Do I Need an LLC for My Graffiti Removal 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 Graffiti Removal Business

By starting an LLC for your graffiti removal 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.

Graffiti removal businesses will benefit from liability protection because of the risk of property damage, workplace accidents, and other general business losses.

Example 1: After removing graffiti from the house of a customer, an employee of your company accidentally drives across their lawn, completely destroying the perfectly landscaped garden. This prompts the customer to sue your business for the property damage your business is accused of causing. If the court finds your business liable to pay the plaintiff damages, this requirement can only be imposed upon your business’s assets, and never you personally.

Example 2: After using strong paint remover to clean graffiti from a client’s property, the client developed a serious respiratory disease soon afterwards. As a result, the client brought a lawsuit against your business for this bodily harm, alleging that he should have been warned of the risks, or asked to leave before your business began cleaning. In the ensuing litigation, limited liability protects your personal assets from any liability of your business to pay damages.

Example 3: After an employee for your graffiti removal business is mugged and has his work phone stolen, your business is the victim of a devastating hack. As a consequence, a number of your customers’ financial details are released publicly. This leads one of the affected individuals to sue your business for this data breach. Your personal assets would remain completely protected from any requirement imposed on your business to pay compensation.

Example 4: An employee loses control while power washing a client’s exterior, causing damage to neighboring property. The neighbor decides to sue your business.

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 Graffiti Removal 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 graffiti removal 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

Graffiti removal 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.

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.

Your LLC, like all other businesses, will require insurance in order to protect its assets. In the case of graffiti removal businesses, this is particularly true since they typically own a number of valuable assets (such as the business’s van).

This is the purpose of insurance: to provide a layer of protection between a business’s assets and its liabilities. Limited liability does the same thing between the LLC owner’s personal assets and the business’s liabilities.

Common Situations Business Insurance May Cover for a Graffiti Removal Business

Example 1: While visiting your office, a potential commercial client slips on a wet tile in the lobby, hits her head as she falls, and sustains a concussion. She decides to sue your business for not marking the wet floor. General liability insurance would cover your legal defense costs and any required settlement.

Example 2: A competitor sues your business for libel. While you don’t believe you did anything wrong, you know you need a lawyer to protect your business. General liability insurance would cover the cost of hiring a lawyer as well as any required settlement.

Example 3: As you accept an equipment order, your loading dock door malfunctions and crashes into the delivery vehicle. Given the extensive damage to his van, the driver asks you to pay for the repairs. General liability insurance would cover the vehicle repair costs.

Other Types of Coverage Graffiti Removal 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 graffiti removal businesses should obtain.

Commercial Property Insurance

You made a major investment in the equipment and supplies needed to run your graffiti removal business. In the event of a fire, theft, or natural disaster, commercial property insurance would cover the cost of repairing or replacing your business-related property. This includes structural damage to your building and the business materials stored there.

Workers’ Compensation Insurance

If you have any employees, most states will require you to carry workers’ compensation insurance for both part-time and full-time workers. 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 or death benefits stemming from a workplace accident.

Commercial Auto Insurance

Any vehicle you use primarily for business requires commercial auto insurance to protect the vehicle, driver, and others on the road in the event of an accident. Be sure to select a policy that covers not only accident-related vehicle repair costs and medical treatment for anyone injured, but also sufficient protection for any business materials you carry in your vehicle.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust 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.

IRS: Limited Liability Company

IRS: S Corporations

IRS: EIN

SBA: Small Business Guide

SBA: Choose a Business Structure Guide

US Census Bureau: Small Business Statistics

SBA Office of Advocacy: Data on Small Business

FRED: SBA Data for Small Business