Should I Start an LLC for My Car Wash?

By starting an LLC for your car wash, 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.

Car washes will benefit from liability protection because of the risk of trademark infringement, property damage, and workplace accidents. 

Example 1: Your staff finishes washing an expensive vehicle but mistakenly scratches the car. You offer to fix the scratch, but the customer threatens to file a lawsuit. Your LLC may be required to compensate for the damage, but your assets will not be affected. 

Example 2: You used a washing chemical that reacted harshly on a customer’s car paint. After some weeks, it defaces the car’s exterior. If the customer decides to sue, the liability will be limited to your LLC’s assets and not your personal assets.

Example 3: A customer brings their car for washing and later claims that an item is missing from the car. You refuse to bear the cost because there is no proof. If they sue you, you will not be required to replace it with your personal assets due to limited liability. Only your company may be liable for it.

Example 4: A customer’s car gets stuck in the automatic car wash. When the car wash starts up again, it is misaligned and proceeds to scrape up the customer’s car, ripping off his mirrors and antenna and leaving gouges down the side of the vehicle. You must cover the damages.

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 Car Wash

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 car wash 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

Car washes 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.