Should I Start an LLC for My Remodeling Business?

Starting a limited liability company (LLC) for your remodeling business can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a remodeling business, lawsuits can arise from things like damaging a customer’s pipes while attempting to renovate their kitchen or breaches that leak a customer’s sensitive data.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your remodeling business seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Remodeling Business?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Remodeling Business

By starting an LLC for your remodeling business, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Remodeling businesses will benefit from liability protection because of the risk of product liability, property damage, and workplace accidents.

Example 1: You are hired to renovate a customer's kitchen, but you make an error during the project that causes damage to some of the pipes. The customer files a lawsuit against you, claiming negligence or substandard workmanship. With limited liability protection in place, your personal assets will be protected from any potential legal damages stemming from this incident.

Example 2: A client sues your business, claiming that you did not complete their remodeling contracts within the agreed-upon amount of time. With limited liability protection in place, your business assets will be liable for any financial damages awarded by the court, protecting your personal finances from any losses.

Example 3: You have confidential customer data stored on your computer, which is hacked and stolen. As a result, your customers experience financial losses due to fraud or identity theft. With limited liability protection in place, only your business will be responsible for any resulting legal damages, protecting your personal assets from any losses.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Remodeling Business

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a remodeling business owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Remodeling businesses rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

Remodeling businesses need insurance to protect their employees, customers, and assets. Insurance can help pay for repairs and replacement of damaged property caused by accidents or negligence. It also provides coverage in the event of injury to staff or customers on the site of the renovation, ensuring the business is not held liable for any damages caused.

Common Situations Business Insurance May Cover for a Remodeling Business

Example 1: As you’re showing a customer the progress made on their remodeling project, they trip over some tools and fall, sustaining multiple injuries. General liability insurance would likely cover the cost of medical care.

Example 2: While preparing a quote to redo a building’s kitchen, one of your employees makes a disparaging remark about the original builder’s work. The comment gets back to the original builder, who files a defamation lawsuit. General liability insurance would likely cover the suit.

Example 3: A malfunctioning piece of equipment causes a fire, which spreads throughout the building your company is working on. General liability insurance would probably cover the property damage.

Other Types of Coverage Remodeling Businesses Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all remodeling companies should obtain:

Commercial Property Insurance

Commercial property insurance will help cover the cost of damage to company-owned buildings, equipment, and supplies caused by events like a fire or vandalism. Your remodeling company will need this coverage if it owns a showroom or office, and you’ll still want coverage for equipment even if your company doesn’t own a building.

The equipment that remodelers use is often specialized and expensive. Make sure your company’s property insurance protects against the full value of your company’s equipment.

Professional Liability Insurance

Professionals who apply knowledge or skill in their work may be held responsible for any mistakes they make. Professional liability insurance usually covers lawsuits arising from errors in work.

When selecting a professional liability policy, look for one that’s tailored to your company’s particular type of remodeling work. Policies frequently have specialized protections, and you’ll want the protections that are most relevant to your company’s work.

Workers’ Compensation Insurance

Your remodeling company will have to carry workers’ compensation insurance if it has employees. This insurance covers work-related injuries, which are common in the remodeling and construction industries. States generally require businesses that have employees to carry the coverage.

While your company must cover employees with workers' compensation, independent contractors and subcontractors usually don’t legally have to be covered by your company’s policy.

Commercial Umbrella Insurance

When liability lawsuits are greater than the limits of underlying policies, commercial umbrella insurance provides additional protection. If you’re concerned about potentially expensive liability suits and claims, this insurance can provide robust protection at a highly affordable price.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance.

Read our Remodeling Business Insurance article for more info.

Startup costs for a remodeling business can vary from $50,000 to $500,000, depending on whether you’re starting out part-time or as a major service provider. This capital will go towards a complete set of tools, a vehicle for transportation, insurance and licensing, and employee wages.

Some of the main operating expenses for a remodeling business are building supplies, equipment maintenance, insurance, and payroll or contractor expenses.

Learn more about running a remodeling business.

The ongoing expenses of running a remodeling business include equipment maintenance, supplies, utilities, marketing, and insurance.

Learn more about running a remodeling business.

Remodeling businesses make money by charging customers for residential and/or commercial renovation and remodeling projects.

Learn more about starting a remodeling business.

Homeowners and commercial building owners often require remodeling projects, which creates a steady demand for remodeling businesses.

A remodeling business could start as a small, one-person operation, or it could be bigger with dedicated project managers and site supervisors. The business model will have a big impact on your startup costs.

The profit potential for a remodeling business varies considerably depending on its size, but a large company has the potential to earn millions of dollars.

Learn more about starting a remodeling business..