Is it better to get a resale certificate or register an LLC in CA?

Question

I would like to sell my 3D printed items on Amazon, Etsy, eBay, Shopify, etc. I recently discovered that I can avoid paying taxes when purchasing raw materials or business equipment by obtaining a resale certificate. However, on the other hand, I believe that if I register an LLC, I can claim a tax deduction by filing my business purchase invoices as business expenses.

As a complete newbie to the business world and uncertain about my sales volume and the longevity of this venture, I am unsure which option to choose (between a resale certificate and an LLC).

However, since I reside in California, where sales taxes are relatively high, I must avoid this additional sales tax to maintain a reasonable profit margin.

I am aware that an LLC requires an annual fee of $800 in California, but I am unaware of the costs associated with a resale certificate. Please help me by providing any additional business advice regarding the advantages and disadvantages of each option.

Thank you for your assistance.

P.S: I think I can also choose neither of the above options and just claim tax deduction on my personal tax statement but I am not sure if this is a good way and what is the success rate this way!

Answer 1

The legal entity choice is orthogonal to the taxes questions. Your choice of legal entity doesn't change anything with regards to resale certificate or whether you can deduct expenses or not.

LLC is intended, as the name suggests, to limit your liability. Basically, LLC separates your business from your person for liability purposes. If your LLC business causes damage to someone - they can sue the LLC, but not you personally, and bankrupt the LLC, but not you personally (assuming you follow the rules to avoid piercing of the veil).

It doesn't matter for the resale certificate or the ability to deduct business related expenses. To be able to use resale certificates you must obtain a seller's permit.

I am aware that an LLC requires an annual fee of $800 in California

Not exactly. $800 is the minimum LLC fee, but LLCs in California are also paying separate income tax (even if they're disregarded for Federal tax purposes). The LLC tax is based off of gross income of the LLC, and if the tax is more than $800 - then you pay the tax instead of the LLC fee. See the instructions for the CA FTB form 568. LLCs in California are expensive.

P.S: I think I can also choose neither of the above options and just claim tax deduction on my personal tax statement but I am not sure if this is a good way and what is the success rate this way!

Success of what? There are millions of sole proprietors in California that do exactly that. In fact, if you're using an LLC for liability protection - it will show up on your Federal taxes in the exact same way as if you were a sole proprietor (unless you chose to treat it as a corporation).