Every week new entrepreneurs reach out asking for advice in starting their new business. The most common question we get is about needing a business license to sell on Amazon.
For this post we’re going to focus on marketplaces like Amazon and its competitors. When starting an online business it’s important that we understand how to do everything the right way.
In fact, this should also be an exciting time for you!
You’re going out there and taking action, more action than most people.
But people are making things way more complicated than it needs to be. You can get lost and keep running around in circles trying to figure out all of the Federal, State, and Local Business licenses that exist.
Here’s what’s important. The difference between an online business and a side hustle or hobby is the amount of money you’re making.
If you’re not making any money then you don’t have a business. You don’t exist in the eyes of the tax man. Focus on what matters first and start making sales.
Do I Need a Business License to Sell Online?
Let’s answer this question for the most popular online marketplaces:
The short answer is no. You don’t need a business license to sell products online including Amazon.
This is because most products that are being sold on Amazon are not Federally regulated. In general, most products sold online are consumer products that don’t require the governments approval.
So, If you’re selling on the following marketplaces you don’t need to register a business or have a business license.
You can buy and sell on any of these sites without forming a business or having a business license.
At Startupbros we follow what’s called the Lean Startup Method and that means that we like to prove ideas work before spending a lot of money.
This is a great opportunity to validate your business idea, test your branding and figure out if you like selling online before diving in head first.
If you’re not making a profit then the IRS is not interested in you or your business. (or lack of business)
But once you start to make money, it’s important that you report all of your income come tax time.
How to Register Your Online Business
Here are the following steps you need to take to register your online business once you’re making a profit:
- Choose a Business Structure
- Register a DBA “Doing Business As” Name
- Get a Sales Tax ID
- Get a Federal Tax ID
Choosing a Business Structure
Again, you can start your entire online business without forming a business structure. The main point in doing this is to protect yourself if something happens. The risk is low for something to go wrong and being sued but it can happen. So it’s always better to be safe.
A lot of small businesses that start up originally operate as a sole proprietorship. You as an individual are a sole proprietor in the United States. You can go out and start a business selling t-shirts and any income is reported on your income taxes when you file your taxes. There is no need to do anything else in the United States.
Owners of online businesses can structure their business as an LLC. Just like Startupbros LLC. It makes sense to do that once you start hiring workers to help you. It’s a great way to separate your business expenses and your living expenses.
Consult an attorney or CPA to determine if an LLC or proprietorship is right for you. Both options are great ways to start an online business.
Register a DBA
Registering a DBA is also important if you’re doing business as someone other than yourself. For example, Startupbros LLC has a registered DBA of Startupbros.com because we have a website that is used for our business. If you have a sole proprietorship and your selling widgets under the brand “widgets for les ss” then you should be filing a “doing business as” name. Every state has a different way to do this. Check with your local government agency to register.
Get a Sale Tax ID
If you’re selling products online depending on which state you’re in you need to collect sales tax from every state that you do business in. For example, if you live in California and sell t-shirts to someone in Texas then you need to collect sales tax and report it to the state. We cover getting a sales tax permit in this article.
Get a Federal Tax ID
You can’t open a business bank account without a Federal Tax ID also known as an EIN. If you’re operating as a sole proprietor then you don’t need a business bank account but you can separate your funds two separate bank accounts.
According to the IRS: “A sole proprietor without employees and who doesn’t file any excise or pension plan tax returns doesn’t need an EIN (but can get one). In this instance, the sole proprietor uses his or her social security number (instead of an EIN) as the taxpayer identification number.”
However if you create your business structure as an LLC then you need to apply for an EIN with the IRS. It’s completely free.
Amazon Specific Business Questions
Do you need a sellers permit to sell on Amazon?
No you don’t. When you’re selling on Amazon you are operating an online business and not selling anything Federally regulated it’s as easy as signing up and selling.
Do you have to be a registered business to sell on Amazon?
No you don’t need to be a registered business to sell on Amazon. Amazon doesn’t require you to register your business but it’s possible your local governments want you to register an online business.
Do you need a business license to sell on the Internet?
As long as what you’re selling is not Federally regulated then you don’t need to have a business license to sell on the internet. We cover what’s Federally regulated here.
Hopefully this post clears up any lingering questions about starting an online business. It’s easy to feel overwhelmed and think more needs to be done when starting out. Remember, there is no business unless you make money. Don’t even worry about formally registering until there’s income. Focus on getting out there and making your first sale.
If you need any more guidance or want to ask any questions at all reach out to us and comment below!
For 2020 we’ve completely updated and launched a brand new Amazon business course that teaches first time entrepreneurs how to launch their very own physical product Amazon business fast. Importing taxes, business structure and year end tax filing are sections in our new course. If you want to check that out and see if it’s right for you click here…