To start a resale business, you pick a legal structure, register it with your state, get a federal tax ID, apply for a sales tax permit and resale certificate, meet the verification rules imposed by the marketplaces you plan to sell on, and set up your federal income tax filings. Most sellers can finish the paperwork in a few weeks. The state-specific forms and fees vary, but the federal pieces are the same everywhere.
Pick a Business Structure First
Your structure decides how much personal risk you carry and how you file taxes. A sole proprietorship needs no state formation paperwork. You operate under your own name or a registered “doing business as” name, and profits go on your personal return. The trade-off is exposure: business debts and product liability claims can reach your personal bank accounts, home, and other assets.
A limited liability company separates personal assets from business obligations. If someone sues the business or a supplier demands payment, your personal savings and property are generally off-limits. Formation means filing articles of organization with your state’s Secretary of State, with fees ranging from roughly $35 to $500. You also designate a registered agent authorized to accept legal documents during business hours.
Even where state law doesn’t require one, draft an operating agreement. It sets out how profits are split, who decides what, and what happens if a member leaves. Without it, an LLC can look a lot like a sole proprietorship in court, which weakens the liability protection you formed it to get.
Register the Entity With Your State
If you choose an LLC or corporation, you file formation documents through your state’s Secretary of State, usually online. For an LLC the document is articles of organization; for a corporation, articles of incorporation. Base filing fees in most states run between $50 and $200, though a few charge more. Expedited processing is available almost everywhere for an extra fee and can drop the wait from several weeks to a day or two.
When the state approves the filing, you get a stamped copy or a certificate of formation. Keep digital and physical copies. Lenders, wholesale suppliers, and marketplace platforms all ask for proof of good standing at some point.
Check your city and county too. Many localities require a general business license or occupational permit before you can operate. Fees and requirements vary widely, and operating without a required local license can result in fines and forced closure.
Get an Employer Identification Number
An Employer Identification Number is a nine-digit number the IRS assigns to businesses for tax filing and reporting. You apply on Form SS-4, which asks for the legal name of the entity and the Social Security Number or Individual Taxpayer Identification Number of the responsible party.1Internal Revenue Service. Instructions for Form SS-4 (Rev. December 2025) LLCs, corporations, and partnerships all need an EIN whether or not they have employees.2Internal Revenue Service. Form SS-4 (Rev. December 2025) Application for Employer Identification Number
Sole proprietors without employees can technically use their personal Social Security number for tax purposes. Getting an EIN anyway is free, takes minutes online, and keeps your SSN off the invoices and W-9 forms you hand to suppliers and platforms. It also simplifies opening a business bank account and applying for trade credit, both of which are close to impossible without one.
Sales Tax Permit and Resale Certificate
If you sell tangible goods, you almost certainly need a sales tax permit from your state’s department of revenue. Five states impose no statewide sales tax; the other 45 plus D.C. require you to register, collect tax from buyers, and remit it on a schedule the state sets based on your volume. Registration is usually free or costs a small fee, and the application uses your EIN and business address. Most states issue the permit digitally within a few business days.
The resale certificate is a separate document. You give it to suppliers so they don’t charge you sales tax on inventory you plan to resell. Tax gets collected once, from the final customer, not at every step of the supply chain. When a supplier receives a properly completed resale certificate, they have documentation showing why they didn’t charge you tax.
Expiration rules vary. Some resale certificates stay valid indefinitely unless you revoke them in writing. Others expire after three to five years, and a few states require annual renewal. Using an expired certificate can leave your supplier on the hook for the tax they should have collected, so set a calendar reminder against your state’s rules.
Selling Into Other States
Selling online means customers in many states, and each state has its own rules on when you owe them sales tax. The trigger is economic nexus, and it kicks in once your sales into a state cross a revenue or transaction threshold. Most states set that threshold at $100,000 in annual sales. A few larger states set it higher, at $250,000 or $500,000.
Marketplace facilitator laws have shifted much of this burden to the platforms. Every state that charges sales tax now requires marketplaces like Amazon, eBay, and similar platforms to collect and remit sales tax for their sellers. If you sell only through these platforms, the marketplace handles that math and payment. You still need your own sales tax permit for direct sales through your own website or in-person transactions.
Sourcing and Platform Requirements
Resellers generally source inventory three ways. Wholesale distributors sell new goods in bulk and typically require a business license and tax ID to open an account. Liquidation companies sell pallets of customer returns and retailer overstock at steep discounts, with unpredictable item condition. Retail arbitrage means buying clearance and discounted items from stores, which works but demands meticulous receipt-keeping to document your purchase cost per item.
INFORM Act Verification
Major online marketplaces verify seller identities under the INFORM Consumers Act, which targets high-volume third-party sellers. You provide government-issued ID, your business tax ID, bank account information, and contact details. The platform must verify the information within 10 days. If you don’t provide it after receiving notice, the marketplace is required to suspend your selling privileges until you comply.3Office of the Law Revision Counsel. 15 USC 45f – Collection, Verification, and Disclosure of Information by Online Marketplaces
Platforms enforce their own policies on top of the federal rules. Amazon, eBay, and Shopify commonly request recent bank statements, utility bills, or lease agreements to confirm your business location. Having these organized before you apply saves weeks of back-and-forth.
Recalled and Children’s Products
Reselling a recalled product is illegal under the Consumer Product Safety Act, and ignorance is not a defense. Check the CPSC recall database at cpsc.gov/recalls before listing anything. This applies to items you bought at thrift stores, liquidation sales, and garage sales just as much as inventory from wholesale suppliers.4U.S. Consumer Product Safety Commission. Stopping the Online Sale of Recalled Products
Children’s products carry extra requirements. Federal law defines a children’s product as one designed primarily for kids 12 and under, and these items must meet stricter testing and labeling standards under the Consumer Product Safety Improvement Act.5eCFR. 16 CFR 1200.2 – Definition of Childrens Product Reselling toys, clothing, or furniture for children puts you in a more heavily regulated category where compliance mistakes can trigger federal enforcement action.
Federal Income Tax Setup
Resale income is self-employment income, reported on Schedule C of your personal tax return, or on your entity’s return if you formed a corporation. The IRS looks at two numbers: gross receipts and cost of goods sold. The difference is gross profit, and what remains after other business expenses is your taxable profit.6Internal Revenue Service. Instructions for Schedule C (Form 1040) (2025)
Cost of Goods Sold
Cost of goods sold is where resellers get the largest tax benefit, and it’s the calculation most new sellers get wrong. COGS includes what you paid for inventory you actually sold during the year, plus direct costs like shipping to get items to you. It does not include your entire inventory purchase for the year. Items still on your shelves on December 31 are ending inventory, not a current-year deduction. Report COGS in Part III of Schedule C, and value inventory at cost or the lower of cost or market value.6Internal Revenue Service. Instructions for Schedule C (Form 1040) (2025)
For mixed liquidation lots, assigning a per-item cost requires dividing your total lot cost across the individual items. There’s no single IRS-mandated method, but the approach must clearly reflect income. Many resellers allocate based on estimated retail value: if you paid $200 for a lot where Item A could sell for $80 and Item B for $120, you’d assign $80 and $120 of cost proportionally. Keep the method consistent year to year.
Self-Employment Tax
On top of income tax, you owe self-employment tax on your net profit. The rate is 15.3%, split between 12.4% for Social Security and 2.9% for Medicare.7Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) The Social Security portion applies to the first $184,500 of net self-employment earnings in 2026.8Social Security Administration. Benefits Planner – Social Security Tax Limits on Your Earnings The Medicare portion has no cap. You can deduct half of your self-employment tax as an adjustment to income, which softens the hit slightly.
Quarterly Estimated Payments
The IRS expects you to pay taxes throughout the year, not in a single April payment. If you expect to owe $1,000 or more when you file, you’re generally required to make quarterly estimated payments covering both income tax and self-employment tax.9Internal Revenue Service. Estimated Taxes
Miss these payments and you face an underpayment penalty even if you pay everything by April 15. You can generally avoid the penalty by paying at least 90% of your current-year tax or 100% of your prior-year tax, whichever is smaller. In your first year, with no prior-year self-employment tax to base payments on, estimate conservatively and set aside roughly 25% to 30% of your net profit for taxes.9Internal Revenue Service. Estimated Taxes
1099-K Reporting
Payment platforms and online marketplaces report your gross sales to the IRS on Form 1099-K. The current reporting threshold is $20,000 in gross payments and more than 200 transactions in a calendar year. Below that threshold, the platform won’t send a 1099-K, but you still owe tax on every dollar of profit.10Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold
The 1099-K reports gross sales, not profit. If you sold $25,000 in goods but spent $18,000 to acquire them, you’re taxed on the $7,000 profit minus other deductions, not $25,000. The form doesn’t account for costs, which is why your own records matter more than what any platform reports.
Deductible Expenses
Every legitimate business expense reduces your taxable profit. Beyond cost of goods sold, resellers commonly deduct:
- Platform and payment fees, including listing fees, final value fees, payment processing charges, and monthly seller subscriptions.
- Shipping and packing materials such as postage, boxes, tape, poly mailers, and labels.11Internal Revenue Service. Deducting Business Supply Expenses
- Mileage for driving to source inventory from stores, estate sales, or wholesale pickups, deductible at 72.5 cents per mile in 2026. Log each trip with date, destination, purpose, and miles.12Internal Revenue Service. 2026 Standard Mileage Rates
- A home office, if you use a dedicated space in your home exclusively for the business. The simplified method allows $5 per square foot up to 300 square feet, for a maximum $1,500 deduction. A corner of your living room where you also watch TV doesn’t qualify.13Internal Revenue Service. Simplified Option for Home Office Deduction
- Software and subscriptions used for the business, including inventory management tools, accounting software, and market research services.
The IRS requires deducted expenses to be both ordinary (common in your type of business) and necessary (helpful and appropriate for your trade). A legitimate expense can still be denied if you can’t prove it. Keeping complete records of every purchase is the only reliable way to protect your deductions if the IRS asks questions.11Internal Revenue Service. Deducting Business Supply Expenses
Records to Keep
The IRS requires records that support every item of income, deduction, or credit on your return until the period of limitations expires. For most resellers, that means at least three years after you file. If you underreport income by more than 25%, the window extends to six years. If you never file a return, there’s no expiration.14Internal Revenue Service. How Long Should I Keep Records
For a resale business, records mean purchase receipts for every item you buy (including retail arbitrage store receipts and liquidation lot invoices), sales records from every platform, shipping cost documentation, mileage logs, and bank statements showing business transactions. Three years is a floor. Many accountants advise keeping everything for seven years, which covers virtually every scenario the IRS might raise.
What Comes Due Each Year
Registration isn’t a one-time event. Each year brings filing obligations that keep the business in good standing:
- Sales tax returns, filed monthly, quarterly, or annually depending on your volume. Late filings trigger penalties and interest in every state.
- Annual or biennial reports with the Secretary of State to keep your LLC or corporation active. Missing the deadline can result in administrative dissolution, which strips your liability protection.
- Federal income tax by April 15 for calendar-year filers, with quarterly estimated payments throughout the year.15Office of the Law Revision Counsel. 26 USC 6072 – Time for Filing Income Tax Returns
- Resale certificate reviews against each state’s expiration rules. Letting a certificate lapse means your next inventory purchase gets taxed at the full retail rate.
Every permit, certificate, and filing schedule exists to prevent a much more expensive problem later, whether that’s back taxes with interest, a dissolved LLC, or a personal liability judgment that could have been stopped at the entity level.