Starting an Amazon FBA business in 2025 is an exciting opportunity for entrepreneurs worldwide. But before selling your first product, one of the most common questions arises: Should you start Amazon FBA as a natural person (individual) or form a Limited Liability Company (LLC)? The answer depends on your goals, risk tolerance, and long-term vision for your business. In this article, we will explore the pros and cons of each option, tax implications, costs, and when it makes sense to switch from individual seller to LLC.
Selling Amazon FBA as an Individual (Natural Person)
Many beginners choose to start Amazon FBA as individuals because it is the simplest way to get started. You can create an Amazon Seller account with just your personal details and a bank account.
Benefits of Selling as an Individual
- Lower cost to start: No filing fees or annual reports are required.
- Simplicity: No legal paperwork or ongoing compliance.
- Good for testing: Ideal if you are just experimenting with products and not sure about long-term plans.
Drawbacks of Selling as an Individual
- No liability protection: If your business faces lawsuits, product liability claims, or debt, your personal assets are at risk.
- Lower credibility: Suppliers, partners, and customers often view LLCs as more professional.
- Tax limitations: All profits are reported directly on your personal tax return under Schedule C, without flexibility in tax treatment.
Selling Amazon FBA with an LLC
Forming an LLC for your Amazon FBA business provides structure, legal protection, and credibility. While it involves more cost and paperwork, it is often the smarter long-term choice.
Benefits of an LLC for Amazon FBA
- Limited liability protection: Your personal assets are shielded from business lawsuits and debts.
- Tax flexibility: By default, single-member LLCs are taxed like sole proprietors, but you can elect S-Corp taxation to save on self-employment taxes once profits increase.
- Professional image: Having “LLC” in your business name increases trust with suppliers, investors, and even Amazon.
- Easier business banking: Banks and payment processors prefer working with registered entities.
Drawbacks of an LLC
- Costs: State filing fees range from $40 to $500 depending on the state, plus annual renewal fees.
- Compliance: You may need to file annual reports, maintain an operating agreement, and keep business records.
- Complexity: More paperwork compared to selling as an individual.
Tax Comparison: Individual vs LLC for Amazon FBA
When you sell as an individual, your profits are added directly to your personal income and taxed accordingly. This is simple, but it limits your ability to reduce taxes.
With an LLC, you gain more options:
- Default taxation: Treated as a disregarded entity for a single-member LLC (profits reported on Schedule C, similar to a sole proprietor).
- Partnership taxation: For multi-member LLCs.
- S-Corp election: Allows you to pay yourself a reasonable salary and reduce self-employment taxes on the remaining profits.
For Amazon FBA sellers earning less than $15,000 annually, the tax difference between individual and LLC is usually minimal. But once profits grow beyond $30,000 or $50,000, having an LLC with S-Corp election can lead to significant tax savings.
Costs of Selling Amazon FBA as an Individual vs LLC
- Individual seller: No formation fees, only Amazon fees.
- LLC: Formation costs vary by state. For example, Wyoming costs around $100, Delaware $90, California $70 (but with an $800 annual franchise tax).
Besides formation fees, you may also need:
- Registered agent service: $50–$150 per year.
- Operating agreement: $30–$100 if you buy a template.
- EIN (Employer Identification Number): Free from the IRS.
Which Is Better: Individual or LLC for Amazon FBA?
The answer depends on your situation:
- If you are just testing products with little investment → Start as an individual to keep costs low.
- If you are serious about building a brand, importing goods, or scaling quickly → Form an LLC from the beginning for liability protection and credibility.
- If you already sell as an individual and your sales are growing → Transition to an LLC before your revenue reaches levels where liability and taxes become major concerns.
When to Switch from Individual to LLC
Most Amazon sellers start small, but once your monthly revenue is consistent or above $2,000–$3,000, forming an LLC makes sense. The protection and credibility often outweigh the initial setup costs. Transitioning early also prevents the hassle of changing tax IDs, bank accounts, and contracts later.
Step-by-Step: How to Start an LLC for Amazon FBA in 2025
- Choose a state: Popular states for LLCs are Wyoming, Delaware, and your home state.
- File Articles of Organization: Submit paperwork with the Secretary of State.
- Get an EIN: Free from the IRS, required for Amazon Seller Central and banking.
- Draft an Operating Agreement: Defines how your LLC is managed.
- Open a business bank account: Keep personal and business finances separate.
- Register for taxes if needed: Depending on state sales tax requirements.
- Update Amazon Seller Central: Add your LLC details to your account.
Final Thoughts
Amazon FBA in 2025 continues to be one of the best ways to start an online business. Starting as an individual may work if you want to test the waters, but forming an LLC provides long-term protection, tax advantages, and professional credibility. If you are serious about building a sustainable Amazon brand, forming an LLC is the safer and smarter choice.