To start a reseller business, you register a legal entity with your state, get an Employer Identification Number from the IRS, and apply for a resale certificate through your state’s department of revenue so you can buy inventory without paying sales tax at wholesale. Once your net earnings pass $400 in a year, you also owe federal self-employment tax and need to pay it quarterly. The filings are straightforward. The tax obligations that follow are where most new resellers get into trouble.
Pick a Business Structure First
Your structure decides how you pay taxes, how much personal risk you carry, and whether serious wholesale suppliers will open an account for you. Two options cover almost every reseller starting out.
A sole proprietorship is the default. If you sell anything without filing formation documents, you already are one. You and the business are legally the same person, so every business debt is your personal debt. There are no state formation filings, no annual reports, no operating agreements. If you plan to operate under a name other than your own legal name, most jurisdictions require a “Doing Business As” registration at the county level, usually $25 to $100.
An LLC puts a legal wall between your personal assets and business debts. You form one by filing articles of organization with your state’s secretary of state and paying a one-time fee of roughly $50 to $500 depending on the state. The filing asks for a business name, a registered agent to accept legal documents, and whether the LLC is member-managed or manager-managed. Draft an operating agreement afterward even if you’re the only member, and keep a separate business bank account from day one. Wholesale distributors often ask for formal business documentation before approving high-volume accounts, and an LLC certificate, resale certificate, and dedicated business bank account usually clear that hurdle.
Most states charge an annual report or franchise tax to keep an LLC in good standing. That fee ranges from $0 in a handful of states to several hundred dollars a year, so build it into your cost projections before choosing the LLC route over a sole proprietorship.
There is one further option worth knowing about for later. Once your profits climb high enough, an LLC or corporation can elect S corporation tax treatment by filing IRS Form 2553, which lets you take part of your profits as distributions that avoid the 15.3% self-employment tax. It makes little sense when profits are modest, but revisit it once net income consistently exceeds what you’d pay yourself as a reasonable salary.
Get an EIN From the IRS
An Employer Identification Number is a nine-digit number the IRS uses to identify your business. Partnerships, corporations, and multi-member LLCs must have one. Sole proprietors can use their Social Security Number instead, but getting an EIN keeps that number off invoices and supplier forms, which alone is reason enough to apply.
The application is IRS Form SS-4. It asks for the legal name of the entity, its structure, its primary business activity, and the reason you’re applying. One person has to be listed as the “responsible party” with authority to control the entity’s funds. Apply online through the IRS website and you receive the number at the end of the session. A confirmation notice arrives in the mail later.
Register for Sales Tax and Get a Resale Certificate
A resale certificate lets you buy inventory from suppliers without paying sales tax at the point of purchase. You collect sales tax from your end customer when you resell the item and remit it to the state. It’s not an exemption in the traditional sense. It just moves the point of collection from the wholesale transaction to the retail one.
What You Need Before Applying
State revenue departments will ask for your Social Security Number (if you’re a sole proprietor) or your EIN, a description of the products you plan to resell, and an estimate of your monthly or annual sales. That volume estimate determines your filing frequency, which is typically monthly for high-volume sellers and quarterly or annually for smaller ones.
Identify your North American Industry Classification System code before starting the application. Online resellers commonly fall under code 454110 (electronic shopping and mail-order houses) or 453998 (miscellaneous retail stores).1Census Bureau. North American Industry Classification System (NAICS) The application will also ask for a physical business address even if you work from home, because that address establishes where you first have a tax collection obligation.
Submitting the Application
Most states accept online applications through their tax portal. You certify the information under penalty of perjury and get a confirmation number or pending status. Processing time varies widely. Some states issue permits almost immediately; others take up to four weeks. Once approved, you receive a seller’s permit with a state tax account number. That number goes on every resale certificate you hand a supplier, and some jurisdictions require you to display the permit at your place of business.
Names for the form differ by state: seller’s permit application, sales and use tax registration, certificate of authority. Check your state department of revenue’s website for the correct one. Five states have no general sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. If you’re based in one of them, you won’t need this registration for in-state sales, though you may still need to register in other states once you have a collection obligation there.
Federal Income Tax and Self-Employment Tax
New resellers often focus on the state resale certificate and overlook the federal side, where the larger bills come from. If your net self-employment earnings exceed $400 in a year, you have to file a federal return and pay self-employment tax.2Internal Revenue Service. Check if You Need to File a Tax Return That threshold is low enough that virtually any reseller with regular sales will hit it.
How the Numbers Work
Self-employment tax covers Social Security and Medicare. The combined rate is 15.3% of your net self-employment income, split into 12.4% for Social Security and 2.9% for Medicare.3Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax The Social Security portion applies to earnings up to $184,500 in 2026; the Medicare portion has no cap.4Social Security Administration. Contribution and Benefit Base If your net self-employment income exceeds $200,000 (or $250,000 on a joint return), an additional 0.9% Medicare surtax applies to the amount above that threshold.
You calculate self-employment tax on Schedule SE and report business income and expenses on Schedule C, both attached to your Form 1040.5Internal Revenue Service. Instructions for Schedule C (Form 1040) You can deduct half of your self-employment tax on the front page of your 1040, which reduces your adjusted gross income.
Quarterly Estimated Payments
W-2 employees have taxes withheld from every paycheck. You don’t. You pay estimated tax four times a year. For the 2026 tax year, the deadlines are April 15, June 15, September 15, and January 15, 2027.6Taxpayer Advocate Service. Making Estimated Payments Miss a payment or underpay, and the IRS charges an underpayment penalty on the shortfall for the period it went unpaid.
The safe harbor rule gives you a clean target. You avoid the penalty if you pay at least 90% of your current-year tax liability or 100% of the prior year’s tax, whichever is less. If your adjusted gross income exceeded $150,000 the prior year, the second number rises to 110%.7Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty In your first year, when there is no prior year to anchor to, err on the side of overpaying and take the refund back later.
Inventory Costs and Deductions
What you paid for the items you sold during the year is your cost of goods sold, reported in Part III of Schedule C. Getting that number right matters more than any other deduction for a reseller, because inventory is almost always the largest expense.
Businesses that sell merchandise have traditionally been required to keep formal inventories and use the accrual method of accounting. If your average annual gross receipts over the prior three tax years fall under the small business taxpayer threshold ($31 million for 2025, adjusted for inflation), you can use the simpler cash method instead.8Internal Revenue Service. Publication 538 – Accounting Periods and Methods That lets you treat inventory as non-incidental materials and supplies, deducting the cost when you sell the item rather than tracking beginning and ending inventory balances. Almost every individual reseller qualifies.
Beyond inventory, deductible expenses commonly include shipping and postage, marketplace seller fees, packaging materials, storage or workspace costs, mileage for sourcing trips, and a portion of your phone and internet bills if used for business. The home office deduction applies if you use a dedicated space regularly and exclusively for business. Every ordinary and necessary business expense goes on Schedule C, and clean records for each one are what separates a smooth filing from an audit headache.
Where You Have to Collect Sales Tax Online
If you sell online, you need to understand where you owe sales tax collection, and the answer expanded sharply after 2018. In South Dakota v. Wayfair, the Supreme Court held that states can require remote sellers to collect sales tax based on the volume of sales into the state, with no physical presence required.9Supreme Court of the United States. South Dakota v. Wayfair, Inc. Every sales-tax state has since adopted an economic nexus law. The most common threshold is $100,000 in sales into the state during a calendar year, and a growing number of states have dropped the alternative 200-transaction test.
Selling through Amazon, eBay, Poshmark, and similar platforms takes most of that burden off you. Nearly every sales-tax state now requires marketplace facilitators to collect and remit sales tax on behalf of third-party sellers. If all your sales run through a major marketplace, the platform handles it. But if you also sell through your own website, at flea markets, or through any channel that isn’t a covered facilitator, you are personally on the hook to collect and remit in every state where you’ve crossed the nexus threshold.
Tracking which state thresholds you’ve triggered is one of the more tedious parts of scaling. Software like TaxJar and Avalara, along with dashboards built into major marketplaces, can automate the tracking, but you still have to register for a permit in each state where you have an obligation. Collecting tax in a state without being registered there creates its own problems.
Ongoing Filings, Penalties, and Records
Registration is the start, not the end. Federal law requires taxpayers to file returns according to the forms and regulations the IRS prescribes.10Office of the Law Revision Counsel. 26 USC 6011 – General Requirement of Return, Statement, or List On the state side, you’ll file sales tax returns on whatever schedule your state assigned (monthly, quarterly, or annually) and remit what you’ve collected.
Late federal returns trigger a penalty of 5% of the unpaid tax for each month, up to 25%. If you’re more than 60 days late, the minimum penalty is $525 or 100% of the tax owed, whichever is less.11Internal Revenue Service. Failure to File Penalty State penalties vary but usually combine a flat per-return charge with a percentage of the tax due. Most states require a zero-dollar return when you had no sales during a period. Skip it and the late-filing penalty applies anyway.
Keep every resale certificate you provide to suppliers. During an audit, the state will ask you to prove specific purchases were legitimately for resale, and without the certificate on file, the state will assess sales tax on those purchases plus interest. Your records should clearly separate taxable sales from exempt transactions.
The IRS says to keep records supporting your return for at least three years from the filing date. That stretches to seven years if you claim a loss from worthless securities or a bad debt deduction, and to six years if you underreport income by more than 25%.12Internal Revenue Service. How Long Should I Keep Records For a reseller juggling inventory receipts from dozens of sourcing trips, the simple rule is to keep everything for seven years and stop thinking about it.
Local Business Licenses and Home-Based Rules
State and federal registrations don’t cover everything. Most municipalities require a general business license. Fees run from as little as $10 to over $500 depending on your location and the type of business, and some jurisdictions calculate the fee based on projected gross revenue instead of charging a flat amount.
If you run the business from home, local zoning ordinances may require a home occupation permit. These often restrict signage, limit customer or employee visits to the property, and cap how much of your home can be used for business. Storing large volumes of inventory in a residential garage could violate local rules even when your state tax registrations are perfectly in order. Check with your city or county planning department before assuming a home-based operation is automatically allowed. The requirements and fees are handled locally and vary widely.