Should I Start an LLC for My Car Wash?

Starting a limited liability company (LLC) for your car wash 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 car wash, lawsuits can arise from things like an employee accidentally damaging a customer’s car during a wash (e.g., scraping the paint, leaving a dent, etc.).

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

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

person drying off a car after a cash wash

Do I Need an LLC for a Car Wash?

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 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.

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 trusted 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?

Yes, all LLCs need insurance to protect their business assets too, as much as the owner’s assets are protected by limited liability. Car wash businesses need insurance to protect their business assets, such as washing equipment, company cars, employees, etc.

Common Situations Business Insurance May Cover for a Car Wash Business

Example 1: A car wash customer steps out of his car and falls, hitting his head on the ground and requiring medical treatment. He states that he will not file a lawsuit against your business, but he does demand that your business pays for his medical care. Your general liability insurance policy will likely pay for his medical treatment.

Example 2: 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. The damage to your customer’s property would likely be covered by your general liability insurance policy.

Example 3: When a customer gets his car back from your car wash and detailing team, he finds that there is damage to his vehicle. While your team says the damage was there before, the customer insists that it was not and goes so far as to file a lawsuit for damages. Your general liability insurance policy would pay for your legal fees, including for your attorney and any settlement if the case is settled out of court.

Other Types of Coverage Car Wash 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 car washes should obtain:

Workers’ Compensation Insurance

The state you do business in likely requires that you carry workers’ compensation insurance if you have employees. The policy you get will ensure that your employees can get medical treatment if they are injured performing job-related duties. Not only will the policy pay for medical treatment, but it will also help cover lost wages for employees who cannot work while they recover from work-related injuries.

Commercial Property Insurance

It takes a considerable investment to purchase all the equipment necessary to open a car wash business. If you were to have to replace your equipment due to an unforeseen event, like a fire, it might be difficult or impossible to cover the cost all on your own. But with commercial property insurance, you could file a claim with your insurer and get money from your policy as long as the damage was caused by a covered event. With the money from your insurer, you could get new equipment and get your business back up and running as soon as possible.

Commercial Umbrella Insurance

In most cases, general liability insurance will cover your business when damages need to be paid. But there are situations—like if you were to lose a major lawsuit—where your general liability insurance policy limits could be exceeded. If this were to happen, you would have to pay the rest of the damages yourself. However, if you have an umbrella policy, it will pick up where the general liability insurance leaves off.

Commercial Auto Insurance

If you have a vehicle that you use primarily for business, you need to carry commercial auto insurance. Your state probably requires that you carry such a policy for all of your business vehicles. With a commercial auto policy, your company vehicle and its driver are covered in an accident. The policy will also pay for property damage and for medical care for any injured people.

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, commercial property insurance, and workers’ compensation insurance.

Read our Business Insurance for Car Washes article for more info.

The car wash business comes in different levels, such as hand washing, self-service, automatic wash, etc. You will need a sizeable capital to rent parking and business space and purchase cleaning agents, scrubs, and other washing materials — depending on the level of car wash business you intend to start.

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

Some of a car wash’s ongoing expenses are payroll, cleaning supplies, rent, and insurance.

Learn more about running a car wash.

A car wash makes money by providing car washing and detailing services to customers.

Learn more about starting a car wash.

A car wash provides customers with full-service car washes or space for them to do self-service washes. In addition to serving individual customers, car wash businesses can focus on commercial clients like car rental businesses to improve profitability.

Car washes can cost from around $7 for a basic hand wash to over $100 for detailing.

Learn more about starting a car wash.