Do I Need an LLC for My College Planning Business?
Starting a limited liability company (LLC) for your college planning 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 college planning business, lawsuits can arise from things like professional malpractice (e.g., an employed consultant gives negligent advice to a prospective college student, etc.), as well as from employment or contract law-related claims.
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your college planning business seem more credible.
Recommended: Use Northwest to form an LLC for $29 (plus state fees).
Should I Start an LLC for My College Planning 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 College Planning Business
By starting an LLC for your college planning 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.
College planning businesses will benefit from liability protection because of general business risks like trademark infringement as well as the risk of getting sued by clients for things like negligence or breach of contract.
Example 1: In a seminar organized by your college planning business, a client is seriously injured after they slip and fall over on your business’s premises. This leads the injured party to file a personal injury lawsuit against your business. In this instance, limited liability would protect your personal assets from being used to satisfy any business obligation to pay damages.
Example 2: Your college planning business is contracted to provide guidance to a customer. However, as a result of the financial aid guidance provided by your business, the customer ends up suffering significant financial loss. As a result of this, the customer decides to sue your business, arguing it has failed to satisfy the terms of its contract. In this instance, the business owner is precluded from being personally liable for any damages awarded by the court.
Example 3: A client alleges that the college planning business provided negligent or incompetent advice during the college planning process, resulting in financial harm to the client. In this case, the business owners may not be personally liable for the damages sought in the lawsuit, as long as the business is structured as an LLC or corporation.
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 College Planning 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 college planning 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
College planning 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).
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
- Alabama LLC
- Alaska LLC
- Arizona LLC
- Arkansas LLC
- California LLC
- Colorado LLC
- Connecticut LLC
- Delaware LLC
- Florida LLC
- Georgia LLC
- Hawaii LLC
- Idaho LLC
- Illinois LLC
- Indiana LLC
- Iowa LLC
- Kansas LLC
- Kentucky LLC
- Louisiana LLC
- Maine LLC
- Maryland LLC
- Massachusetts LLC
- Michigan LLC
- Minnesota LLC
- Mississippi LLC
- Missouri LLC
- Montana LLC
- Nebraska LLC
- Nevada LLC
- New Hampshire LLC
- New Jersey LLC
- New Mexico LLC
- New York LLC
- North Carolina LLC
- North Dakota LLC
- Ohio LLC
- Oklahoma LLC
- Oregon LLC
- Pennsylvania LLC
- Rhode Island LLC
- South Carolina LLC
- South Dakota LLC
- Tennessee LLC
- Texas LLC
- Utah LLC
- Vermont LLC
- Virginia LLC
- Washington LLC
- Washington D.C. LLC
- West Virginia LLC
- Wisconsin LLC
- Wyoming LLC
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.
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 professional liability insurance.
Read our Small Business Insurance article for more info.
Very little capital is required to start a college planning business. This is largely because a business office is not required since IECs often meet at customers’ homes.
On top of this only a few, relatively inexpensive items, are required to get started, such as: standard office supplies, a computer, website, and marketing materials.
Visit our How to Start a College Planning Business guide to learn more about the costs of starting and maintaining this business.
Some of the ongoing expenses include employee payroll, administrative costs, and the costs associated with hosting and traveling to educational events.
Learn more about running a college planning business.
College planning businesses make money by charging clients for consultation services and classes.
Learn more about starting a college planning business.
College planning businesses help guide students and parents through the college application process, including choosing potential schools, completing college applications and other forms, developing essays, and preparing for standardized tests.
The average college planning consultant has the potential to earn as much as $80,000 in annual profits.
Learn more about starting a college planning business.
