Introduction:
This is Part 2 of our 5-part series on transforming your painting and handyman business into a professional, scalable operation.
Read Part 1: Tools & Equipment Investment Guide.
You've invested in quality tools and equipment. Now it's time to make your business official. The legal foundation of your contracting business affects everything from how much you pay in taxes to whether your personal assets are protected if something goes wrong on a job site.
Many contractors operate informally for years, but becoming legitimate can lead to better clients, larger projects, and increased peace of mind. In this guide, we'll walk through choosing your business structure, registering with the appropriate agencies, understanding licensing requirements, and ensuring you're compliant with local regulations.
📋 Get Your Business Foundations Checklist
Starting the legal side of your handyman business can be daunting, but you don't have to do it from memory. I’ve put together a Legal & Administrative Setup Checklist to help you track your progress.
This PDF includes:
- Business Registration Milestones
- Insurance Coverage Reminders
- Contract Essentials Checklist
- Basic Bookkeeping Requirements
Important Legal Disclaimer
Please Note: The information provided in this guide is for educational and informational purposes only and should not be considered legal, financial, or professional advice. Laws, regulations, licensing requirements, insurance mandates, and tax obligations vary significantly by state, province, county, and municipality.
Before making any business decisions based on this information, you should:
Consult a licensed attorney in your jurisdiction regarding business structure, contracts, licensing requirements, and legal compliance.
Speak with a certified public accountant (CPA) or tax professional about the tax implications of different business structures.
Verify all licensing and permit requirements with your state contractor licensing board, local building departments, and municipal offices.
Verify the latest regulations, as they are subject to frequent changes and may have undergone updates since the writing of this article.
What is applicable in one location might not apply in another. This guide helps you understand what questions to ask and what areas to research, but it cannot replace personalized professional advice.
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| It's critical to get legal advice for your business. |
Why Legal Structure Matters
Before we dive into the options, let's understand why this decision is crucial. Your business structure affects:
Your business structure safeguards your personal assets, such as your home, car, and savings, from potential lawsuits or debt.
Tax obligations include how much you pay in taxes and when, what deductions you can claim, and the complexity of your tax filing.
Credibility—How clients, suppliers, and lenders perceive your business (LLCs and corporations often get taken more seriously than sole proprietors)
Administrative burden—how much paperwork and ongoing compliance you'll handle
Growth potential—how easily you can bring on partners, secure financing, or eventually sell the business
This isn't a decision to make lightly, and it's absolutely worth consulting both an attorney and a CPA before finalizing your choice.
Business Structure Options
Sole Proprietorship: The Simplest Option
A sole proprietorship is the default structure if you start doing business without forming a separate legal entity. In a sole proprietorship, you operate either under your own name or a "doing business as" (DBA) name.
Advantages:
Simplest to set up—often just requires a DBA filing (Doing Business As)
Minimal paperwork and ongoing compliance
Complete control over all business decisions
Business income reported on your personal tax return (no separate business tax filing)
Lowest setup costs ($50 to $200 for DBA filing in most places)
Disadvantages:
Unlimited personal liability—you are personally responsible for all business debts and legal judgments. If someone sues your business and wins, they can go after your house, car, personal savings, and other assets.
Difficult to raise capital—banks and investors are hesitant to lend to sole proprietors
If you die or become incapacitated, your business ceases to exist.
May be perceived as less professional than incorporated businesses
Best for: Minimal operations, people just starting out and testing the waters, or contractors who maintain excellent insurance coverage and primarily work on small, low-risk projects.
Important note: Even as a sole proprietor, you still need proper licensing and insurance. The business structure doesn't exempt you from these requirements.
S-Corporation: Tax Advantages for Profitable Businesses
An S-corporation isn't a different legal structure—it's a tax classification you can elect for your LLC or corporation. It changes how the IRS taxes your business income.
How it works: With a standard LLC or sole proprietorship, all business profit is subject to self-employment tax (Social Security and Medicare), currently 15.3% on the first $160,200 of income (2023 rates). With an S-corp election, you divide your income into two parts:
A reasonable salary for you as an employee (subject to payroll taxes)
Distributions of remaining profit (not subject to self-employment tax)
Example: Your business nets $100,000 profit. As a standard LLC, you pay 15.3% self-employment tax on all $100,000, which is $15,300. As an S-corp, you pay yourself a $60,000 salary (subject to payroll taxes) and take $40,000 in distributions (no self-employment tax on this portion). Total tax savings: approximately $6,120 annually.
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| Two pictures show what you need to do and how to do it |
Advantages:
Significant tax savings once you're profitable.
Same liability protection as LLC (Limited Liability Company)
Enhanced credibility with some clients.
Disadvantages:
Requires running payroll—even if you're the only employee, you must process payroll with proper tax withholding, file quarterly payroll tax returns, and issue yourself a W-2.
More expensive to maintain—payroll services cost $40 to $150 monthly
More administrative work—required bookkeeping, annual filings, potential audits
You must pay yourself a "reasonable salary" because you cannot take all earnings as distributions to avoid payroll taxes. The IRS scrutinizes unreasonably low salaries.
Best for: Established businesses netting $60,000+ annually where tax savings justify the additional administrative costs and complexity.
Making the election: You can form an LLC and later elect S-corp tax status when it makes financial sense. This allows you the flexibility to start simple and upgrade as you grow.
Final Legal Reminder
Remember that this information is general in nature and cannot account for specific laws and requirements in your jurisdiction. Before registering your business or applying for licenses:
- Verify all information with local authorities and regulatory bodies
- Consult a licensed attorney in your state for personalized legal advice
- Work with a CPA to understand tax implications of your structure choice
- Stay current on changing regulations
Series Navigation:
Do you have any questions regarding business structures or licensing in your area? Share your experiences in the comments below!
📥 DOWNLOAD: Part 2 - Legal Structure, Registration & Licensing (PDF)
Regards,
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About the Author – JFB Handyman
JFB Painting and Handyman Services has been proudly serving homeowners since 2018, providing reliable, detail-focused home maintenance, repairs, and improvement services. With years of hands-on experience solving real foundation, soil, drainage, and structural issues, JFB Handyman brings practical knowledge to every project and every article.
From small fixes to complex home challenges, the goal has always been the same: deliver honest workmanship, protect your investment, and help homeowners understand how to keep their property in top condition. This commitment to quality, transparency, and long-term solutions has made JFB Handyman a trusted name in local home repair.
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