I've been keeping a growing list of accounting questions since starting Blue Bottle Games. Mainly, they're questions that didn't need answering immediately, but soon. I've finally reached a critical mass, and figured it was time to start seeking those answers.
As usual, I figure other indies will probably run across similar questions in their adventures, so I'll be sharing my findings.
I've reached out to a local accounting firm to see if they'll sit down with me for an hour (or less) to go over my questions. As such, many of these questions' answers will have to wait until a future post.
However, two questions have already been answered by my payment provider, FastSpring.
Payment Providers & Taxes
My province (BC, Canada) has a sales tax (GST), and I was wondering if FastSpring handles that tax, if I must pay that tax, or if it is not an issue?
Also, regarding tax reporting, will FastSpring send me tax forms at the end of the year, or am I required to send tax slips to FastSpring? If so, which forms? (This second one was prompted when I learned that businesses must prepare tax slips for services they contract. I wondered whether FastSpring was therefore considered a contractor, since they take a percentage of each sale, and that might be considered payment.)
As usual, FastSpring was quick to respond, and the answer was better than I expected:
Technically FastSpring is a reseller. This means payment we send you are for wholesale sales, and we become the retailer. As such, sales tax would become purely our responsibility. Current laws between the US and Canada do not require collection of GST on sales of digital goods by US retailers, so no GST will be collected, and you don't need to and can't charge it on sales through FastSpring.Getting this answer only reinforces my feeling that indies should find a good payment provider if possible. Having an expert handle not only the prospects of customer payment and security, but also international sales tax and VAT has been a huge weight removed from my shoulders.
We won't send or don't need any tax related docs with you, and you should simply claim payments we send to you as "wholesale sales".
I'll list the rest of the questions here, even though I have no answers yet. Once I've spoken with an accountant, I should have some more info to share. Without further ado, the questions.
To whom do I pay taxes? CRA or IRS? I'm pretty sure this is the CRA, as it would be with regular income, but I might as well ask the expert.
Do I need to pre-pay or withhold any taxes this year? I know I've heard somewhere that self-employed-types are expected to withhold and pay taxes during the year, so I want clarification.
Should I back-pay myself for work done between the day Blue Bottle Games was started to the first day of customer sales? There's about a three-month period during which BBG was active and a fully-registered sole proprietership accruing expenses before I received any sales income. While I of course would like to be paid for that period, I want to know if start-ups usually do this or not. My hunch is that they do, and this is just a line-item in the "accounts payable" for the company until it can afford to settled the debt.
Should I back-pay myself for work done on NEO Scavenger before 2012? I was working on the game before BBG became a company for almost seven months. Should I back-pay this effort as well? This is a bit trickier, since I was technically not allowed to be employed in Canada until December 2011. I may have to write that off as volunteer work.
What should I do about paying myself during the period before BBG can afford to pay my salary? This is related to the question above. BBG is making some money, which is deposited into a bank account. Should I be paying myself out of that account right away? Should I wait until BBG is in the black? Since BBG and I are essentially the same tax entity, it's not a question of taxes as much as just general good accounting practice.
Should I deduct home office space on my taxes? I've heard a number of people (whom I trust) say "yes" to this, particularly if I'm careful about realistic claims. Still, while I have an accountant captive, I might as well ask. Particularly since the office is just another room in our apartment, and gets used for other things (especially during evenings and weekends).
Can I deduct any other expenses? Like with the office above, there are some things I'm considering purchasing which have simultaneous use for both work and play. (e.g. an android tablet, video games, pc hardware) Can all or a portion of these items be considered business expenses, if they are used for pleasure some of the time?
Volunteers and Employees
How do I account for volunteer/unpaid help? I've had some design help and forum moderation help which was voluntary, and I want to make sure there are no tax reporting needs I'm missing.
Is there any limitation on who can work for me, in terms of their location and visas? I want to know if there are any restrictions on my hiring or accepting volunteer help from foreign workers or companies.
Should I establish a US subsidiary? Normally, this would seem unnecessarily complicated. However, some services will only work with a US company. (e.g. Kickstarter, Amazon and Google payments, etc.) Is it worth my setting up a US branch to take advantage of these services?
Are there any provincial or federal business programs I should be participating in or applying to? Since I'm not employing anyone nor creating any jobs, probably not. However, there may be programs to support entrepreneurs in my area, and it's worth asking.
Do I need to register for GST? Even though I trust FastSpring on this, I figure I might as well ask the accountant while I've got them.
Hopefully, these are questions I can knock-off in a single sit-down with an accountant. I'll be sure to share once I get some more info!