If you’re a babysitter, you might be interested in forming a limited liability company (LLC) for your business. The LLC is a popular option for all sorts of businesses looking for asset protection, and it has a handful of other major advantages as well.
Of course, forming an LLC isn’t the only option for your babysitting business, so our mission is to help you decide if it’s the best choice for you. There are many different factors to consider when you’re forming a business entity for babysitting, so let’s dive into the details of the LLC to figure out if you should form one for your childcare services.
What Is an LLC?
First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.
There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.
Why Starting an LLC for a Babysitting Service Is Important
The top reason to form an LLC for a babysitting business is to gain access to the personal asset protection provided by this business structure. Whether you babysit for a couple of families in your neighborhood or you have a more comprehensive childcare business, you need the limited liability protections that an LLC can provide.
As an example, let’s say that a child in your care injures themselves while you’re babysitting them. If you operate your business as a sole proprietorship or general partnership, your personal assets — like your house, car, personal bank accounts, etc. — would be at risk if that child’s parents decide to sue you.
On the other hand, if you form an LLC for your babysitting business, and you operate and maintain that LLC in a compliant fashion, the scope of your customer’s lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.
However, this is just the tip of the iceberg when it comes to the advantages of the LLC for a babysitter. Another important aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which can save you a considerable amount of money compared to simply operating as an informal business entity.
Your babysitting LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option. With this tax structure, your business itself does not pay taxes, but rather the profits are passed through the business entity and you pay taxes on that money when you file your own personal taxes.
You can also choose for your babysitting service to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to you.
The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most babysitters have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.
In theory, S corp taxation can help your babysitting business save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself a reasonable salary for your role and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.
The problem with electing S corp taxation for babysitters is that you simply don’t have many business expenses to invest that extra money into. Therefore, the IRS might (rightfully) have some questions if it sees you leaving lots of money in your business structure.
Finally, an LLC structure can enhance the credibility of your babysitting business venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you operate a sole proprietorship for your babysitting service, your company’s name is also “Johnny Smith.”
With an LLC, you not only have the rights to exclusive use of a business name, but you will also have either the phrase “limited liability company” or the letters “LLC” in that business name. This provides your business with a jolt of respectability because customers respect the professionalism displayed by an LLC. Also, they typically feel more comfortable writing checks to a business entity rather than to an individual.
Whether or not this enhanced credibility matters to you depends on the scope and scale of your babysitting business. If you just provide casual childcare services for a family down the street, you probably couldn’t care less about the credibility of your business. However, if you’re trying to attract more customers, they might be impressed by your professionalism.
How to Start a Babysitting LLC
The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete guide on the topic. The basic steps in the LLC formation process in any state are as follows:
The 3 Best LLC Services
When forming an LLC for your business, you generally have three main options. You can form your own LLC using the DIY method, you can hire an attorney, or you can hire an online business formation service.
The DIY route can require quite a bit of effort, and if you’re not comfortable with the process, it can cause some undue stress. As for hiring a lawyer, many startups can’t afford to spend the thousands of dollars it can cost for an attorney to form your business entity.
This leads us to the third option, hiring an online LLC service. There are dozens of reputable companies offering this service these days, and they can all save you a tremendous amount of money compared to an attorney. In addition, while these companies may not have as much expertise as an attorney does, they still provide a considerable amount of peace of mind compared to the DIY route.
If you want to take a look at the top options for online business formation services, head on over to our guide to the seven best LLC formation services available. In addition, we’ll briefly break down our top three options on this page. These are, in our opinion, the best options for business formation service:
- ZenBusiness ($39): ZenBusiness truly has it all. They provide complete LLC formation service along with a full year of registered agent service for one incredibly low rate, and they also have stellar customer feedback. It’s hard to go wrong with an offer like this.
- Northwest Registered Agent ($79): Northwest is a bit more expensive than ZenBusiness, but their industry-best registered agent service (included at no extra charge) includes local scanning of every document they receive on your behalf. They also have the best customer support available for LLC formation services. If you’re looking for more of a premium service, Northwest is an excellent choice.
- Incfile (FREE): Incfile has a business formation package that is free of charge, as long as you pay your own state fee. That’s obviously an enticing offer, especially when you consider that they also provide a year of registered agent. Throw in their strong customer feedback, and Incfile is an excellent choice for LLC formations.
Additional Resources for Starting a Babysitting Service
- Find a Babysitter: This list of the top ten resources for babysitters was compiled back in 2011, but all of the information in it remains highly relevant today. Find a Babysitter provides links to articles about the business side of babysitting, where you can sign up for training courses, as well as find blogs, general tips and tricks, and much more.
- UrbanSitter Blog: If you scroll down past the resources for parents, you’ll find a great selection of tools for babysitters on UrbanSitter’s blog. They provide some resources to help you use their own service — which pairs parents with reputable childcare providers — and they also have 13 links to various articles about everything from games and activities to how to deal with misbehaving children.
- KidSit Babysitting Kit: KidSit has an awesome printable resource guide for babysitters that provides ways for you to easily gather information from new customers. They have info sheets to get emergency contact info from parents, worksheets for special needs children, checklists for new customer interviews and questions babysitters should ask parents, and much more.
- SafeSitter: SafeSitter is one of the top online tools for babysitters, and their resource page has tons of great information. Here, you can learn how to handle emergencies, plan activities, provide snacks and meals, and change diapers, among other things. We also recommend SafeSitter’s babysitting courses because they can teach you about many important aspects of the childcare profession.
- TipJunkie’s Babysitting Resources: TipJunkie provides 13 “must-have” tools for babysitters, including kits, how-to guides, tutorials, ideas for games and activities, and instructions for various crafting projects. If you have a problem keeping kids entertained while babysitting them, TipJunkie has the info you need.