Want to start an Amazon business but not sure where to start? Here are 3 steps you should take before you start your Amazon Wholesale business!
Before you can start selling Amazon wholesale, there are a couple of legalities that you should consider. This guide is going to provide you with three key steps including applying for a business entity structure, an Employee Identification Number (EIN), and most importantly, a States Tax Exemption Certificate or “Resale” Certificate. By utilizing this guide, not only will you know the legal logistics behind selling on Amazon FBA, but you’ll save more money and have a lot more potential to grow and expand your wholesale business.
Choosing a Business Structure
First things first, wholesalers should consider filing for a business entity. This step might not be for everyone, but if you plan on taking Amazon FBA seriously and if you want to create an actual business, we highly recommend filing for a business entity. There are a ton of benefits in applying for a business entity. Here are some of the biggest benefits:
- Protection: Business entities separate owners from their businesses. If your business takes on debt or has legal issues, it separates the liability of the owner from the business itself.
- Taxes: Some business entities provide some tax breaks that could save you money! If applicable, you might want to look into filing for a business entity!
- Professionalism: Customers generally accept and trust businesses over people, especially businesses that are licensed and legitimate. If you want to grow a business or even an empire, you have to start building that professional image now!
- Capital: If you need more capital, whether it be to add more inventory, hire employees, or just want to grow your business, filing for a business entity enables you to apply for a business bank account! With a business entity, banks are more willing to provide loans that can help you fuel your business.
Moving on, there are 3 main types of business entities that new or experienced sellers can apply for, LLCs, S-Corps, and C-Corps. Each has individual requirements, policies, and benefits. As with any business, make sure to do your research or get into contact with a CPA or lawyer if you’re unsure. The last thing you want is to file something incorrectly or make the wrong business decision. If you don’t know, ASK ASK ASK!
What is an LLC?
LLCs or “Limited Liability Company” is one of the more inexpensive and easiest business entities to apply for. Not every Amazon seller needs to file for an LLC, but it provides a lot of the benefits we discussed above such as providing more protection for business owners and an avenue to obtain capital such as bank loans.
What is an S-Corp?
S-Corps are another type of business entity. Similar to the LLC, S-Corps provide similar protections for businesses and their owners. The main difference between the two is that S-Corps are a bit harder to apply for and have more requirements. S-Corps are usually used for companies with less than 100 shareholders and have more tax benefits than both LLCs and C-Corps. While both are sustainable for Amazon FBA sellers, we encourage new and inexperienced sellers to go towards an LLC structure as it is easier to apply for and provides the same key benefits.
What is a C-Corp?
C-Corps are like S-Corps but do not have the same restrictions. C-Corps allow businesses to have more than the 100 shareholder maximum that restricts S-Corps. Besides, C-Corps have different tax codes and policies than the two previous entities. For businesses that are growing exponentially or have a lot of various shareholders, C-Corps may be the most helpful for growth. As always, there will always be more policies and restrictions per each entity structure. Be sure to research the different structures or contact a CPA or small business lawyer before filing any forms. Regardless of whichever business structure you choose, the business entity will be really handy down the line!
Employee Identification Number (EIN)
If you decided to apply for a business entity, the next step should be to apply for an “EIN” or Employee Identification Number. As defined by the IRS,
“An employer identification number (EIN) is a nine-digit number assigned by the IRS. It’s used to identify the tax accounts of employers and certain others who have no employees. The IRS uses the number to identify taxpayers who are required to file various business tax returns.”
The EIN is utilized by the IRS to ensure small businesses with no employees submit and pay their federal taxes. Some sellers may opt to use their social security numbers instead of filing for an EIN, but we highly discourage this. The main reason is that this identification number gets sent and is used by wholesale manufacturers and suppliers. If you opt to use your SSN, this increases the risk of your information being leaked or potentially stolen. To be safe, file for an EIN to protect your personal information and keep it separate from your business. The EIN will also provide some monetary benefits that we’ll get into below!
If you’re unsure if you should file for an EIN, please refer to the IRS website or get in contact with your CPA or small business lawyers if possible.
Now you may be wondering, how do I file for an EIN? Well, there are a couple of ways:
Small business lawyers and certified public accountants (CPA)
The first method is through asking an expert. If you have access to a small business lawyer or certified public accountant (CPA), this is not only the easiest method but also the safest. Small business lawyers and CPAs know the exact legal procedures and forms needed to establish and obtain an EIN. That way, all you need to do is pay for the service and the fees for the IRS application! This not only saves you a lot of time and energy but saves a lot of headaches and prevents any mistakes!
File EIN online
Hiring a CPA or small business lawyer may not be accessible for everyone for a lot of reasons! Don’t worry, we have you covered! If you can’t get in touch with a CPA or lawyer for any reason, you can also apply for an EIN by yourself or through an online service. If you choose this method, we have a couple of websites we trust and refer FBA sellers to. If you don’t mind talking with the IRS, you can file for an EIN directly. They have a web page dedicated to submitting the correct forms and can be found here.
If you want to file it yourself but don’t want to bother interacting with the IRS, you can also use various legal tools that can assist you in filing for an EIN. We recommend some of the bigger platforms that are commonly used such as LegalZoom, Rocket Lawyer, or Incfile. While you may have to pay for these services, it saves you a ton of time and prevents any mistakes that could hurt your business down the road!
How much does it cost to get an EIN?
The great thing about EINs is that applying for one is technically FREE. What we mean by technically is, the IRS doesn’t charge for applying for an EIN! If you wanted to directly apply for a business identification number now, you could apply for one without spending a dime on the IRS website.
But, some services (like the ones we listed above) or experts (CPAs and lawyers) may charge a service fee to help you apply for an EIN. Make sure to consider this if you plan on applying for an EIN in the coming weeks or months!
Sales tax exemption certificate and resale certificate
The last step every Amazon FBA seller should look into is the Sales Tax Exemption Certificate, also known as the “Resale Certificate.” Each state in the US has its own Sales Tax Exemption Certificate, so you will need to look into your specific state and its policies. You may be wondering, why should I even care about this certificate? In short, this certificate will SAVE YOU MONEY. This certificate states that as an Amazon Reseller (buying wholesale and reselling it through Amazon FBA), you do not have to pay sales tax for the wholesale products you buy. Instead, this certificate states that the Amazon Customer, the one who will end up buying your products, will be responsible to pay for the sales tax when they purchase the item. As the “middleman” or Amazon wholesaler, you are exempt from paying these fees.
It is important to remember, each state varies in sales tax and this has a huge impact on your profitability if you don’t file for the Resale Certificate. If you have any questions regarding this certificate and if you are eligible, get in contact with a CPA or small business lawyer who can provide you with more information and if you qualify for this exemption.
Making Your Amazon Small Business
Starting your Amazon small business is always going to be the biggest hurdle, but if you can get past the first hurdle, the rest will fall down the line! The hardest step will always be the first! With these steps, hopefully, you have enough information to start your Amazon business.
After you get started, Sellgo can help make the next steps easier with our FBA tools including inventory management, product research, and sales estimation. Check us out at Sellgo.com! See you and your Amazon business soon!