Scott Letourneau | | 0 Comments

Understanding Amazon’s Tax Interview: Key Mistakes Non-Residents Should Avoid with LLCs

Navigating Amazon’s tax interview for non-residents with U.S. LLC can be complicated, particularly regarding tax compliance. Many non-residents choose to operate as individuals or entities from their home country and will complete the W-8BEN or W-8BEN-E form during the Amazon tax interview.

Forming a U.S. single-member LLC often becomes necessary, especially in dropshipping scenarios where U.S. suppliers require dealing with U.S. companies (tip: don’t form your LLC in Wyoming when dropshipping). It might also be essential for securing U.S. insurance coverage when options are scarce in the non-resident’s country since many insurers do not provide services for non-residents in most countries. The necessity for insurance compliance increased after September 2021, particularly for sellers recording over $10,000 a month in sales.

It’s crucial to understand that U.S. suppliers may be indifferent about your Amazon sales, the proper completion of your Amazon tax interview, or even whether you’ve mistakenly committed tax fraud. However, insurance underwriters need to be more indifferent regarding claim filing.

Imagine this: Your insurance adjuster denies your claim because your U.S. LLC wasn’t genuinely managing your Amazon business or due to an ‘inadvertent trick’ played on the Amazon tax interview. Depending on the size of your claim, the repercussions can range from mildly inconvenient to severe. A $5K claim on a $1M policy might not raise eyebrows, but a claim worth $800K is likely to trigger intensive scrutiny from insurance company attorneys.

Suppose you’re an Amazon seller ticking the insurance box to get verified and are not concerned about coverage because you’re selling low-risk items like rubber kitchen spatulas. In that case, the above doesn’t apply. However, the looming risk of an Amazon suspension should pique your interest, so please keep reading.

Establishing a compliant U.S. LLC and meticulously navigating the Amazon tax interview are not just administrative formalities. An Amazon account will often not be verified, and you will be asked to provide additional verification in the form of a business utility bill linked to your U.S. address. That makes your verification process 10X more difficult. It is best to work with NCP and utilize our Amazon New Account 32-page Guide, or if you have already formed an LLC, book a consult with our CEO, Scott Letourneau, to review what you need to amend on your filing and changes to your Amazon account to help get your account verified.

Amazon Tax Interview Questions

Here are two pivotal questions you need to answer: Are you classified as an individual or a business for tax purposes? I think your response to this will change your question.

Upon selecting ‘individual,’ a critical note is displayed: if you choose this category, it will lead to the following question: Are you a U.S. citizen, a U.S. permanent resident (green card holder), or another type of U.S. resident alien? It’s worth noting that this question underwent revision in the Fall of 2022 to enhance clarity in the tax interview process.

The clarification under the initial question specifies that ‘individual’ encompasses sole proprietors or single-member LLCs where the owner is an individual.

For non-residents possessing a single-member LLC disregarded for tax reasons, the default choice is ‘individual.

Your Amazon “Sold By” Name

Consider this perspective on the Amazon storefront process: if your goal is to open an Amazon store using a disregarded LLC that you own, your LLC name can be the “store name,” but most often, your brand name will be your “store name” which will show as “sold by.”

The displayed ‘sold by’ name on your storefront does not want to be your personal name, which may not project the most enticing marketing image. This is because operating under an individual name might suggest that you need to generate more profit to form a tax-saving entity.

This message may resonate poorly with U.S. consumers. True, not all Amazon shoppers pay attention to the ‘sold by’ name. However, an increasing number of consumers are becoming aware that not all products are sold directly by Amazon, and they’re likely to take note of your brand name.

So, could you think carefully about the image you want to project to your potential customers? Because when it comes to branding, every detail counts.

Which ‘Sold by’ Brand Impresses More?

Detailed Seller Information
Business Name: Best Products, LLC
Business Address:
10785 W. Twain Ave. Ste. 229
Las Vegas, NV 89135

Or is this brand with all Chinese details?

Detailed Seller Information
Business Name: HEFEI RUJU WANGLUOKEJI YOUXIANGONGSI
Business Address:
蒙城北路2003号
骏杰嘉和大厦1001室
合肥市
庐阳区
安徽省
230041
CN

A U.S. consumer prefers a store brand that presents itself as U.S.-based, even while shopping on Amazon. While this factor might not directly reflect in your conversion tracking, it can undeniably influence sales outcomes. How can the ‘sold by’ name include an LLC?

There are two potential explanations: you completed the Amazon account setup correctly, separate from the tax interview, or the seller has manipulated the Amazon tax interview. This act carries its own set of troubles. You can read on this crucial topic for more information.

Amazon Tax Interview Questions When Tax Classification is “Individual”

In the context of your single-member LLC disregarded entity – owned by you, an individual – you would check ‘individual’ in response to the first tax-related question. As a non-resident (assuming you aren’t a U.S. resident alien), you would select ‘no’ for the subsequent question. These selections, ‘individual’ and ‘no,’ guide you towards completing the W-8BEN form, a crucial step to wrap up your tax interview.

This path is vital for ensuring tax compliance and avoiding potential pitfalls.

How to “Trick” the Amazon Tax Interview (Not Recommended)

What happens if you choose ‘business’ and subsequently select ‘no’ for the follow-up question, then utilize the name of your disregarded single-member LLC as the ‘business name’? Is such a maneuver feasible? Yes, it’s feasible, but it needs to be more accurate.

Suppose you enter the name of your LLC under ‘tax identity information’ as the ‘full name’ and, on reaching the signature line, type in your LLC name instead of your signature. You will indeed pass the tax interview. However, this approach needs to be more accurate.

This approach inevitably leads to the correct W-8BEN form for the beneficial owner of the LLC, which, in this case, is a non-resident individual.

See Amazon’s instructions for the “name” field.

Name: The name on the “Name” line must be the name shown on the income tax return used to report the income. The name of the entity entered on the “Name” line should NEVER be a DISREGARDED ENTITY. For single-member LLCs, ENTER the FIRST and LAST legal entity name of the owner.

What does this mean? It means that a U.S. single-member LLC disregarded owned by a non-resident individual will put your first and last name on the full name line, or if owned by a foreign entity or another U.S. taxpaying entity such as a corporation, that name.

Could Filling Out the W-9 Expose You to Perjury Penalties?

Just what are the repercussions for committing perjury on a U.S. tax form? Each falsified document signed by a taxpayer can translate into an individual count of tax perjury. This perjury carries severe consequences, including a potential sentence of up to three years in prison and fines that can escalate to $250,000.

Imagine such a hefty sum subtracted from your hard-earned Amazon profits. It’s a sobering thought and a strong deterrent against entanglement with this significant IRS issue.

So, how exactly does one land in such a predicament? Let’s delve deeper. Let’s take a closer look at the Part II certification section on the W-9 form; see the image below:

Amazon W-9 Perjury

When you’ve established a U.S. single-member LLC disregarded entity owned by a non-resident individual, completing the W-9 form as part of the Amazon tax interview should be removed from your to-do list. Keep in mind that there is a big difference between opening a new Amazon account and making a change on the tax interview for the legal entity.

If you’re presented with the W-9 form, it’s a strong indication that you may have checked ‘business’ rather than ‘individual’ for the first question in the tax interview. This selection significantly alters the course of subsequent questions, as you’ll discover below.

Please remember that precision in these selections is essential to complying with tax laws and avoiding potential legal ramifications.

Amazon tax interview business

Your second query asks, “Are you a U.S. tax resident entity?” This refers to the U.S. single-member LLC disregarded entity you own as a non-resident individual. The appropriate response here is a resounding ‘NO.’ A ‘Yes’ response steers you towards completing the W-9 form, which introduces complications.

However, if your single-member LLC is taxed as a U.S. corporation, affirming ‘business’ and ‘yes’ to the U.S. tax resident entity question aligns with the correct course of action.

Ultimately, ensuring your U.S. entity formation strategy syncs seamlessly with your e-commerce marketplace strategy to safeguard your brand and optimize your profits is vital.

Navigating this complex process may leave you feeling stuck or unsure about the best path. In such instances, could you consider arranging an in-depth strategic consultation with our CEO, Scott Letourneau? You can find more details about consulting with Scott at this link.

At NCP, we recommend scheduling a complimentary discovery call with us before you begin your U.S. LLC. This enables us to provide tailored advice and discuss the best support options to suit your situation. Please contact us today to take the first step on your journey to success.