Should I Start an LLC for My Electrician Business?

By starting an LLC for your electrician 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.

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

Example 1: An employee accidentally starts a fire during some repairs, and it spreads rapidly through a client’s living room, damaging furniture and electronics worth thousands of dollars. The client sues your business and asks you to pay for the property damages. Limited liability as an LLC protects your personal assets as the owner from being used to pay.

Example 2: Your business takes out a loan to expand your office but unfortunately misses several payments. Since your business is an LLC, limited liability ensures that your personal assets are not involved so they could not be repossessed or taken as collateral.

Example 3: A competitor is attempting to sue you over an advertisement they have deemed as slanderous. Should this matter go to court, your personal assets could not be used to pay for settlements since they are protected with limited liability as an LLC.

Example 4: You accidentally start a fire during some repairs, and it spreads rapidly through a client’s living room, damaging furniture and electronics worth thousands of dollars. The client sues you and asks you to pay for the property 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 an Electrician 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 an electrician 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

Electrician 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.