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.

Look:

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.

  • Facebook
  • Shopify
  • Amazon
  • eBay
  • Etsy
  • Craigslist

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:

  1. Choose a Business Structure
  2. Register a DBA “Doing Business As” Name
  3. Get a Sales Tax ID
  4. 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.

Closing

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!

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Author

Avatar for Will Mitchell
Will Mitchell

Will Mitchell is a serial entrepreneur and Founder of StartupBros. You can learn more about him at the Startupbros about page. If you have any questions or comments for him, just send an email or leave a comment!

  • Avatar for Paul Hartmann Paul Hartmann says:

    Hi Mitchell,
    Can we list products on Amazon for selling and dropship the product or item? Does Amazon allow that and how it will happen. I mean a visitor at Amazan will select an item make payment then what will happen? How I will get the buyer’s information to ship the product. I would appreciate your advice. Thank you.

    • Avatar for Will Mitchell Will Mitchell says:

      Hey Paul, Amazon doesn’t necessarily allow drop shipping. Someone has to have the inventory because they want to make sure they have the fastest shipping option possible.

      When someone places an order and you are the one personally sending the product you will get the person’s home address to send them the package. The closest thing to drop shipping that you can do is to get your supplier to prepare your products and have them send them into Amazon warehouses. That way when someone places an order the customer will get their products within 2 days.

  • Avatar for Berry Klein Berry Klein says:

    I want to start my own designer clothing. Please advise on more information on manufacturing in China and selling in the UK

  • Avatar for David David says:

    I love the intro song!

  • Avatar for wlou wlou says:

    Great information, thank you! I too, am one of those “get your ducks in a row” people. I intend to start selling on amazon this week.
    I would like to start with retail & online arbitrage then move on to wholesaling and private labeling.
    I would like to go ahead and get my LLC because I have read that in order to switch my seller account name to my business name Amazon can potentially freeze my sellers account while approving potentially losing $1,000’s in sales.
    If this is true, wouldn’t it be better to go ahead and put in the LLC name originally instead of using my own personal info to avoid this or am I getting some of the bad info that is out there?
    Thanks in advance!

    • Avatar for Will Mitchell Will Mitchell says:

      Most people are “get your ducks in a row” people. I used to be that way too. If you feel more comfortable getting your LLC first then go ahead and do it. You should do what makes you feel the most comfortable to keep moving forward. Getting an LLC generally costs like $200. So it’s not a crazy amount of money.

      You can start selling on Amazon with the name you will eventually use as your LLC if you want as well. If you know your brand is going to be Widgets for Dummies then you can use it from the beginning, without getting the LLC. That’s an option as well.

  • Avatar for ShannieA ShannieA says:

    Many thanks for sharing this. For many of us leaving the corporate world, this is the perfect example of what to do to be successful on your own. By that I mean, no permission needed!

    • Avatar for Will Mitchell Will Mitchell says:

      Hey Shannie, I’m so glad that you enjoyed the video 🙂 It’s possible to leave the corporate world! If you have any questions at all please let us know 🙂

  • Avatar for Zak Zak says:

    Hey Will, thanks for posting this. I’ve always had that question myself… although I just went for it as I hate to wait. But, I’ve always had this doubt and unclarity in my mind when it came to all this legal stuff. So thanks for clearing all this up.

    • Hey Zak, thanks for taking the time to check out the video and article. Hating to wait is probably the best personality trait you can have! haha it’s going to take you far. I’ve dealt with my fair share of doubt too man I get it. I’m glad I was able to clear things up, keep in touch!

  • Avatar for Trayson Trayson says:

    I have gone through the “irs.gov site and here is what i found about the eligibility

    “Step 1: Determine Your Eligibility
    You may apply for an EIN online if your principal business is located in the United States or U.S. Territories.
    The person applying online must have a valid Taxpayer Identification Number (SSN, ITIN, EIN).
    You are limited to one EIN per responsible party per day.
    The “responsible party” is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity.”

    How then can one apply from outside USA without the SSN?

    • If you want to sell on Amazon from outside the US this is what you currently need:

      Credit Card that can be charged internationally. Visa or Mastercard are the most common ones.
      A local bank in your country that supports what’s known as ACH (automated clearing house) which only means that your local bank can receive electronic transfer payments from Amazon.
      Your home address where you receive personal mail.
      local phone number with your countries prefix.
      A US EIN number. You don’t have to be a corporation and have any type of legal status in the US to get this number. An EIN may be obtained by filing IRS Form SS-4, Application for Employer Identification Number
      https://www.irs.gov/pub/irs-pdf/fss4.pdf

  • Finally found somewhere I can finally get legit info from and everything i been wondering about. The only thing I had a question about that did not get answered is roughly whats the estimate of how much you need money wise to start SELLING on amazon

    • So glad that you found the article useful! The amount of money needed to start an Amazon business depends on who you talk to. Some people say you need $5000 and others say $250. I personally think it’s somewhere in between but $500 to $1,000 is what it would take to do a legit product launch.

  • Avatar for diego diego says:

    Amazon does required registered company to sell as “professional” in which we get all the tools and no listing limit. To sell as “Individual” you do not need registered company which has limited listing access and high Amazon Fee

    • Diego in the United States you don’t register a company unless what you’re selling is federally regulated. You can create an LLC which is solely for liability and certain tax benefits. You can also be a “Sole Proprietor” in the united states meaning that you are a one man business. You can sell on Amazon as a sole proprietor by using your social security number. But you can also apply for an EIN (Employee Identification Number) as a sole proprietor that way you can open a business bank account. You can use that EIN to start selling on Amazon as a professional seller. Here’s how to get the EIN (https://sa.www4.irs.gov/modiein/individual/index.jsp)

  • Avatar for ali ali says:

    Thanks for all your information.
    We are a company based in UK and would like to sell products on amazon USA, was wondering it is better on open a company in USA or can apply as foreign company.
    Is there are tax different if a company is in USA or Uk

    any information would really would be great help.
    Regards
    Ali

    • You can absolutely sell products in Amazon US from the UK. You don’t need to open a company in the United States. If you don’t have a physical presence in the United States then you are not subject to taxes in the United States. You are also not subject to any sort of income taxes either if you are not a US citizen. You are only subject to the rules in your local UK jurisdiction.

  • Avatar for Julie Deane Julie Deane says:

    Hello Mr. Mitchell,

    I create garden art from upcycling and repurposing mostly household items. I set up a Face Book Business page and additionally an Instagram Business Site, along with FB Marketplace. Can I still use a business name for these sites, without a license? I didn’t trademark my name, but have been using it for a month or so. If I’m understanding correctly I do not need a federal, state, County or City Business license for these types of sales, correct? I also would like to know if the state wants to know all of the income made, do they factor in the cost of materials, and tools to do my job? I somehow need to make up that money to pay my credit card that these things were charged on.

    Thank you

    Julie Deane

    • Thanks for reaching out Julie. To preface what I’m about to say. I’m not an attorney and nothing I say is legal or tax advice. My answers are based on my life experience and my knowledge on starting businesses. So from what I understand from your questions. You are selling art and created a facebook page and an instagram to sell the art.

      Now, to answer your questions:
      1. You can absolutely use a business name. You can call your Instagram and Facebook pages whatever you would like. Unless you are a high profile account no one is going to know you are using a name that is or isn’t trademarked. But if you want to feel more comfortable you can file what’s called a DBA (doing business as). They don’t cost much money if anything at all. It depends on your state but what that form will say is that you are Julie Deane “doing business as” Upcycle Art (for example). However at this moment if you make money I assume it’s going to a bank account under your personal name therefore I don’t think a DBA is necessary until you make enough money that you want to separate the two things. Right now focus on making sales.
      2. You do not need any sort of business, city, state or federal license to sell art on facebook, instagram or in person. As an individual you are a “Sole Proprietorship” and you license to sell is your citizenship.
      3. Let’s say you made $2,000 selling stuff but you spent $2,000 on materials, travel expenses and trade show fees. That means you made $0 and you won’t owe anything in taxes. When you report earnings on your taxes you are reporting on the money you take home in your pocket. Not the money you made in total. So if you make $2000 but you spent $1000 then you took home $1,000 and you need to report that you made $2,000 and took home $1,000 and your taxable income will be $1,000. When you file your taxes, any tax software you use will walk you through Income, expenses and write off’s. Your job is to make sure you keep track of everything you make and spend, that way tax time is easier.

      You local, state and federal government doesn’t do anything. It’s on you to keep track of your numbers and come tax time accurately report it. I hope this makes sense. If you have any more questions at all please let us know 🙂

  • Avatar for Yasmin Yasmin says:

    Hey Will,
    I live in US with work visa and i would like to open an individual account and sell some stuff in amazon. Since i have SSN through my job will it be an issue for me to start selling in Amazon? I m gonna do individual because i wont be selling more than 40 items.

    • Hey yasmin, you can sell on Amazon with your SSN no problem. If you had a student visa there would be a problem because you’re not allowed to work in the US while on a student visa. Also since you’re selling under 40 items, whatever money you make won’t be enough to file income taxes. You should be fine to sell on Amazon.