Amazon Seller LLC vs Sole Proprietor: Which to Pick in 2026

1. The 2-Minute Answer

If you're starting tomorrow with under $5K of capital, start as a sole proprietor. Switch to an LLC once you're past $5K of monthly profit or once you're past 60 days into the business and you know you're going to keep going. There's no penalty for waiting on the LLC and there's a real penalty for waiting on starting to sell.

That's the answer. The rest of this article is the supporting math, the state-by-state cost breakdown, and the edge cases.

"Should you set up an LLC before starting your Amazon business? Should you get an LLC or S Corp? I'm going to answer this video today. I've seen a lot of you guys asking, 'Do I need an LLC? Do I need an S corp? What is the best?' Guys, it's the same thing. An S corp is a type of LLC. I'm going to explain the difference for you later. It's all about how the IRS sees you as an entity." Chris, Do You NEED an LLC for Amazon FBA?

2. What Each Structure Actually Means

Sole proprietor is the default. If you start selling on Amazon under your own name without filing anything with your state, you're a sole proprietor. You report your business income on Schedule C of your personal tax return. Your personal assets and your business assets are legally the same thing. If someone sues your business, they can come after your personal assets too.

LLC stands for Limited Liability Company. You file paperwork with a state. The state recognizes the LLC as a separate legal entity. The LLC has its own bank accounts, its own credit, its own tax reporting. If someone sues the LLC, they can only come after the LLC's assets (with some exceptions). You still report income on your personal tax return by default (LLCs are typically taxed as "pass-through" entities), but you can elect S corp taxation once you're making real money, which saves on self-employment tax.

The choice is asset protection and tax flexibility (LLC) versus zero paperwork and zero filing cost (sole proprietor). Neither one affects your ability to operate on Amazon.

3. Real LLC Filing Costs by State

The state you file in matters less than people think. You don't have to live in the state. Here are the actual filing costs and timing for the most common picks.

State	Initial filing	Annual fee	Time to form
Wyoming	$100	$60	1-3 days
New Mexico	$50	$0	Same day
Montana	$35	$20	Same day
Florida	$130	$140	~2 weeks
Delaware	$110	$300	2-7 days
California	$70	$800	3-4 weeks
Your home state	varies	varies	varies

Most Amazon sellers I work with pick either their home state (simplest) or New Mexico/Wyoming (lowest annual cost, no income tax). Skip California unless you live there. The $800 annual franchise tax is a non-trivial drag on a small Amazon business.

4. Why People Form an LLC Too Early

The most common waste of money I see with new sellers is forming an LLC in week 1 before they've placed a single buy. They spend $300-$500 on filing fees plus a registered agent plus an EIN service. Then they quit Amazon FBA 60 days later because they hated the cash gap. They paid for an LLC they don't need.

If you're not certain you're going to stick with this for 6+ months, don't form an LLC yet. Start under your name. Make $1K of profit first. Then decide if the LLC is worth the filing fee.

5. Why People Wait Too Long

The flip side: I've seen sellers do $50K of monthly revenue still operating as sole proprietors. They're one customer complaint or one supplier lawsuit away from losing personal assets. They're also paying full self-employment tax on income that could be partially shielded with an S corp election.

The clean trigger to form the LLC is one of these:

1. You're at $5K+ of monthly net profit and you intend to keep going.
2. You're sourcing wholesale and a brand wants a Tax Resale Certificate, which requires an LLC in most states.
3. You're applying for business credit or inventory financing and the lender wants a business entity.
4. You've been selling for 60+ days and the income looks consistent.

Hit any one of those and form the LLC.

6. S Corp Election: The Tax Move Most Don't Know About

Once your Amazon business is profitable enough to justify it, you can elect to have your LLC taxed as an S corp. The numbers that make this make sense are typically around $50K+ of annual net profit. Below that, the cost of the S corp setup and the additional payroll administration exceeds the tax savings.

The S corp election lets you pay yourself a "reasonable salary" via W-2 and take the rest of your profit as distributions. The distributions aren't subject to self-employment tax (15.3 percent). On $100K of profit, that can save you $5K to $8K per year in payroll taxes.

Don't do this without an accountant who specifically understands Amazon sellers. The election itself is one form (Form 2553). The ongoing payroll, distributions, and reasonable-salary documentation is what trips people up.

7. The Resale Certificate Question

If you do wholesale sourcing where you buy from a distributor and resell on Amazon, you typically need a state-issued Resale Certificate to avoid paying sales tax on the wholesale purchases. Most states require an LLC or business entity to issue a Resale Certificate. Sole proprietors can sometimes get one but the friction is higher.

"For ungating toys at e-distribution or shefford, you're gonna need your LLC setup and you're gonna need your resale certificate. If you don't have one you can ask them and they'll tell you what you need to do for them to actually approve you." Chris, How to Get Ungated on Amazon FBA

If your sourcing plan is pure OA (buying retail at Kohl's, Macy's, etc) you don't need a Resale Certificate because the retailer charges you sales tax and that's a cost of goods, not a passthrough item. If your plan includes wholesale or ungating in restricted categories, get the LLC first.

8. Cost-Benefit Math for Year 1

Here's how I'd think about the LLC decision financially for year 1.

Scenario A: Form LLC on day 1 in Wyoming.

• Filing fee: $100
• Registered agent (required for out-of-state LLC): $50-$125/year
• EIN: free (file directly with IRS)
• Business bank account: free if you use Mercury or Relay
• Year 1 cost: ~$200

Scenario B: Sole proprietor for 90 days, form LLC at day 91.

• Day 1-90: $0
• Day 91 forward: same $200 as Scenario A
• Risk in days 1-90: any liability falls on you personally. For OA buys under $1K each this risk is minimal.

$200 is not enough to be a real factor in this decision either way. The question isn't "can you afford the LLC," it's "is the LLC the bottleneck right now or is sourcing the bottleneck." Sourcing is always the bottleneck. Form the LLC when you can do it in an hour without slowing down sourcing.

9. How to Form the LLC

Two routes.

DIY: Go to your chosen state's Secretary of State website. File the Articles of Organization yourself. Wait for confirmation. Get your EIN from irs.gov (free, takes 10 minutes). Open a business bank account at Mercury, Relay, or your local bank. Total time: about 90 minutes plus state processing time. Total cost: state filing fee only.

Service: Use LegalZoom, ZenBusiness, or Northwest Registered Agent. They file the paperwork, register an agent for you, and often get the EIN. Total cost: $200-$400. Total time: 30 minutes of your time plus state processing time.

"If you create your company through LegalZoom or through any other company, you have multiple options. You can create your company through them. If you have an LLC in the USA, you can create a Mercury debit card and that gives you a business bank account. So yeah, like that's the easiest way to get a US business bank account if you actually use them to create your LLC." Chris, Amazon FBA Hang out Q&A Sunday Live Stream

I went the service route my first time because I didn't want to figure out the state forms. Worth the $300 in retrospect. Most of my students do the same. The 90 minutes saved is worth more than the $200 differential.

10. EIN and Business Bank Account: Don't Skip These

Once your LLC is filed, do these two things immediately:

1. Get your EIN from irs.gov. It's free. It takes 10 minutes. You need it to open a business bank account, update Amazon Seller Central, and file taxes.
2. Open a business checking account. Mercury and Relay are the two I recommend for Amazon sellers because they're built for online businesses, no monthly fees, and the integrations with QuickBooks/Xero are clean. Full breakdown of EIN and business bank account setup.

Most beginners form the LLC and then sit on it for 6 weeks without opening the bank account. Don't do that. The LLC isn't real until the bank account is funded. Until then you're still mixing finances and you don't get the asset protection benefit.

11. Switching from Sole Proprietor to LLC on Amazon

If you start as a sole proprietor and switch to LLC at month 4, Amazon makes you re-verify your business entity. The process is:

1. Update your business info in Seller Central settings.
2. Upload your LLC formation documents.
3. Update your tax info with the new EIN.
4. Update your payout bank account to the LLC's new business account.

Amazon will pause your account during the review (typically 24-72 hours). Inventory sales continue but new listings can be blocked. Plan the switch for a slow sourcing week.

12. The Honest Recommendation

If you're brand new with under $1,500 of starting capital: sole proprietor. Start tomorrow. Reassess at day 90.

If you have $5K+ of capital and you're certain you're sticking with this: LLC from day 1, Wyoming or your home state, $100-$300 in formation costs, business checking at Mercury or Relay.

If you're sourcing wholesale or ungating in restricted brands: LLC from day 1 because you need the Resale Certificate.

Don't form the LLC and then not start selling. The LLC is paperwork. The business is sourcing. Get to sourcing.

Read next: how to get your EIN and business bank account, how to set up your seller account, and the full how to start Amazon FBA pillar.