Should I Start an LLC for My Carpentry Business?

Starting a limited liability company (LLC) for your carpentry 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 carpentry business, lawsuits can arise from things like an employee getting injured during work or from accidentally causing damage to a customer’s property (e.g., while carrying out a repair, etc.).

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

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

Do I Need an LLC for a Carpentry 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 Carpentry Business

By starting an LLC for your carpentry 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.

Carpentry businesses will benefit from liability protection because of the physical risks involved with woodworking. Additionally, there are general business risks like potential claims of trademark infringement, and libel.

Example 1: An employee sustains a life-changing injury while working with a machine. Part of his body is amputated during treatment, and he decides to sue. Only the business may need to compensate for the damages because limited liability protects your personal assets.

Example 2: A neighbor is displeased with the loud noise from your machines and the dust from your sawing. He complains that they make him ill. He decides to sue for environmental hazards. If the law finds you guilty, limited liability protection ensures that compensation will only come from the business’s assets.

Example 3: A client pays for a set of furniture with an agreement on the delivery deadline. You could not meet the deadline because you had a delay in the supply of raw materials. The client goes ahead to launch his new office without the pieces of furniture. He is unhappy and files a lawsuit. LLC protection ensures your personal assets are not affected by the lawsuit.

Example 4: A client sues you after a repair job you perform for their house results in further property damage.

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 Carpentry 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 carpentry 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

Carpentry 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 trusted 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?

Yes, all businesses need insurance because only business insurance can guarantee protection for your business assets. Carpentry businesses need insurance to protect the company’s transport vehicles, expensive machines, and business assets. Business Insurance will also protect the business from the financial fallout of a lawsuit.

Common Situations Business Insurance May Cover for a Carpentry Business

Example 1: A load-bearing wood structure collapses on a client while he is surveying your work in progress. 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.

Example 2: The custom entertainment center you are building in a client’s home tips over when the family dog bumps into it during a game of fetch. It knocks over an antique urn, spilling ashes all over the floor and shattering it. The urn is worth several thousand dollars, not to mention the emotional damages incurred. If you were found liable, general liability insurance would probably help cover some of these damages or any settlement reached between your business and the client.

Example 3: While carrying heavy wooden supplies down a client’s staircase, you bump into her and knock her down several hard steps. She breaks her ankle and later sues your business over the incident. If found liable, your business would probably be covered for some of the resulting damages or a settlement reached between you and the client.

Other Types of Coverage Carpentry 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 carpentry businesses should obtain.

Professional Liability Insurance

A business that performs any sort of service for its customers can be held liable for damages resulting from these actions or even for simple negligence and omission. Professional liability insurance can cover some of these damages in the event your carpentry business is found liable. Unsturdy structures that break and cause injury or projects that are simply dissatisfactory are potential liabilities for a carpenter.

Commercial Property Insurance

If a disaster like a fire or strong storm damages or destroys your equipment, tools, resources, commercial vehicles, or owned real estate, a commercial property policy will help to cover these damages, saving your business from losses and a steep reinvestment.

Home-Based Business Insurance

If you prefer to save on rent and operate out of your own house, your standard home insurance may not cover episodes that arise in the context of your business’s operations. You could be found liable for damages incurred on the premises of your house during business hours. A home-based business policy can cover commercial-oriented accidents that occur in your home business. This policy can be purchased as part of a business owner’s policy or as an extension (known as a rider) to your existing homeowner’s insurance policy.

Commercial Umbrella Insurance

Umbrella coverage allows you to extend above and beyond the standard limits of your other business insurance policies. If you are faced with a large lawsuit or other claim situation, there’s a possibility that the coverage limits of your standard policies will be insufficient. In this case, your umbrella policy will allow you to surpass these limits.

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 and commercial property insurance.

To start a carpentry business, you will need to get a license, bonding, and insurance to protect you and your employees from potential legal actions. This license usually requires a sizable amount of capital. You will also need to purchase tools, create a business website, and hire employees.

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

Ongoing expenses will likely include the cost of licenses and insurance, vehicle maintenance, tool maintenance and upkeep, and employee salaries.

Learn more about running a carpentry business.

Carpentry businesses make money by charging clients for the costs associated with materials, time, skill, and labor involved in successfully completing a building or construction project.

Learn more about starting a carpentry business.

Carpentry businesses are involved with the building, maintenance, and repair of residential and commercial buildings. Businesses may vary in specialty including structural services, finish services, or any other individual and customizable solutions to residential and commercial building improvements.

Carpentry businesses have the potential of earning up to six figures a year.

Learn more about starting a carpentry business.