Should I Start an LLC for My Tiny House Business?

Starting a limited liability company (LLC) for your tiny house 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 tiny house business, lawsuits can arise from things like workplace injuries and tenant disputes.

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

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

Do I Need an LLC for a Tiny House 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 Tiny House Business

By starting an LLC for your tiny house 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.

Tiny house businesses will benefit from liability protection because of the risk of being sued for personal injuries, zoning violations, and more.

Example 1: When a tiny house you sold a few years ago collapses, the current owner alleges that this was a result of how poorly it was built and files a compensation lawsuit against your LLC. As a result of your limited liability in law, your personal assets will remain protected from the claimant, regardless of how the claim progresses.

Example 2: After continuously trashing one of your tiny houses, you let your tenants know that you will not be renewing their tenancy at the end of the year. Since you had previously agreed to the contrary, they file a breach of contract lawsuit against your business. Since you are an LLC owner, your personal assets will remain protected from the claimants regardless of how the case progresses in court.

Example 3: When one of your contracted builders suffers a serious knee injury during work, you face a medical damages lawsuit. If your business is unable to adequately compensate the claimant, limited liability will shield your personal assets from the claimant, meaning that you will not be liable for reimbursing them.

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 Tiny House 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 tiny house 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

Tiny house 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.

Business insurance can protect your tiny house business’s assets from workplace injuries (e.g., builder accidents, damage to customer property, etc.), as well as your personal assets from tortious and negligence claims that you are personally responsible for.

Common Situations Business Insurance May Cover for a Tiny House Business

Example 1: A structure you are building collapses on the customer, who has wandered onto the site before the project is complete. If held liable, general liability insurance could likely help cover ensuing medical costs or a settlement between your business and the customer.

Example 2: A dog wrenches free from its owner’s grip and sprints into the path of a moving work truck, suffering severe and permanent injuries. General liability insurance would likely cover some of what your business owes in damages or any settlement reached.

Example 3: One of your employees is on a smoke break in a dry, wooded area during the summer. He disposes of the still-lit cigarette butt, which catches fire and destroys several acres of forest. If held liable, your business would probably have some coverage under a general liability insurance policy for damages incurred or a settlement reached outside of court.

Other Types of Coverage Tiny House 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 tiny house businesses should obtain:

Professional Liability Insurance

In the event that your product comes out unstable or otherwise unsatisfactory, you can find your business confronted with a suit alleging professional negligence. Instead of paying damages out of your business’s profits, a professional liability insurance policy can cover a good chunk of whatever figure you end up having to pay.

Commercial Property Insurance

If unexpected disasters like a fire or violent weather manage to destroy or significantly damage your commercial property, it can spell serious trouble for your business, which will be unable to function without its tools of the trade. Commercial property insurance policies protect your material assets, including any owned real estate, from damages incurred by covered events.

Commercial Auto Insurance

Any vehicle utilized for business purposes must be covered by commercial auto insurance. The simplest solution is commercial auto insurance, which will provide your business coverage in the event of automotive accidents.

Workers' Compensation Insurance

Workers’ compensation insurance is legally mandated in most states for any company with full-time or part-time workers employees. This policy will help to cover accidents on the job resulting in employee injury or death. As such, it includes packages for both disability and death benefits. This isn’t merely a legal mandate -- it is an important way to show your workers and their families that you have their best interests in mind.

Business Interruption Insurance

With commercial property covered for certain serious natural disasters, there is still the matter of what to do in the wake of these unfortunate events. Business interruption insurance addresses the problem of profit loss during intervening periods of repair and relocation, even helping to cover the costs of establishing the business at a temporary location.

For tiny house builders, this can be an especially helpful policy, as it can provide additional coverage for the training of new employees on complex machinery like construction vehicles.

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, commercial auto insurance, and workers' compensation insurance if you have employees.

Read our Business Insurance article for more info.

Your largest cost when starting a tiny house business will be the building materials. These include:

Nails
Wood
Bricks
Appliances
Flooring

You will also need an office for administrative functions. This will require furniture, printers, computers, and a high-speed internet connection.

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

Some of the main operating expenses for a tiny house business are labor, materials, rent for office space, marketing, and insurance.

Learn more about running a tiny house business.

Tiny house businesses make money by designing or building tiny houses and then either renting or selling them.

Learn more about starting a tiny house business.

Tiny house businesses design and sometimes construct small homes. A tiny house business can build homes to sell, or it can build tiny houses and then rent them out as long-term or vacation accommodations.

Tiny houses typically sell for between $5,000 and $50,000, although some homes can sell for more.

Learn more about starting a tiny house business.