Do I Need an LLC for My Virtual Assistant Business?

By starting an LLC for your virtual assistantbusiness, 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.

Virtual assistant businesses will benefit from liability protection because of the risk of professional liability, property damage, personal injury, intellectual property breaches, and financial data breaches. 

Example 1: Your employee schedules an important work appointment for a client one week later than he was supposed to. As a result, the client alleges that your company has caused him to lose $20,000, and he files a loss of opportunity lawsuit against your LLC. Regardless of how the case progresses in court, your personal assets will remain protected from the claimant as a result of your limited liability in law.  

Example 2: While responding to a client’s email, an employee accidentally forwards the wrong information, leaking another client’s confidential information. If the second client was to sue your virtual assistant business, you would not need to use your personal assets to compensate the claimant — assuming that you didn’t act negligently — even if your business’s assets are unable to. 

Example 3: You find a suitable lease and decide to rent out a business office in your LLC’s name. If you are unable to cover the cost of the lease in the future, the landlord will not be able to use your personal assets as a result of your company’s LLC classification.

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 Virtual Assistant 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 virtual assistant 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

Virtual assistant 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.