Should You Form an LLC for Reselling? Complete Business Structure Guide (2026)

“Do I need an LLC to sell on eBay?” It’s one of the most Googled questions in the reselling community—and one of the most misunderstood. Some people will tell you that forming an LLC is the very first thing you should do before selling a single item. Others swear it’s a waste of money. The truth, as usual, is somewhere in between, and it depends entirely on your situation.

This guide breaks down every business structure option available to resellers in 2026, with real numbers, state-specific costs, and honest assessments of when each structure makes financial sense. We’re not lawyers (and this isn’t legal advice), but we’ve researched extensively and consulted publicly available resources so you can have an informed conversation with a professional.

Disclaimer: This article provides general educational information about business structures for resellers. It is not legal or tax advice. Consult a qualified attorney and/or CPA for advice specific to your situation.

Understanding Your Default: Sole Proprietorship

Here’s something most new resellers don’t realize—if you’ve sold anything for profit, you’re already operating as a sole proprietorship. You didn’t need to file anything. The IRS considers any unincorporated business activity owned by one person a sole proprietorship by default.

What Sole Proprietorship Means for You

As a sole proprietor:

• You report business income on Schedule C of your personal tax return (Form 1040)
• You pay self-employment tax (15.3% on net earnings—12.4% Social Security + 2.9% Medicare)
• There’s no legal separation between you and your business
• You’re personally liable for all business debts and obligations
• You can still deduct business expenses just like any other business structure

Many resellers operate as sole proprietors for years—even at six-figure revenue—without any issues. There’s no revenue threshold that requires you to form an LLC.

💡 Pro Tip: Even as a sole proprietor, you should separate your personal and business finances. Open a dedicated business checking account (most banks offer free sole proprietor accounts) and use it exclusively for sourcing, shipping supplies, and receiving payouts. This makes bookkeeping dramatically easier and strengthens your audit position.

The Cost of Sole Proprietorship

The cost is essentially $0 for the structure itself. You don’t need to file formation documents, pay annual fees, or maintain separate records (beyond what the IRS requires for Schedule C). You may need local business licenses depending on your city/county, but those are typically $25–$75 annually.

Use our reseller tax deduction calculator to estimate what you can write off regardless of your business structure.

Single-Member LLC: What It Actually Does (And Doesn’t Do)

An LLC—Limited Liability Company—is a state-level business entity that creates a legal separation between you and your business. A single-member LLC (SMLLC) is an LLC with one owner, which is the most common structure for solo resellers.

What an LLC Actually Protects You From

This is where misconceptions run rampant. Here’s what an LLC can protect:

• Business debts: If your business takes on debt (credit lines, leases) and can’t pay, creditors generally can’t come after your personal assets
• Lawsuits against the business: If a buyer sues your LLC because a product injured them, your personal home, car, and savings may be protected
• Contract disputes: If you sign a contract as your LLC and breach it, liability may be limited to business assets

What an LLC Does NOT Protect You From

• Personal negligence: If you personally cause harm, the LLC doesn’t shield you
• Personal guarantees: Most credit lines for small LLCs require a personal guarantee anyway, negating the liability protection for that debt
• Commingling funds: If you mix personal and business money, courts can “pierce the corporate veil” and hold you personally liable
• Fraud or illegal activity: Obviously, no structure protects you from the consequences of illegal actions
• IRS obligations: You personally owe taxes regardless of structure

The Myth: “An LLC Makes You Look More Professional”

Let’s debunk this right now. No buyer on eBay, Poshmark, or Mercari has ever checked whether a seller has an LLC before purchasing. Platforms don’t display your business structure. Buyers care about your photos, price, reviews, and shipping speed—not your articles of organization.

The “professionalism” argument is marketing from LLC formation services. It’s not a valid reason to spend money on an LLC.

When an LLC Makes Sense for Resellers

An LLC starts making practical sense when:

1. Your inventory value exceeds $10,000–$15,000 — At this point, a product liability claim or major dispute could cause meaningful financial damage
2. You sell categories with higher liability risk — Electronics, supplements, beauty products, children’s items, or anything that could theoretically cause injury
3. You have significant personal assets to protect — If you own a home, have substantial savings, or have other assets worth protecting
4. You’re entering wholesale/commercial relationships — Some wholesalers and liquidation companies only work with registered businesses
5. You want to build business credit — An LLC with an EIN is the foundation for establishing business credit separate from your personal credit

If you’re a casual seller making $500/month flipping thrift store finds, an LLC is probably overkill. If you’re doing $5,000+/month with a garage full of inventory, the $50–$500 filing fee is cheap insurance.

LLC Formation Costs by State (2026)

LLC filing fees vary dramatically by state. Here’s a breakdown of what you’ll pay:

Cheapest states to form: Mississippi, New Mexico, and Missouri ($50, no annual fees).

Most expensive: New York (publication requirement can cost $1,000+ in NYC) and California ($800 annual franchise tax regardless of income).

💡 Pro Tip: Unless you have specific legal reasons, form your LLC in the state where you live and conduct business. Forming in Delaware or Wyoming for “better protections” sounds appealing, but you’ll end up paying fees in both your home state (as a foreign LLC) and the formation state. For most resellers, this doubles costs with minimal benefit.

Should You Use a Formation Service?

You can file LLC paperwork yourself directly with your state’s Secretary of State office (usually online) for just the filing fee, or use a formation service:

Most “free” formation services make money by upselling registered agent services ($100–$300/year), compliance packages, and other add-ons. The actual formation filing is straightforward enough to do yourself in 15–30 minutes for most states.

The EIN: Your Business’s Social Security Number

An Employer Identification Number (EIN) is a free tax ID number from the IRS. Even if you operate as a sole proprietor, getting an EIN is one of the smartest free moves you can make.

Why Every Reseller Should Get an EIN

• Free to obtain — The IRS charges nothing, and the online application takes about 5 minutes
• Protects your SSN — You can use your EIN instead of your Social Security Number on W-9 forms, sales tax permits, and wholesale applications
• Required for LLCs — If you form an LLC, you need an EIN
• Enables business banking — Many banks require an EIN for business accounts
• Wholesale access — Most wholesale suppliers require an EIN

How to Get an EIN (5-Minute Process)

1. Go to IRS.gov EIN application
2. Select “Sole Proprietor” or “LLC” as the entity type
3. Enter your information (you’ll need your SSN)
4. Answer the business activity questions
5. Receive your EIN immediately on screen

Important: The IRS EIN application is 100% free. Never pay a third-party service to obtain one for you. Services charging $50–$150 for EIN filing are adding zero value.

Setting Up a Business Bank Account

Whether you’re a sole proprietor with an EIN or have a formal LLC, a dedicated business bank account is essential. Here’s what you need to open one:

Documents You’ll Need

• Sole Proprietor: Government-issued ID, EIN confirmation letter (or SSN if no EIN), business name documentation (if using DBA)
• LLC: Everything above plus Articles of Organization, Operating Agreement (some banks require this), and state filing confirmation

Best Business Checking Accounts for Resellers (2026)

💡 Pro Tip: Choose a bank that integrates with your accounting software. QuickBooks connects well with Chase, while Wave works with most banks via Plaid. Matching these up front saves hours of manual data entry.

Track everything that flows through your account using our flip profit calculator to stay on top of individual deal profitability.

DBA vs. LLC: What’s the Difference?

A DBA (Doing Business As), also called a “fictitious business name” or “trade name,” lets you operate under a name different from your legal name. It’s not a business entity—it’s just a name registration.

DBA Key Facts

• Cost: $10–$65 in most states/counties
• Protection: Zero liability protection
• Taxes: No tax benefits
• Purpose: Lets you open a business bank account under a business name, accept payments under a business name, and look more “official”

When a DBA Is Enough

If you just want to operate under a brand name (e.g., “Midwest Vintage Finds” instead of “John Smith”) but don’t need liability protection, a DBA is cheaper than an LLC. Many sole proprietors use DBAs for years.

DBA + LLC

If you form an LLC with a name like “Smith Ventures LLC” but want to sell under “Midwest Vintage Finds,” you’d file a DBA for the LLC. This is common for sellers who want a customer-friendly brand name.

S-Corp Election: When Tax Savings Kick In

An S-Corp isn’t actually a business entity—it’s a tax election. You can elect S-Corp status for an existing LLC (or corporation) by filing IRS Form 2553. This changes how your income is taxed and can save significant money at higher income levels.

How S-Corp Taxation Works

As a sole proprietor or standard SMLLC, you pay self-employment tax (15.3%) on your entire net business income. With S-Corp election:

1. You pay yourself a “reasonable salary” (subject to payroll taxes)
2. Remaining profit is distributed as a “distribution” (not subject to self-employment tax)

S-Corp Example: The Math

Let’s say your reselling business nets $80,000/year in profit.

Without S-Corp (Sole Prop/Standard LLC):

• Net income: $80,000
• Self-employment tax: $80,000 × 15.3% = $12,240
• (You also deduct half of SE tax on your return, but the gross amount is $12,240)

With S-Corp (paying yourself $40,000 salary):

• Reasonable salary: $40,000
• Payroll taxes on salary: $40,000 × 15.3% = $6,120
• Distribution (not subject to SE tax): $40,000 × 0% = $0
• Total payroll taxes: $6,120
• Annual savings: ~$6,120

S-Corp Costs and Considerations

Before you get excited about that $6,120 savings, consider the costs:

The General Rule

S-Corp election typically makes financial sense when your net profit consistently exceeds $50,000–$60,000/year. Below that threshold, the administrative costs and complexity eat into the tax savings.

Use our ROI calculator to project whether your business is approaching the threshold where S-Corp election becomes worthwhile.

💡 Pro Tip: The IRS scrutinizes “reasonable salary” closely. You can’t pay yourself $15,000 and take $65,000 as distributions on $80,000 net income. The salary must be reasonable for the work you do. For full-time resellers, $35,000–$50,000 is generally the defensible range depending on your market.

Sales Tax in 2026: Nexus, Permits, and Marketplace Facilitator Laws

Sales tax is one of the most confusing aspects of running a reselling business. Here’s what you need to know in 2026.

Marketplace Facilitator Laws

The good news: If you sell exclusively on platforms like eBay, Poshmark, Mercari, Amazon, or Whatnot, the marketplace itself collects and remits sales tax in all states that require it. This means you typically don’t need to worry about sales tax collection for marketplace sales.

As of 2026, all 45 states (plus D.C.) that collect sales tax have marketplace facilitator laws requiring platforms to handle sales tax.

When You DO Need a Sales Tax Permit

You may need a sales tax permit if:

• You sell directly (your own website, in-person sales, local cash sales through non-marketplace channels)
• You buy wholesale — Many wholesalers require a resale certificate (which requires a sales tax permit) to sell to you tax-free
• Your state requires one — Some states require all business sellers to register regardless of where they sell

Economic Nexus Thresholds (2026)

If you sell outside of marketplaces (e.g., your own Shopify store), you need to collect sales tax in states where you have “nexus.” In 2026, most states use a $100,000 in sales or 200 transactions threshold for economic nexus, though some have adjusted:

For most resellers selling through marketplaces like eBay and Poshmark, the platforms handle everything. Cross-reference fees across platforms using our platform fee comparison tool to see the true cost of selling on each.

💡 Pro Tip: Even if you don’t need a sales tax permit for collection purposes, getting one in your home state is worth it for the resale certificate. This lets you buy inventory from wholesalers, liquidation companies, and sometimes even retail stores without paying sales tax on items intended for resale. On $20,000/year in inventory purchases at a 7% tax rate, that’s $1,400 saved.

Registered Agent Services

If you form an LLC, most states require a registered agent—a person or service designated to receive legal documents, tax notices, and official correspondence on behalf of your business.

Your Options

1. Be your own registered agent — Free, but your home address becomes public record, and you must be available during business hours
2. Use a registered agent service — $50–$300/year, provides a professional address and handles document receipt

When to Use a Service

• You work from home and don’t want your address on public databases
• You live in an apartment or shared space
• You travel frequently and might miss time-sensitive legal documents
• Your state has a searchable LLC database (most do—anyone can look up your address)

For most home-based resellers, a registered agent service at $50–$125/year is worth the privacy protection.

Annual Compliance Requirements

Forming an LLC isn’t a one-and-done task. Most states require ongoing compliance:

Typical Annual Requirements

What Happens If You Don’t File

If you miss annual filings, your LLC can be administratively dissolved by the state. This means:

• You lose liability protection retroactively
• You may need to pay back fees plus penalties to reinstate
• Some states charge reinstatement fees of $100–$500

Set calendar reminders for all filing deadlines. Most states send email reminders if you provide an email during registration, but don’t rely on them.

Real Cost Analysis at Different Income Levels

Let’s put it all together with realistic scenarios for resellers at different income levels.

Scenario 1: Casual Seller ($500/month net profit = $6,000/year)

Best choice: Sole proprietorship. The LLC cost is marginal, but there’s little to protect at this level. S-Corp makes zero sense.

Scenario 2: Part-Time Reseller ($2,500/month net profit = $30,000/year)

Best choice: LLC without S-Corp. You have enough inventory and activity to justify liability protection. S-Corp savings ($1,530) are mostly offset by the additional compliance costs ($1,500). Essentially a wash.

Use our margin vs markup calculator and break-even price calculator to ensure you’re pricing correctly before worrying about entity structure.

Scenario 3: Full-Time Reseller ($7,000/month net profit = $84,000/year)

Best choice: LLC with S-Corp election. The S-Corp saves roughly $6,732 in self-employment tax, minus ~$2,000 in additional costs = ~$4,732 net annual savings. At this income level, the math clearly works.

Scenario 4: High-Volume Reseller ($15,000/month net profit = $180,000/year)

*Social Security portion caps at $168,600 in 2025 (adjusted annually), so the savings become even more dramatic at very high incomes.

Best choice: LLC with S-Corp election, potentially with a CPA advising on C-Corp in the future. The savings at this level are substantial enough that professional tax planning is essential. Read our guide to going full-time for more on managing a high-income reselling business.

Common Myths About LLCs for Resellers

Myth 1: “You Need an LLC Before You Start Selling”

Reality: You can (and probably should) start selling immediately as a sole proprietor. Form an LLC when you have consistent revenue and inventory worth protecting. Many successful resellers operate without one for their first 6–12 months.

Myth 2: “An LLC Protects You From Everything”

Reality: LLCs protect business assets from personal liability and vice versa—when properly maintained. But they won’t protect you from personal negligence, personal guarantees on debt, or tax obligations.

Myth 3: “You Should Form Your LLC in Delaware/Wyoming”

Reality: Unless you actually live or have significant operations in those states, forming there adds cost and complexity. You’ll need to register as a foreign LLC in your home state anyway, paying fees in both states.

Myth 4: “An LLC Gives You Tax Benefits”

Reality: A single-member LLC is a “disregarded entity” for federal tax purposes. It’s taxed identically to a sole proprietorship on your Schedule C. The S-Corp election changes taxation—the LLC itself does not.

Myth 5: “You Need a Lawyer to Form an LLC”

Reality: Most states have straightforward online filing. You can typically complete the process in 20–30 minutes. A lawyer is helpful for complex situations (multiple members, unusual operating agreements), but not necessary for a simple single-member LLC.

Myth 6: “My Business Name Is Protected by My LLC”

Reality: LLC registration only prevents another LLC in your state from using the exact same name. It doesn’t provide trademark protection. If brand protection matters to you, that’s a separate federal trademark registration ($250–$350 per class).

State-Specific Considerations

California Resellers

California’s $800 annual franchise tax (minimum) makes LLCs especially expensive for lower-income resellers. If you’re netting less than $40,000/year, this fee significantly impacts your bottom line. Some California resellers opt to remain sole proprietors longer or bypass the LLC entirely.

Texas Resellers

Texas has no state income tax, and the franchise tax only applies to businesses with revenue over $2.47 million (well above most resellers). $300 filing fee with minimal ongoing costs makes Texas one of the more LLC-friendly states.

New York Resellers

New York requires LLC publication in two newspapers in the county of formation. In New York City counties, this can cost $1,000–$2,000. In upstate counties, it’s typically $200–$400. Factor this into your Year 1 costs.

Florida Resellers

Florida requires an annual report ($138.75) filed by May 1 each year. The late fee is $400, so set reminders. Florida also has no state income tax, making it attractive for full-time resellers.

Step-by-Step: Forming Your LLC

Ready to form? Here’s the general process (specific steps vary by state):

Step 1: Choose Your State and Name (10 minutes)

• Search your state’s business name database to ensure availability
• Choose a name that includes “LLC” or “Limited Liability Company” (required)
• Consider whether you’ll also need a DBA

Step 2: File Articles of Organization (15–30 minutes)

• Go to your state’s Secretary of State website
• Complete the online formation form
• Pay the filing fee
• Receive confirmation (usually immediate for online filings)

Step 3: Get Your EIN (5 minutes)

• Apply online at IRS.gov (free)
• Receive your EIN immediately

Step 4: Create an Operating Agreement (30 minutes)

• Even for single-member LLCs, this document formalizes how your business operates
• Free templates available online (ZenBusiness, Northwest, SCORE)
• Not filed with the state, but keep it with your records

Step 5: Open a Business Bank Account (30–60 minutes)

• Bring your Articles of Organization, Operating Agreement, EIN confirmation, and government ID
• Choose a bank with features that match your bookkeeping workflow

Step 6: Obtain Required Permits and Licenses (30–60 minutes)

• Check your city/county for business license requirements
• Apply for a sales tax permit if needed in your state
• Research any home occupation permits if operating from home

Total time: 2–3 hours. Total cost: $50–$500 depending on state.

Use our platform fee calculator once you’re set up to calculate net proceeds across platforms and feed accurate numbers into your new business account.

Insurance vs. LLC: Which Protects You More?

Many resellers think an LLC replaces the need for insurance. In reality, they serve different purposes:

The bottom line: An LLC limits what creditors can take. Insurance pays the costs. The ideal setup for serious resellers is both—an LLC for structural protection and a business insurance policy for financial coverage. See our complete reseller insurance guide for specific policy recommendations.

When to Upgrade Your Structure: A Decision Framework

Use this framework to determine your next move:

You’re just starting out (net profit under $1,000/month): → Stay as a sole proprietor. Get an EIN (free). Open a business bank account. Focus on growing your business and tracking every expense.

You’re consistently profiting $1,000–$4,000/month: → Consider forming an LLC. The $50–$300 annual cost is negligible compared to the protection it provides. Still too early for S-Corp.

You’re profiting $4,000–$7,000/month: → Form an LLC if you haven’t already. Start consulting a CPA about S-Corp election timing. Ensure you have a solid bookkeeping system in place.

You’re profiting $7,000+/month: → LLC + S-Corp election. Hire a CPA. Consider a bookkeeper. The tax savings more than justify the professional fees.

The key is to match your structure to your current reality—not where you hope to be someday. You can always upgrade later. Check where you stand with our flip profit calculator to track your actual monthly net profit.

Frequently Asked Questions

Q: Do I need an LLC to sell on eBay, Poshmark, or Mercari?

A: No. All major reselling platforms allow individual sellers without any formal business structure. You can sell as a sole proprietor indefinitely. An LLC is optional and only necessary for liability protection and business credit purposes.

Q: How much does it cost to start an LLC for reselling?

A: State filing fees range from $40 (Kentucky) to $500 (Massachusetts). Most states fall in the $50–$200 range. Add $50–$300/year for a registered agent if you want privacy protection. Services like ZenBusiness offer free filing (you pay only the state fee). Total Year 1 cost for most resellers: $100–$400.

Q: Can I write off more expenses with an LLC?

A: No. A single-member LLC is taxed identically to a sole proprietorship. You file the same Schedule C and can deduct the same expenses either way. The entity structure does not determine what’s deductible—the nature of the expense does. Review our complete tax deductions guide for everything you can write off.

Q: When does an S-Corp election save money?

A: Generally when your net business profit consistently exceeds $50,000–$60,000 per year. Below that, the administrative costs of running payroll ($500–$1,200/year) and additional CPA fees ($500–$1,500/year) offset the self-employment tax savings.

Q: Do I need a separate bank account for reselling?

A: Legally required if you have an LLC (in most states). Strongly recommended even for sole proprietors. Mixing personal and business finances makes bookkeeping a nightmare and weakens both your audit position and LLC liability protection.

Q: What’s the difference between a DBA and an LLC?

A: A DBA is just a name registration—it provides zero liability protection and no tax benefits. An LLC is a legal business entity that separates your personal and business liabilities. A DBA costs $10–$65; an LLC costs $50–$500+ depending on your state. Many resellers start with a DBA and upgrade to an LLC later.

Q: Can I form an LLC in one state while living in another?

A: Yes, but it’s usually not beneficial for resellers. If you form in Delaware but live in Texas, you’ll pay fees in both states (Delaware filing + Texas foreign LLC registration). Form in your home state unless you have a specific legal or tax reason not to.

Q: Do I need to charge sales tax on eBay/Poshmark sales?

A: No—marketplace facilitator laws require the platforms themselves to collect and remit sales tax on your behalf in 2026. You only need to worry about sales tax if you sell directly through your own website or in-person channels. However, getting a sales tax permit for a resale certificate can save you money when buying inventory.

Q: Should I get business insurance or an LLC first?

A: If you can only afford one, insurance is arguably more valuable because it actually pays legal defense costs and claims. An LLC limits what creditors can take, but you still have to fund your own defense. That said, most resellers should get both, starting with an LLC ($50-$200) since it’s cheaper than most insurance policies ($300–$1,000/year).

Q: How do I decide between LLC and sole proprietorship for my reselling side hustle?

A: Ask yourself two questions: (1) Do I have personal assets worth protecting? (2) Would a $5,000–$10,000 lawsuit or inventory loss significantly hurt me financially? If yes to either, an LLC is worth the modest cost. If you’re just getting started with a few hundred dollars in inventory and no significant assets, a sole proprietorship is fine while you grow.

The Bottom Line

Your business structure should match your business reality—not your aspirations. Here’s the honest summary:

• Most new resellers should start as sole proprietors, get a free EIN, and open a business bank account
• Growing resellers ($1,000–$4,000/month profit) should form an LLC in their home state
• Full-time resellers ($4,000+/month profit) should have an LLC and evaluate S-Corp election
• High-volume resellers ($7,000+/month profit) need an LLC + S-Corp + CPA, no question

Don’t let the business structure decision paralyze you. The most expensive mistake isn’t having the “wrong” entity—it’s not starting at all because you’re overthinking paperwork.

Start selling, track your numbers, and upgrade your structure as your business grows. Our beginner’s guide to reselling covers everything else you need to know to get started, and our 1099-K tax guide explains how to handle your first tax season.

Ready to analyze your next deal? Underpriced gives you 10 free AI-powered deal analyses—instantly see the profit potential of any item before you buy. No business structure required to start making money. Download the app and make your next sourcing trip your most profitable one yet.