Are you starting a massage business and comparing different business structures? Typically, the best option is an LLC for massage therapy businesses. It’s not the only option, but it’s a wise choice because it protects your personal assets. In this article, you’ll learn what an LLC is, how to set one up and determine if it’s the best option for your practice.
A Limited Liability Company (LLC) is a business structure that protects the owner’s personal assets in the event the business gets sued or defaults on a loan. That means your personal savings, home, and car are protected if your business goes bankrupt.
When you register your business as an LLC, it makes your business a separate entity.
They are relatively simple and inexpensive to set up. LLCs are registered with the state. Each state has different regulations. Check with your state to find out what applies to businesses in your area.
Sarah owns Restorative Massage Therapy, LLC. She recently renovated her clinic. She got new flooring, insulated the walls of her treatment rooms, and bought a hydraulic table. She took out a small business loan to make these updates.
After a tragic car accident, Sarah’s injuries prevent her from resuming work as a massage therapist. She has to close the business and is unable to repay the loan. Thanks to the LLC, her personal assets are protected from her creditors.
It’s not a requirement, but most massage businesses benefit from an LLC. A small fee and a little paperwork can protect the money in your personal bank account. There’s really no drawback to an LLC for a massage therapy business.
An LLC protects your assets and gives you tax options.
If you’re just starting your massage therapy business, you have 2 business structure options.
1. Sole-proprietorship: This business structure requires the least amount of paperwork. The owner is personally liable for the business. They receive all the income from the business and are personally taxed on that income.
2. LLC: This business structure requires minimal paperwork. The owner is not liable for the business because the LLC is a separate entity. LLCs can be incorporated (S-corp). If the LLC is not incorporated, owners are taxed like a sole proprietorship. If it is incorporated, owners are taxed like an employee of the business.
Basically, an LLC gives massage therapists a blanket of security. If something happens and you get sued, or you default on a loan, your personal assets aren’t at risk.
LLCs are taxed similarly to sole proprietorships unless the LLC is incorporated (S-corp). Most massage therapy businesses don’t need to register as an S-corp. S-corps can save money at tax time but also require more money and administrative work to maintain.
The IRS will automatically treat your LLC as part of your personal tax return if the LLC is not incorporated. That means all the income from your LLC is reported as personal income. Income earned from your business will be subject to self-employment tax and personal income tax.
S-corporations treat owners as employees. Owners are paid a salary and pay income tax on that salary. The S-corp is not part of the owner's personal tax return. This requires more bookkeeping, accounting and payroll expenses. If you require outside investors, you may need this structure.
The benefit of a S-corp is not having to pay self-employment tax. Not all LLCs are eligible to register as S-corp. Check with your state to find out what the requirements are.
If you’re not sure which to choose, talk to your accountant. Most solo-massage practices will find the expense of maintaining an S-corp greater than the tax savings. However, if you have a larger clinic, an S-corp may be the right choice.
ClinicSense can track all your revenue, so you’re prepared at tax time. It automatically generates sales reports and tracks the money flowing into your business. Then, all you need to do is track your expenses, aka tax deductions.
Income - Expenses = Taxable income
An LLC offers business owners limited liability protection. That means the protection is…well, limited. There are instances where you could be held personally liable, and that’s what liability insurance is for.
If you injure someone on your table, you could be held personally liable. Liability insurance will protect you. If someone sues your practice, you’ll want the coverage of both liability insurance and an LLC.
Seek legal counsel if you need additional guidance.
LLCs are governed at the state level. Each state has its own regulations and systems for managing LLCs. That said, there are 6 basic steps to setting up an LLC for a massage business.
Registering an LLC is fairly simple. Most business owners can do this on their own. If you don’t feel confident doing it yourself, you can hire someone to set it up for you.
1. Check with your state. Find your state using the SBA lookup tool.
2. Choose a name for your LLC. If you already have a DBA, you can probably just add LLC to the end of that name.
3. Choose an LLC registered agent. This is the person who will receive legal and tax documents.
4. File LLC Articles of Organization. This is a simple form outlining the details of your LLC. It includes things like the name, address, members and registered agent.
5. Create an LLC Operating Agreement. Not all states require this, but it’s recommended business owners create one anyway. The operating agreement describes how your business is structured functionally and financially. It explains how decisions are made and who is responsible for what.
6. Get an EIN. An Employer Identification Number is basically a social security number for your business. You can apply for one online here.