Should I Start an LLC for My Home Tutoring Business?
Starting a limited liability company (LLC) for your home tutoring 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 home tutoring business, lawsuits can arise from things like educational malpractice allegations, slander and libel claims (e.g., as a result of leaking a tutee’s sensitive information, etc.), or property damage disputes.
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your home tutoring business seem more credible.
Recommended: Use Northwest to form an LLC for $29 (plus state fees).
Do I Need an LLC for a Home Tutoring 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 Home Tutoring Business
By starting an LLC for your home tutoring 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.
Liability protection is important for all businesses, even relatively “safe” ones like home tutoring businesses. There is always the risk of expensive accidents, trademark infringement, and even data breaches.
Example 1: If a student of your home tutoring business were to be injured as a consequence of your business’s negligence, the student might decide to bring a personal injury lawsuit against you. In this instance, your personal assets, such as your savings and house, are protected from being seized to satisfy any damages that the court may award in the lawsuit.
Example 2: Your home tutoring business accumulated significant debt as a result of its unpaid taxes that it is unable to pay. Limited liability would preclude the creditors from being able to pursue your personal assets in order to satisfy this debt.
Example 3: In the event that your home tutoring business made a false statement about a student he believes to be damaging, your personal assets would not be threatened by the imposition of a requirement to pay damages to your business because it is a separate legal entity from you.
Example 4: While at a client’s home for a private tutoring session, your bag hits a painting, creating a large gash in the art piece.
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 Home Tutoring 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 home tutoring 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
Home tutoring 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).
How to Form an LLC
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
- Alabama LLC
- Alaska LLC
- Arizona LLC
- Arkansas LLC
- California LLC
- Colorado LLC
- Connecticut LLC
- Delaware LLC
- Florida LLC
- Georgia LLC
- Hawaii LLC
- Idaho LLC
- Illinois LLC
- Indiana LLC
- Iowa LLC
- Kansas LLC
- Kentucky LLC
- Louisiana LLC
- Maine LLC
- Maryland LLC
- Massachusetts LLC
- Michigan LLC
- Minnesota LLC
- Mississippi LLC
- Missouri LLC
- Montana LLC
- Nebraska LLC
- Nevada LLC
- New Hampshire LLC
- New Jersey LLC
- New Mexico LLC
- New York LLC
- North Carolina LLC
- North Dakota LLC
- Ohio LLC
- Oklahoma LLC
- Oregon LLC
- Pennsylvania LLC
- Rhode Island LLC
- South Carolina LLC
- South Dakota LLC
- Tennessee LLC
- Texas LLC
- Utah LLC
- Vermont LLC
- Virginia LLC
- Washington LLC
- Washington D.C. LLC
- West Virginia LLC
- Wisconsin LLC
- Wyoming LLC
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?
All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.
Even though it’s a seemingly low-risk business, your home tutoring business faces unique liabilities each day that it needs to protect itself from, such as property damage (whether you tutor from your own home or in clients’ homes).
Common Situations Business Insurance May Cover for a Home Tutoring Business
Example 1: During a tutoring session, your dog runs off with the student’s computer bag, damaging all its contents. Your general liability policy should cover the cost of repairing or replacing the devices.
Example 2: During a severe storm, a student slips and falls in your entryway. Even though you took every precaution, the family names your business in a lawsuit for their injuries. General liability insurance will cover legal representation and damages awarded in the lawsuit.
Example 3: While at a client’s home for a private tutoring session, your bag hits a painting, causing a large gash in the art piece. Your general liability policy should cover the cost of replacing the damaged art.
Other Types of Coverage Home Tutoring 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 tow truck companies should obtain.
Professional Liability Insurance
If a customer does not feel you have delivered the quality of service agreed upon, they have a legal right to sue you for damages. If a client decides to take legal action, even if there is no merit to their claim, your professional liability insurance will cover your legal costs, as well as any resulting payout.
Home-Based Business Insurance
Since a homeowners policy excludes business property and business-related losses, it is important that those working out of their home purchase the proper coverage. A home-based business insurance policy is there to protect you, ensuring seamless coverage.
Business owners should check with their homeowners' insurance company to determine if an extension of coverage for additional premiums is available. If not, businesses can purchase home-based business insurance as part of a business owner's policy (BOP).
Workers Compensation Insurance
If you decide to hire employees, the state will require you to purchase a workers’ compensation policy on your team. This ensures coverage for lost wages and medical bills should an employee get injured while on the job. If the injured employee decides to sue for additional damages, the insurance carrier would cover the cost of your legal fees.
Commercial Auto Insurance
While you operate out of your home, you will often find yourself traveling to clients’ homes for tutoring sessions. Depending on how often you use your vehicle for business purposes, it may be necessary to purchase a commercial auto policy.
Businesses can purchase commercial auto insurance as part of a business owner’s policy (BOP) or as a standalone policy, depending upon the carrier.
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. You may also need professional liability insurance, workers' compensation insurance, and home-based business insurance.
Read our Home Tutoring Business Insurance article for more info.
The cost of starting a home tutoring business is next to nothing. The main reason for this is that there is no need to rent a business space as clients will be tutored at your place or theirs.
You will already own many of the required tools in order to get started, such as a computer to conduct marketing and research and a car with which to travel to clients’ homes.
Visit our How to Start a Home Tutoring Business guide to learn more about the costs of starting and maintaining this business.
A home tutoring business has almost no ongoing expenses other than fuel to drive to students’ homes and schools. It is also a good idea to print up business cards.
Learn more about running a home tutoring business.
A home tutoring business charges clients a fixed hourly fee depending on the tutor’s education and experience in the chosen subject.
Learn more about starting a home tutoring business.
Home tutors provide instruction for people of all ages in a discipline in which the tutors have expertise. If you have a home tutoring business, you will need to be flexible to accommodate the needs of different students.
For example, some students are having trouble in school, while others are studying for college entrance exams. Still, other students may be adults who need to master a new skill for their jobs.
The amount of profit a home tutoring business makes depends on how many clients it has and how much it charges per hour for tutoring. This business tends to be seasonal, with demand (and thus profits) dropping off during the summer.
Learn more about starting a home tutoring business.
