Should I Start an LLC for My Babysitting Business?

Starting a limited liability company (LLC) for your babysitting 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 babysitting business, lawsuits can arise from things like breach of contract disputes (i.e., with contracted babysitters), or breach of duty allegations.

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

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

Do I Need an LLC for a Babysitting Business?

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

You should form 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 Babysitting Business

By starting an LLC for your babysitting 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.

Babysitting businesses will benefit from liability protection because of the risks of personal injury liability if something happens to the child or children in your care.

Example 1: While on the job, one of your employees gets a personal emergency and decides to leave. When the client comes back and sees their baby unsupervised, they call your babysitting business and complain, claiming that you have a duty of care to ensure that their baby is not put in foreseeable danger through reckless behavior. If they bring a lawsuit against your company, your LLC status will ensure that your personal assets remain 100% protected, regardless of the outcome of the case.

Example 2: You take on a large business loan to hire additional babysitters and re-design your business website. After a few months, your growth has stagnated, and you begin to worry about how you will be able to pay back the loan on time while making a profit. Since your business is registered as an LLC and you did not personally guarantee the loan, the growing debt will not put your personal assets at risk.

Example 3: When one of your employees is walking out of your office, they trip over a box and break their wrist, leaving them unable to work for at least six weeks. Since the box was in a very well-lit room, you claim that it could have been easily avoided and do not offer any sort of compensation. Your employee decides to sue your LLC, seeking medical damages and loss of income compensation. Here, limited liability will ensure that you do not have to personally compensate your employee, regardless of the degree of liability that arises in court.

Example 4: While watching a child at your house, they slip and fall down the stairs, resulting in a head injury. The child’s parents sue you for negligence.

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 Babysitting 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 babysitting 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

Babysitting 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?

Even though LLCs offer limited liability to their owners, they still need to purchase business insurance in order to protect their business’s assets.

If your business hires employees — which may be the case as you expand your babysitting business — you will also be required to have workers’ compensation insurance according to state laws.

Common Situations Business Insurance May Cover for a Babysitting Business

Example 1: As part of your babysitting duties, you’re responsible for ensuring the water level in their pool remains at a certain level. You forget for a few days, and the pump breaks due to low water levels. The client is asking you for financial compensation to replace the water pump. General liability insurance will pay for the replacement, as well as your legal fees, if the customer decides to sue.

Example 2: While babysitting, one of the kids spills a glass of wine on the client’s new couch, and they decide to sue you for the replacement cost. Your general liability policy should cover your attorney’s fees and the compensation claim.

Example 3: You have decided to expand your babysitting business and seek a loan to get you started. As part of the terms of the loan, the bank requires evidence of at least $1 million in liability. General liability insurance ensures you meet that requirement.

Other Types Of Coverage Babysitting 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 babysitting businesses should obtain:

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, this coverage provides added protection against large claims involving a child’s injury or illness that could exceed the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

Commercial Auto Insurance

If you use a personal vehicle to drive children around while babysitting them, you may need commercial auto insurance because many personal auto policies don’t cover work-related accidents. A commercial auto policy protects you, your car, and others on the road in the event of a work-related accident by covering vehicle repair costs as well as medical treatment for anyone injured.

Home-Based Business Insurance

If you watch children at your home, check with your homeowners' insurance provider to ensure your policy protects you against liability from work-related accidents. If not, consider adding home-based business coverage to your business owner policy (BOP) or your existing home insurance policy.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees, but you may also use it to protect yourself as a business owner from work-related injuries. Because some health insurance policies don’t cover injuries sustained at work, consider purchasing workers’ compensation insurance to protect yourself if you become injured or fall ill while babysitting.

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 Babysitting Business Insurance article for more info.

Starting a babysitting business can be done with a very small budget.

The two main expenses a babysitter will have are transportation and marketing. Gas may cost an average of $15 per week, or perhaps you’ll use public transportation, which may cost $20 per week. Marketing, on the other hand, can be as simple as a website and social media promotion.

When it comes to workers, you should be able to work with zero-hour contractors, meaning you’ll only have to pay them after a job is complete.

Visit our How to Start a Babysitting Business guide to learn more about the costs of starting and maintaining this business.

The regular expenses of a babysitting business are relatively minimal and can include website maintenance, fuel and vehicle maintenance, and wages for anyone you hire.

Learn more about running a babysitting business.

A babysitting business charges customers for each job. Some babysitting businesses will also charge extra based on the number of children at a time.

Learn more about starting a babysitting business.

Babysitting services are most often provided at a customer’s home. However, they can be offered in hotels and other places as well.

A babysitting business can earn a significant profit due to increased demand over the years. Qualified child care is hard to find, and if you can provide it, you should be able to find paying customers.

Profits will be limited with only one babysitter on staff. Hiring more than one babysitter can increase profits, which also will be affected by expenses like travel costs to and from clients’ homes.

Learn more about starting a babysitting business.