Do you know the importance of LLCs and taxes for Amazon sellers? Understanding the tax benefits of forming limited liability companies as an Amazon seller is crucial for success.
The business structure has lower taxes and protects corporate assets from personal liabilities or lawsuits. You can also set up the company in areas with friendly rules and regulations.
Are you a new business owner seeking the underlying basics of LLCs and taxes for Amazon sellers? This article provides in-depth information to improve your knowledge. Let’s get started.
LLCs And Taxes For Amazon Sellers: What is the best business structure?
The best business structure for Amazon sellers in the United States should provide liability protection and minimize tax liability.
Although the proper structure could depend on various factors for Non-US persons, individuals with US residency, and Green Card holders outside the United States. Let’s discuss the business structures and taxation for each group.
US Amazon sellers can benefit from forming an LLC or S-Corp
The internal revenue service (IRS) considers individuals who pass the Physical Presence Test by spending a lot of time in the United States as a resident. This individual must incorporate the business in their state of residence.
It means registering the company in the state where you conduct business, such as a dedicated office or warehouse. Establishing an LLC is an excellent way to differentiate your personal and corporate business.
Forming an LLC as an Amazon seller in the United States helps you protect your assets from lawsuits. Besides, it’s also the best choice for these entrepreneurs regarding taxes depending on their income level.
With an LLC, the IRS passes the tax related to the company income on its members. Every shareholder file and report their share while filing their return as required by the commission.
LLC vs. S-Corp for Amazon sellers
An S-Corp is a business structure allowed under the tax code to extend its taxable deductions, credits, income, and losses to its shareholders. Furthermore, it’s available only to businesses with 100 or fewer shareholders and is an alternative to the limited liability company (LLC).
These companies are also called pass-through entities because they don’t pay corporate taxes. Instead, they pay shareholders, who pay the Internal Revenue Service taxes.
If you want to establish an LLC for a business with a net profit exceeding $30,000 per year, setting up an S-Corp might be more beneficial for tax purposes. Instead of being self-employed, this structure makes you an employee on a salary scale.
It’s one of the best ways to lower your self-employment tax significantly, as the internal revenue service considers you an employee of the company. If you already start an LLC, consider filing the IRS Form 8832.
This form lets you treat the limited liability company as an S-Corp and enjoy the associated benefits. But entrepreneurs must make this election by March 15 to make it functional for the entire tax year. Furthermore, new LLCs must elect S-Corp taxation in 75 days to enjoy the advantages.
LLCs and taxes for Amazon sellers: Green Card holders outside the United States
Most digital nomads, remote workers, and American expats run highly profitable Amazon businesses. Without a place of business or company location in the United States, these entrepreneurs can choose where to incorporate their organization.
The best structure would be a limited liability company or S-Corp in Wyoming and Delaware. The tax considerations associated with these ideas also apply to US residents. Furthermore, a business income exceeding $100,000 from abroad could qualify for FEIE, the Foreign Earned Income Exclusion, if it meets specific requirements.
Entrepreneurs, digital nomads, and American expats should look beyond the familiar and explore other areas requiring low taxes. If you have no employees, registered agents, or office in the States, consider an offshore company if selling on Amazon.
Incorporating your business in Hong Kong, where sellers quickly buy stocks from China to resell in the United States, is an excellent way to create an optimal situation in a friendly jurisdiction. Since the corporate American tax rate is 10.5%, owners can receive about $100,000 salary apart from Medicare and social security taxes.
Non-US person selling to the US can benefit from an LLC or a C-Corp
Anyone who doesn’t spend enough time and sells to the United States without a physical presence can benefit from forming an LLC or C-Corp.
An LLC owned by a non-US person is a foreign-owned company and could be exempt from federal income tax. However, it’s due to its lack of presence in warehouses, offices, dependent agents, and employees.
However, foreign-owned LLCs have a tax-free status that relies on the US tax code’s aggressive interpretation. But it must also file Form 5472 annually to report all transactions to the internal revenue service.
LLCs And Taxes For Amazon Sellers: Wrapping Up
After learning the basics of LLCs and taxes for Amazon sellers, it’s time to make proactive decisions to improve your business. Understanding the business structures and tax implications is crucial when starting a business on the ecommerce platform.
The C-Corporation is another excellent business structure for non-US Amazon sellers. It’s where you perform services outside the US as a non-US person, and the IRS considers the income as foreign-sourced. They often get low US tax rates, which sometimes could be down to