Should I Start an LLC for My Gift Basket Business?

Starting a limited liability company (LLC) for your gift basket 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 gift basket business, lawsuits can arise from things like including items in your gift baskets that you are not licensed to sell (e.g., alcohol, etc.), service-related disputes, and large refund requests.

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

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

Do I Need an LLC for a Gift Basket 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 Gift Basket Business

By starting an LLC for your gift basket 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.

Gift basket businesses will benefit from liability protection because of the risk of dissatisfied customers and general business losses including inventory loss and occupier’s liability.

Example 1: A customer pays for 10 gift baskets because your advert offers a raffle ticket for purchases above five baskets. You are unwilling to cooperate and insist that the offer has ended. He argues that the ad is still on your site without a deadline. If he sues for it, your business may be affected, not your personal assets.

Example 2: An event planner preorders gift baskets for souvenirs and makes payment. The agreed date comes, but you cannot meet her order because of pending orders from earlier clients. If she decides to sue for it, your assets will be safe, but your business may be required to pay a settlement.

Example 3: A client ordered a gift basket of snacks for his grandchild for the holidays. The client returns with evidence that a snack you included had expired and caused his grandchild food poisoning. You apologize, but he insists on suing. His lawsuit will not affect your assets, but your business’s assets may need to pay compensation.

Example 4: A customer sues your business, saying that the delivered gift basket used different, inferior objects than what was agreed upon.

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 Gift Basket 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 gift basket 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

Gift basket 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 dependable 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 them against business threats. The limited liability offered by the LLC’s structure only protects your assets as the owner.

Your gift basket business needs insurance to protect it from risks such as damages to gift items, company delivery vans, and lawsuits from clients.

Common Situations Business Insurance May Cover for a Gift Basket Business

Example 1: Near the end of a slow day, your employees start their closing duties early. While an employee uses the vacuum, a customer walks in, trips on the cord, and shatters their elbow in the fall. General liability insurance would cover the customer’s medical bills and any settlement payout if they pursue a lawsuit.

Example 2: After you run a newspaper ad campaign with your redesigned logo, a competitor claims your logo closely resembles their logo and threatens a lawsuit. Your general liability coverage would cover your legal costs and any settlement awarded in the lawsuit.

Example 3: As you walk to the storeroom to collect a customer’s order, the waiting customer follows you behind the counter and takes a hard fall after slipping on the wet floor. General liability insurance would cover the customer’s medical costs and legal fees in the event of a lawsuit.

Other Types of Coverage Gift Basket 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 gift basket businesses should obtain:

Commercial Auto Insurance

If you use a personal car to deliver your gift baskets, your personal auto coverage won’t cover damages resulting from a work-related accident. Commercial auto insurance protects your business and personal vehicles if an accident happens while you or your employees use them to perform work duties.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability benefits stemming from a work-related accident.

Commercial Property Insurance

If you own the building in which you operate, you’re responsible for all business-related equipment and inventory housed there in the event of a fire or other accident. Commercial property insurance would cover the cost of repairing or replacing your equipment and property after an accident so you can resume normal operations quickly.

Commercial Umbrella Insurance

Even the most responsible business owners sometimes face an accident or lawsuit so catastrophic that it threatens to exhaust the limits of their primary insurance coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

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 Gift Basket Business Insurance article for more info.

You can start a gift basket business with less than $1,000. You will use this money to purchase necessary supplies such as baskets (in various sizes), crinkle paper, cellophane, ribbon, tags, and products to put in the baskets. You will also need to obtain a license for your business.

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

Ongoing expenses of running a gift basket business include marketing, supplies, annual business licensing costs, general business administrative costs, and, possibly, rent and labor.

Learn more about running a gift basket business.

Gift basket businesses make money by charging customers for each gift basket order that they fulfill. Targeting corporate customers is a good strategy to create sustained demand and higher revenue.

Learn more about starting a gift basket business.

Gift basket businesses source and distribute gifts on behalf of their customers. These gift baskets are often used for personal gift-giving but can also be used for corporate gifts.

The average profit margin for a gift basket business varies depending on the scale and target customers of your business. Profits can go from $10,000, for small-scale gift basket businesses, to as high as $1 million.

Learn more about starting a gift basket business.