By The Hospitable Team
Listing a property on Airbnb to welcome guests from around the world for short-term stays offers huge earning possibilities for homeowners. But opening your door to strangers also comes with risks of personal liability and extra taxes owed. That’s why starting a limited liability company (LLC ) for your Airbnb may be the right option to have an added layer of protection for your personal assets and tax benefits.
If you are an Airbnb host weighing your options on forming an LLC, here you’ll find general information about creating an LLC for Airbnb in the US. Still, there are a lot of case-specific details to consider. That’s why you should consult a legal expert to help you navigate the laws specific to the area where you want to operate your Airbnb.
Is Airbnb Considered a Business?
Now many people earn money renting out vacation rental properties through Airbnb, Vrbo, and other OTA platforms. While many hosts do it as a side hustle to increase their income, some turn their Airbnb hosting into a full-time job.
What is great about Airbnb is that it allows you more freedom and flexibility—you can rent your home as much as you want. Is running an Airbnb considered a business? Yes, it’s a commercial activity because it involves renting out a short-term rental property regularly and getting income from it. So Airbnb hosts are considered self-employed business owners.
As a business, hosting on Airbnb is subject to different regulations and taxes, and you may need to obtain certain short-term rental licenses and permits. That means you must research and understand local laws that apply to short-term rental properties in your area and contact local authorities to ensure compliance.
Being an Airbnb host also involves a lot of responsibilities, especially if you rent out multiple properties. But vacation rental software like Hospitable.com can help you automate most of the routine tasks and have more time to focus on growing your business.
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Do You Need an LLC for Airbnb Business?
An LLC is a popular business structure offering a simple and inexpensive way to protect your personal assets from lawsuits and creditors, save taxes, and increase credibility. It combines the advantages of a corporation with those of a sole proprietorship or a partnership.
Airbnb accepts STR businesses, including LLCs, as professional hosts in their marketplace. So forming an LLC can be a good option for savvy Airbnb hosts that have taken on hosting as their full-time job and manage several vacation rental properties. With more listings, you can generate more revenue but also take on added risk.
Here are the main benefits Airbnb hosts may expect from forming an LLC.
Forming an LLC allows you to separate your personal assets, such as your house, car, and bank account, from your Airbnb business and protect them from legal action. They won’t be at risk if your business incurs debt or faces a liability.
Only your business’ assets can be at risk if, for example, a guest staying at your STR property gets injured and decides to sue for damages. Although Airbnb provides Host liability insurance as part of AirCover for Hosts, legal business framework will assure you that only your business’ assets would be liable, not your wealth.
LLC structure provides flexibility in how you can file your taxes. LLCs can choose to be taxed as a sole proprietorship, partnership, C corporation, or S corporation. This flexibility allows you to choose the tax structure that is most favorable for your Airbnb business and save money on taxes.
Increased credibility and trust
If your business has a formal structure, such as an LLC, it has more credibility, and your vendors and business clients are more likely to take you seriously. You can benefit from it when applying for small business loans, grants, and credit.
Forming an LLC for Airbnb allows you to operate under your company name instead of your own name and build trust among potential guests. They will know that your business offers rental space that has been professionally cared for, including cleaning and other services.
Forming an LLC can also help build your brand and stand out among the competition on Airbnb and other platforms, making it easier to market your vacation rental property. After that, the next logical step can be creating your own direct booking website that will help you increase your revenue, save on the OTA fees, and have more control over your business.
The best thing is that you don’t need any technical skills if you use vacation rental management tools like Hospitable, including a direct booking website builder feature. With Hospitable Direct, you can create a website for your STR business using professional, easy-to-customize templates.
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Best Tax Structure for Airbnb
The default tax option for LLCs will be pass-through taxation. That means that the profits from your business entity flow through to you, and you declare them as personal income. That income is then subject to income taxes and self-employment taxes.
But you can apply for S corporation status with the IRS, which can be the best tax structure for Airbnb hosts because it can save you on paying self-employment taxes. Suppose your business makes enough money to justify this strategy. In that case, you, as an owner, can pay yourself as an employee a reasonable salary for the services you perform for the company. This way, you can avoid paying the self-employment tax for the rest of your income and reinvest that money into your business.
How to Start an Airbnb LLC
The specifics of forming an LLC can vary by state, but these are essential steps:
- Choose a name for your LLC—make sure it’s unique, free of obscene or vulgar phrases, and promotes your business while adhering to the criteria for LLC names.
- Choose your registered agent—it’s a point of contact for all legal matters required in all 50 states. The registered agent will accept legal paperwork and tax notices on your LLC’s behalf.
- File the Articles of Organization for your business—state governments use this document to generate and keep track of important information about your LLC, including its name, purpose, ownership, and contact information. You’ll also need to pay a filing fee.
- Create an LLC operating agreement—a legal document establishing guidelines for how you plan to run your business. It outlines the ownership and operating procedures.
- Obtain an EIN (Employer Identification Number)—it’s a nine-digit number issued by the IRS. It is used to identify a business entity and keep track of tax reporting. Actually, it’s a business version of a Social Security number (SSN).
Starting an LLC is a good option for Airbnb hosts that manage multiple STR properties. This business structure provides personal liability protection, which can give you peace of mind knowing that your personal assets are protected in case of a lawsuit. Additionally, an LLC can provide greater tax alternatives, which can help lower the overall tax burden. But starting an LLC for Airbnb can take some time and requires monetary investment and paperwork.
We’ve provided you with brief information about how to start an Airbnb LLC, but it’s not intended to offer legal counsel. So we encourage you to seek professional advice and do your due diligence to weigh the pros and cons of forming an LLC before making a final decision.
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