Resources To Help Amazon Sellers Establish An Llc
I encourage all entrepreneursAmazon sellers includedto have discussions with an attorney and tax advisor before deciding if an LLC is a right choice for their online business. There are many factors to consider when selecting a legal structure, and its important to be as informed as possible.
If youre an Amazon seller that has had those conversations, CorpNet can help you move forward with forming your LLC. Our business document filing experts are here to handle completing and submitting your business registration paperworkquickly, accurately, and affordably. CorpNet also offers access to our free Compliance Portal to give you an easy way to stay on top of all your upcoming filing requirements.
Contact us today to get started!
Misunderstanding How Amazon Works
Dont treat Amazon like eBay or Google. Amazon operates on a fundamentally different structure than either of those shopping sites. Be sure your store is capable of handling selling on Amazon, and that your strategy is aligned with Amazon policies- so you get the highest ROI on the Amazon Marketplace.
Its also very important to calculate your , and forecast profit margins before you go full throttle on Amazon.
For more information on the Amazon seller account, and Amazon seller FAQs, visit .
The Amazon Individual Seller Account
Heres how Amazon describes the Individual seller account option:
The Individual selling plan is for sellers who dont need access to inventory tools and reports for volume selling. Under the Individual selling plan, you dont pay a monthly subscription fee. You pay a per-item fee in addition to applicable fees.
The per-item fee associated with an Individual account is $0.99.
This means that every time you sell an item, Amazon charges you a $0.99 fee. This per item fee is on top of the other fees that you pay as an Amazon seller like the referral fees and the closing fees on media .
As of March 2021, an Individual account is still an option despite reports from people having difficulty signing up for one. You can read a detailed account of signing up for an Individual account here, or just get the highlights below.
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The Llc Has Relatively Simple Business Compliance Requirements
Next, to operating as a sole proprietor or partnership, the LLC structure offers the most simplicity compared to other business entity types. States typically have a few compliance requirements that LLCs need to fulfill, but they are less extensive than what corporations must tend to. Amazon resellers encounter less registration paperwork when forming an LLC and fewer filings and formalities on an ongoing basis.
Amazoncom Seller Central Account Requirements:
Lets first look at what Amazon.com requires before you create your Amazon account, and then we can look at some of the strategic factors to consider when you start a U.S. company for selling on Amazon.
Go to to set up your account. Most sellers will become professional sellers. Professional sellers have a monthly fee of $39.99 per month. If you plan to sell more than 40 units a month, a professional plan makes sense since an individual account charges $0.99/per item fee for each unit that sells .
You will need the following information to complete your Amazon seller registration:
- Your legal business name, address, and contact information.
- An email address
- Already selling online and need to determine their past sales tax liabilities
- An internationally chargeable credit card with a valid billing address (type carefully and make sure your card is activated; because if the card is not valid, Amazon will cancel your registration.
- A U.S.-based phone number where you may be reached during the registration process. Skype is a great option.
- Complete the tax interview. A U.S. taxpayer will complete the W-9 form, and a foreign taxpayer will complete either the W-8BEN or W-8BEN-E for a foreign entity. Learn more here
- Although an EIN is not required for a foreign seller , it is recommended for the few states that require sales tax registration.
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What Are The Different Types Of Amazon Sellers
When you decide to begin selling and shipping your products through Amazon, you are more than just an eCommerce entrepreneur. Amazon Sellers are generally considered to fall into one of two categories: Fulfillment by Amazon or Fulfillment by Merchant sellers.
Let’s examine what makes each one different.
Fulfillment by Amazon: This is a program where you sell your products, and Amazon picks, packs, and ships your orders for you. FBA allows its sellers to store their products at Amazon fulfillment centers. If you are worried that you’ll have too much inventory cluttering up your space or can’t ship a product out in time, Amazon can take care of all of these details for FBA sellers. They can also assist with returns and customer service and provide an affordable pay as you go payment plan.
Fulfillment by Merchant: Here, the Amazon seller sells their products through the website – and picks, packs, and ships their own orders. You are fully responsible for taking care of all of the details that the FBA program would have assisted with. Many sellers prefer the FBM method, despite the amount of extra work that goes into the process. By tackling everything on their own, they can add their own personalized touches when shipping products or taking care of customer service needs.
The Best Business Structure For Amazon Sellers
A business structure should provide liability protection, especially when doing business in the United States, one of the most sue-happy countries. In addition, the right legal structure can help minimize the tax liability.
So what is the right legal structure?
Well, it depends. One of the key factors that affect the choice of business structure is where the Amazon seller is from and where he or she is located. Amazon seller tax differs for:
- US Resident
Lets look at business structures and taxation for each group.
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What Is A Limited Liability Company
A limited liability company is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities. Limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship.
While the limited liability feature is similar to that of a corporation, the availability of flow-through taxation to the members of an LLC is a feature of a partnership rather than an LLC.
- The limited liability company is a corporate structure that protects its owners from being personally pursued for repayment of the company’s debts or liabilities.
- Regulation of LLCs varies from state to state.
- Any entity or individual can be a member of an LLC with the notable exceptions of banks and insurance companies.
- LLCs do not pay taxes on their profits directly. Their profits and losses are passed through to members, who report them on their individual tax returns.
What Prep Do You Do Before Sending Products To Amazon
There are a few steps to follow once you have your products home and youre ready to send them off to Amazon.
Jessica outlined her process as follows:
- Scan the products and tell Amazon what you have to send them.
- Tell Amazon what price you want to sell your products for. Jessica said the dont usually undercut the current buy box seller.
- You will be asked some questions about the products as you add them to a shipping plan.
- You can then label the products yourself, or Amazon will do it for a small fee.
- Jessica prints FNSKU codes and covers up the original barcodes, this identifies the products as hers when sold.
- Polybag any products with open faces, bubble wrap any breakable items.
- Add everything into a box, make a note of the weight, and ship it to the distribution center Amazon tells you to.
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Which Entity May Be The Best
Your goal is to determine which entity may be best
The key is to understand what factors you need support with for your U.S. entity formation before you search on a Facebook group and you see an answer that says, Form a U.S. single-member LLC that is disregarded. I did mine here for $79 plus state fees, and three other posts have lower prices.
There is a reason they have a low price because they only do that one step of forming an LLC. Do you even know how the LLC should be managed and what goes on the SS4 application because of your ownership strategy? Do you know the impact of opening a U.S. bank account with the owner being a foreign individual, not an entity? Unfortunately, if you make a mistake on the SS4 application, you will never know unless you happen to get audited 2-3 + years later for filing the wrong U.S. tax forms (and the wrong ownership structure
Most sellers have a goal of forming an LLC and obtaining an EIN. That should NOT be your goal. Your goal should be the proper structure, from a tax and liability standpoint, that allows you to maximize your U.S. e-commerce business and minimize U.S. tax surprises, including sales tax . The challenge is these items, with different platforms, especially sales tax, are moving targets, and the low-cost providers are not set up or capable of being on top of these issues.
The Amazon Professional Seller Account
Heres how Amazon describes the Professional seller account option:
In the Professional selling plan, you pay a nonrefundable monthly subscription fee regardless of whether you list or sell anything. You dont pay a per-item fee when an item sells. All other fees are charged as applicable. The Professional selling plan gives you access to inventory tools to upload batch files and manage your orders through feeds and reports. These tools are beneficial to most medium- to large-size businesses.
A Professional Seller account comes with a $39.99 monthly fee. There are no longer any $0.99 per item fees, but the remaining fees remain the same between the two account options.
The Professional account also unlocks some important benefits, including the ability to upload items in bulk from a spreadsheet and the ability to earn the buy box.
Lets take a closer look at the differences between an Individual and Professional Amazon seller account now.
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The Llc Structure Limits The Business Owners Personal Liability
Sole proprietorships and partnerships are considered the same legal entity as their owners. So if an Amazon seller operates as either of those structures, it exposes the owners personal assets to risk if someone sues the company or the business cannot pay its bills.
However, if an Amazon seller forms the business as an LLC, its owners gain protection from the legal and financial liabilities of the company, because the business is considered a separate legal entity from the owners.
What Are The Product Categories For Resellers
What are the best items to flip for a profit? Jessica recommended a few categories for new sellers.
Groceries Potentially a quick turnaround. Limited edition candies, cookies, and seasonal stuff sells well. Keep in mind the expiration date needs to be at least 3 months out.
Health and Beauty Shampoo, conditioner, face creams, etc. Jessica explained that women are willing to spend more for discontinued items to keep using their favorite brands.
Household Items Shoppers like finding unique items for their homes.
Toys Popular toys and games for kids can sell well. This category is often closed to new sellers during the holidays.
Books Used books sell well on Amazon. You can pick up books at goodwill, thrift stores, yard sales, and so on and resell. Look for niche-specific books, not mass-produced series.
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Picking A Seller Name For Your Amazon Store
When you first start out selling on Amazon, choosing your Amazon seller name probably isnt one of those tasks youd expect to spend much time on. It seems simple enough, right?
The reality is, this can be much more difficult than it appears and something you probably wont knock it out in 10 minutes or less.
After brainstorming, you may have several great seller name ideas but when its time to pick your final business name, youre stumped! Thats completely normal because this is ultimately a big decision for your business.
This guide will hopefully shed some light on how to pick the best name for your Amazon store.
Scenario : Dealing With Taxes
Since you are earning income from selling your products on the marketplace, you will have to account for that when filing your taxes. You may owe the government a pretty penny if you do not account for your taxes ahead of time! Having an LLC structure makes it easy to pass through business taxes to your individual returns to ensure they get paid on time.
Our LLC help center explains this issue best: Taxes pass-through the company, and the individual members are taxed at an individual level and not the company level according to their profits or losses. While LLCs file tax returns, the company does not pay federal income tax.
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What Is Amazon Fba
Amazon has developed its FBA program for companies of all sizes who want to make money selling products online. Amazon provides a marketplace for people who have wholesale inventory to sell at retail, who have manufactured their own products for sale, or who have products they do not want to retail on their own.
When your business qualifies for Amazon FBA, you ship your products to Amazon. Amazon stores your products in their warehouse facilities, and when someone orders your product on Amazons site, Amazon packages and ships the product to the customer. Amazon also handles customer service, returns, and refunds.
Of course, Amazon charges for these services. Many small eCommerce businesses are finding the expense involved with Amazon FBA is justified by the advantages of access to Amazons web presence and the shipping and customer service provided by the service.
Advantages And Disadvantages Of Llcs
The primary reason business owners opt to register their businesses as LLCs;is to limit the personal liability of themselves and their partners or investors. Many view an LLC;as a blend of a partnership, which is a straightforward business agreement between two or more owners, and a corporation, which has;certain liability protections.
Although LLCs have some attractive features, they also have several disadvantages. Depending on state law, an LLC may have to be dissolved upon the death or bankruptcy of a member. A corporation can exist in perpetuity.
An LLC may not be a suitable option if the founder’s;ultimate objective;is to;launch a publicly traded company.
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Us Residents With Amazon Business Benefit From An Llc Or S
A US resident for tax purposes is not only a US citizen or green card holder living in the U.S. The IRS considers anyone who spends enough time in the U.S. to pass the Physical Presence Test a United States tax resident.
US residents should incorporate in their state of residence and/or where the business is being performed . Forming an LLC is a good start as it protects their personal assets in case they get sued. With regard to taxes, if an LLC is the best choice for an Amazon seller depends on the income level.
An LLC is a disregarded entity. This means that the income is not taxed on the company level but passes through to its members. Each LLC member reports their share of income on their individual tax return.
The 2017 tax reform created a new 20% pass-through deduction that LLC members can take on qualified business income, starting in 2018.
Permit Costs Could Be 3
Many sellers start in their own name because it was recommended to start as a new seller on Amazon, keeping your costs down. This is true, but keeping your costs down is not always the best approach.
If you are selling on your website or a Shopify store in addition to Amazon, that dramatically changes your sales tax responsibility.; Amazon is collecting sales tax in 47 states, but with economic nexus, there are 26 states with only 200 transactions, and several of those include your sales on the marketplaces . It becomes expensive to start as one structure, change it later, and update all the sales tax permits with the new EIN. We can do it, but it gets costly for you.
Other sellers will form an entity, usually an LLC online, because they are familiar with product liability, and they want some liability protection that comes with a separate legal entity. When we ask the question, how was your LLC taxed, and did you have the correct operating agreement to match the number of members and taxation type? that is usually met with silence .
A foreign seller may already have an existing entity from their home country and choose to use the same entity to sell in the U.S. .; The challenge is, again, on the Facebook groups; most will ask the question, what is the best state to file the lowest cost LLC and what service did you use? You will see comments and input competing on who paid the lowest price to form an LLC. This typically leads to lots of issues .
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Should I Start Selling With An Amazon Individual Or Professional Account
Thinking about selling on Amazon? By now, youve probably watched videos, listened to podcasts, and read books that promise you can ditch your job and be independently wealthy if you hand over a few thousand dollars for an Amazon selling course today. But you dont need to pay thousands of dollars to learn how to sell on Amazon. In fact, you can get started today by reading our article on how sellers get their inventory.
Amazons own Seller University should give you a solid foundation, and its completely free for sellers. An additional benefit is that youll get help from the primary source, not some seller whos giving you bad advice.
The very first decision youll have to make once you decide to jump into Amazon is whether to start with an individual account or a professional account. In this article, well go over the differences between the two accounts and which one you should use and why. You can read more about FBM, FBA, and SFP here.