Should I Start an LLC for My Psychic Business?

Starting a limited liability company (LLC) for your psychic 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 psychic business, lawsuits can arise from things like inaccurate advice that causes a client to suffer a financial loss.

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

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

Do I Need an LLC for a Psychic 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 Psychic Business

By starting an LLC for your psychic 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.

Psychic businesses will benefit from liability protection because of the risk of being sued for personal injuries, libel, and trademark infringement.

Example 1: After a customer entered your psychic business for a reading, an employee at your business walked into him, causing him to drop and destroy his laptop. As a result, the customer brought a lawsuit against your business for this property damage in search of damages. If the court finds your business liable to pay this to the customer, this requirement can only be levied against the assets belonging to your business.

Example 2: After a customer was promised by a psychic working for your business that they would find a lucrative job soon, the customer decided to act on this prediction by quitting their job in advance. However, when no such job appeared, the customer decided to sue your psychic business for fraud. In the ensuing litigation, your personal assets are protected from any obligations levied against your business to pay the plaintiff damages.

Example 3: While leaving your psychic business, a customer slipped on a loose tile in front of the exit and cracked her head on the hard floor. This motivated her to sue your business for the bodily harm she suffered, alleging it is your business’s fault. In this situation, you would be protected from being held personally responsible for satisfying any compensation imposed on 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 Psychic 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 psychic 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

Psychic 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 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.

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.

Since they offer advice and guidance in exchange for compensation, business insurance is particularly important for psychic businesses due to the uniqueness of the liabilities they face each day.

Common Situations Business Insurance May Cover for a Psychic Business

Example 1: As a client enters your studio for a reading, they trip on a rug and fall into a glass table. The impact shatters the glass, which seriously injures your client. General liability insurance would cover your client’s medical costs and any related legal fees if the client decides to sue for damages.

Example 2: When a potential new co-worker tours your break room, they slip on a wet floor and fracture a wrist. The injury requires surgery, and they sue you for damages. General liability coverage would cover your legal fees and any payouts awarded in a settlement.

Example 3: Your biggest competitor believes you’ve defamed them in a recent ad campaign and sues you for damages. General liability insurance would cover your legal fees and any payout awarded in a settlement.

Other Types of Coverage Psychic 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.

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 your business operates, you’re responsible for all business-related property housed there in the event of a fire or other natural disaster. Commercial property insurance would cover the cost of repairing or replacing damaged computers, furniture, and other business equipment after an accident.

Commercial Umbrella Insurance

Even the most responsible business owners can sometimes face a lawsuit that 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.

Home-Based Business Insurance

If you operate from your home, you can't rely on your homeowner’s insurance policy to protect your business in the event of an accident. Consider adding a home-based business insurance policy to your existing homeowner’s policy or business owner's policy (BOP) to ensure adequate coverage for your business equipment.

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, workers’ compensation insurance, and commercial property insurance.

Read our Psychic Business Insurance article for more info.

If you want to set up a regular type of psychic business, you will need to market your services as you would market the services of any other business. Basic startup costs would be a website for about $2,000, flyers for about $500, and a business license for around $300 depending on your location.

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

Rent, utilities, and other office-related expenses are the primary ongoing costs.

Learn more about running a psychic business.

There are several methods used to generate revenues, which include asking for donations, charging per minute, charging per session, and the sale of items.

Learn more about starting a psychic business.

A psychic business offers personal advice and predictions to clients. These services can include palm reading, tarot card readings, trance-channeling sessions, seances, and others. Psychic businesses charge a per-hour or per-session fee for their services.

Fees for services, the extent of your marketing efforts, and the volume of retail sales determine profits.

Learn more about starting a psychic business.