labeling your spending? What what metrics are you checking on? Triple blue a regular accountant, even knowledgeable is all right. So about the pricing, the price change, depending on the team's capacity. But right now, I mean, in April 2026, it's roughly around this.

It starts at this 700 per month per entity mark where bookkeeping, US tax filing and indexing all this covered this in green dollars. So if you've got just a cleaning company that's probably going to price is going to start for a small store at about 700 a month. If you've got a USOC and the Canadian company, then it's going to be not exactly double that, but somewhere sort of 80% more, something like that, 90% more.

So let's say 1200 4000 a month for an average small store. I think that's money well spent because it takes so much of the nerves away and makes sure that you're working according to the IRS to the Canadian Tax Revenue Service and so on, so forth. And as I said there might be fines involved if you don't do it right.

So I would always bet being on the on the safe side there before our coffee break comes to an end, is there anything you want to share with our listeners that we haven't covered? Yeah, I just wanna I just want to add to the point where you said money well spent. I'll give you some example. A few weeks ago, I signed on a seller.

He's doing about 4 million a year as selling belts. When you signing up with us? When we initially mentioned the price of the Canadian got just he just had a Canadian copy and it was about 700 a month. And he was like, maybe I could, you know, because obviously he's young, in his early 20s, he was kind of trying to see there's a more cost effective option.

Right. So seven in a month he was still trying like on the on the fence of it. I just love the fact that I was like, okay, so x percent of your sales up to us, let's do a quick calculation. Oh, so if you open a USL C and we had a lot of that for you, you're saving like two month.

That's two and a half year. Three month is like forget 700 a month. Sign me up for the USOC. And that price for like 16 1600 a month is like today I'm going to sign up two days. Right. So when you put that in, put put into perspective, the value you're getting it, it becomes peanuts. In that sense.

I think I was going to say is that, if I, I'm obviously I understand that some sellers are not to that skill. And you know, they might it might not be too much value for them to start with this right now. For that reason, I've put up videos on my YouTube channel talking about in detail, like some of the form that I'm talking about with the 200,000 ability.

There's literally a YouTube video of me going through the entire form. Right? So if you just go to the channel, check it out, you're getting free value without even having to be a dollar. Perfect. I will put the link to the YouTube channel definitely in the show notes. Where, where else can people go and find more out about you?

Yeah. So, it's Sal accounting. Okay, so, Sal, three letters is my name accounting? Okay. And the channel, if anybody wants to know, is Sal. Sal, the CPA, Sal, the CPA on YouTube. That's easy to remember. I will put the links in the show notes and it will be just one take away. So thanks so much. I think there were a lot of gold nuggets in there.

If you're in Canada, if you're selling on Shopify, I would recommend to reach out to salon to make sure that your taxes, your accounting, are in order and you're not getting in trouble. Thanks so much for your time today. Likewise, it's a pleasure speaking to.

Have every.