If you sell on Amazon, you’re always looking for ways to cut costs and boost profits and that includes taxes. Maybe you’ve heard that registering your LLC in Wyoming, Delaware, or Nevada can help you skip state fees and reduce your tax bill.
Spoiler alert: It won’t.
Too many Amazon sellers make this move thinking they’re hacking the system only to end up paying just as much (or more) in taxes thanks to something called business nexus. That’s right: Your LLC’s location doesn’t control where you owe taxes, where you actually do business does.
At Insogna CPA, a leading Austin, Texas CPA firm, we work with Amazon sellers to legally reduce their tax burden without gimmicks that backfire. Let’s break down why registering in a tax-friendly state won’t save you money and what actually will.
The Costly Mistake: Thinking Your LLC’s Location Controls Your Tax Bill
A lot of e-commerce sellers assume that where they register their LLC is where they’ll pay taxes. That’s a big misconception.
What Actually Determines Your Tax Obligation?
- Where you physically run your business (where you live & work).
- Where your inventory is stored (FBA fulfillment centers count!).
- Where you have employees, contractors, or warehouses.
If you live in a high-tax state like California, New York, or Texas and register your LLC in Wyoming, you still owe taxes in the state where you actually operate.
Why Business Nexus Matters (And Why Your LLC’s Location Won’t Save You)
Business nexus is how states determine if your business has a taxable presence—meaning, if you owe them money.
Ways Amazon Sellers Create Nexus Without Realizing It:
✔ Amazon FBA Inventory – If your products are stored in a Texas or California fulfillment center, congrats—you have nexus in those states, and you owe taxes there.
✔ Sales Volume – Many states have economic nexus laws that trigger tax obligations when you sell over a certain amount (often $100K+ annually).
✔ Employees or Contractors – If you have a VA, warehouse worker, or customer service rep in another state, that’s nexus.
Why This Is a Problem
Even if your LLC is registered in Wyoming, the IRS and state tax authorities will still tax you based on where you actually do business. If you ignore nexus rules, you could face penalties, back taxes, and major headaches later on.
How to Actually Lower Your Amazon Business Taxes (Legally!)
Instead of trying to trick the system, focus on real tax-saving strategies that actually work.
1. Max Out Your Business Deductions
The IRS lets you write off legitimate business expenses so why not take full advantage?
Amazon Seller Tax-Deductible Expenses:
- Amazon seller fees, storage fees, and advertising costs
- Software & tools (Helium 10, Jungle Scout, TaxJar)
- Home office expenses & internet costs
- Business-related travel, meals, and education
- Contractor payments (VAs, designers, copywriters, etc.)
Pro Tip: Most business owners miss deductions that could save them thousands. Work with an Austin tax accountant (like us!) to make sure you’re not overpaying.
2. Consider an S-Corp Election to Reduce Self-Employment Tax
If your Amazon business profits exceed $50,000 per year, switching from an LLC to an S-Corp election could save you thousands in self-employment taxes.
How It Works:
- Instead of paying 3% self-employment tax on all profits, you pay yourself a reasonable salary and take the rest as distributions (which aren’t subject to self-employment tax!).
- You’ll need to set up payroll and file extra tax forms, but the tax savings can be well worth it.
Pro Tip: Not sure if an S-Corp is right for you? A tax advisor in Austin can help you run the numbers and make the best choice.
3. Get Sales Tax Compliance Right (Because Amazon Won’t Do It for You)
Collecting and remitting sales tax properly is crucial but many sellers assume Amazon takes care of everything.
Reality Check:
✔ Amazon only collects & remits sales tax in some states, not all.
✔ You may still need to register for a sales tax permit in states where you have nexus.
✔ Failing to file sales tax returns could lead to penalties, audits, or even Amazon account suspension.
Pro Tip: Use tax software like TaxJar or Avalara, or consult a small business CPA in Austin Texas (like us!) to ensure compliance.
4. Choose the Right State for Your LLC (If You Need One at All)
For most Amazon sellers, registering your LLC in your home state is the easiest and most compliant option.
Best Practices for LLC Formation:
✔ If you live and operate in a state: register your LLC there.
✔ If you operate in multiple states, consider Texas or Florida (both have no state income tax and business-friendly laws).
✔ If you need an investor-friendly setup, a Delaware C-Corp may be the best option.
Pro Tip: Every business is unique. Get personalized guidance from an Austin CPA firm to ensure you’re making the right choice.
Final Thoughts: Stop Falling for Tax Myths And Use Strategies That Actually Work
Registering your LLC in Wyoming won’t magically erase your tax bill, but smart tax planning can help you keep more of your hard-earned profits. Instead of risky workarounds, focus on legal, effective strategies like:
✔ Maximizing deductions to reduce taxable income
✔ Considering an S-Corp election if profits exceed $50K
✔ Getting sales tax compliance right
✔ Choosing the right LLC state based on where you actually do business
At Insogna CPA, a leading Austin accounting firm specializing in e-commerce tax strategy, we help Amazon sellers:
✔ Lower their tax liability legally
✔ Stay compliant with state and federal tax laws
✔ Optimize tax elections for maximum savings
Want to stop overpaying in taxes? Schedule a tax strategy session with Insogna CPA today and let’s optimize your Amazon business taxes!