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Starting an LLC for Airbnb HostsIf you’re an Airbnb host, you’ve probably at least considered forming a limited liability company (LLC) for your business. The LLC is a popular option for all sorts of businesses looking for asset protection, and it has a handful of other major advantages as well.

Of course, forming an LLC isn’t the only option for your Airbnb business, so our mission is to help you decide if it’s the best choice for you. There are many different factors to consider when you’re forming a business entity for your Airbnb rentals, so let’s dive into the details of the LLC to figure out if you should form one for your business.

What Is an LLC?

First off, let’s quickly outline what an LLC is. LLCs are formal legal entities that are typically taxed similarly to sole proprietorships and general partnerships, in that the owners include any company profits or losses into their personal returns — the LLC itself does not owe income taxes. An LLC may also elect to be taxed like a corporation, although this is not a very common option.

There are similarities to corporations too, especially when it comes to financial responsibilities. In an LLC, the owners or members are not usually personally accountable for the financial status of the business. This means that if someone sues your LLC, your personal assets are not at risk.

Why Starting an LLC for an Airbnb Business Is Important

Personal Asset Protection

The top reason to form an LLC as an Airbnb host is to gain access to the personal asset protection provided by this business structure. Whether you simply rent out your own home or you own several properties that are all listed on Airbnb, you need the limited liability protections that an LLC can provide.

As an example, let’s say someone leans against a loose balcony railing and falls from the second floor at one of your properties. They injure their leg and sue you for the damages. If you operate your Airbnb business as a sole proprietorship or general partnership, your personal assets — like your house, car, personal bank accounts, etc. — would be at risk if that customer decides to sue your business.

On the other hand, if you form an LLC for your Airbnb properties, and you operate and maintain that LLC in a compliant fashion, the scope of your customer’s lawsuit will be limited to your business assets. In other words, your personal assets will be protected by the business structure you’ve chosen.

Taxation

However, this is just the tip of the iceberg when it comes to the advantages of the LLC for an Airbnb host. Another important aspect is taxation. The LLC actually provides its owners with a selection of options regarding how they want the business to be taxed, which can save you a considerable amount of money compared to simply operating as an informal business entity.

Sole Proprietorship/General Partnership

Your Airbnb hosting LLC can be taxed as a sole proprietorship (for single-member LLCs) or general partnership (for multi-member LLCs), which is the default option. With this tax structure, your hosting business itself does not pay taxes, but rather the profits are passed through the business entity and your owners pay taxes on that money when they file their own personal taxes.

C Corporation

You can also choose for your Airbnb business to be taxed as a C corporation, although this option isn’t very popular because it subjects your business to what’s known as double taxation — meaning that your profits are taxed first on the corporate level and again on the personal level when they’re distributed to your owners.

S Corporation

The other option is S corporation taxation. There are quite a few limitations to electing S corp taxation, but most Airbnb rental businesses have no trouble meeting these requirements — your business cannot have more than 100 owners, they all must be either residents or citizens of the United States, etc.

S corp taxation can help your Airbnb business save money by reducing your self-employment tax burden. Instead of paying self-employment taxes (a 15.3% tax that includes the employer and employee portions of Medicare and Social Security) on all of your business income, you can pay yourself and your co-owners a reasonable salary for your roles and only pay self-employment tax on that portion of your income, while you can reinvest the rest of it into your business without paying this tax.

Compared to operating a sole proprietorship or general partnership restaurant business, the S corp taxation model can save you quite a bit of cash that you can use to buy more properties and make improvements to your existing rentals, rather than writing a big check to Uncle Sam.

Enhanced Credibility

Finally, an LLC structure can enhance the credibility of your Airbnb hosting venture. Informal business entities don’t have exclusive assumed business names and typically operate under the personal name(s) of their owner(s). For instance, if your name is Johnny Smith and you operate a sole proprietorship, your company’s name is also “Johnny Smith.”

Of course, this issue is much less important with Airbnb rentals, because the public perception of these properties is typically more in line with the parent company than the individual host. Still, it’s undeniable that your vendors (like your cleaning crew) and business clients will take you more seriously if you form a formal business structure.

How to Start an Airbnb Hosting LLC

The formation process for LLCs varies depending on which state you’re forming one in, but in general, the process has some universal steps that need to be taken no matter what state your business is located in. If you want a comprehensive overview of all the steps required to form an LLC, check out our complete guide on the topic. The basic steps in the LLC formation process in any state are as follows:

1) Choose an LLC name

Coming up with the perfect name for your new LLC is an important step. You’ll need to choose a name that represents your company and describes what you do, and you’ll also have to make sure it isn’t already in use by checking your state’s business database.

2) Designate a registered agent

Your LLC’s registered agent (which can be an individual or a professional service) is responsible for receiving important document deliveries from the state — like service of process, annual report reminders, etc. — and forwarding them to you. The registered agent ensures that the state always has a reliable point of contact for your business.

3) File your formation documents with the state

The form used to create an LLC is usually called the Articles of Organization, although the name can vary (some states call it the Certificate of Formation or something similar). You’ll need to provide the state with some basic information about your business and its owners. In exchange, the state will formally create your LLC.

4) Acquire an EIN

The Employer Identification Number (EIN) is a federal tax ID number that essentially functions as a Social Security number for a business. The EIN allows your business to hire employees, pay taxes, apply for bank loans, and more. You can easily obtain an EIN from the Internal Revenue Service free of charge.

5) Create an LLC operating agreement

Most states don’t require operating agreements but every LLC should have one regardless. This is an internal document that outlines several key operational aspects of your LLC. The value of the operating agreement is how it can help prevent ownership disputes down the line by clearly explaining how the LLC will be run.

6) Create a financial infrastructure

You will need a business bank account for your LLC, and you’ll probably want a business credit card for work-related expenses as well. It’s also a good idea to use accounting software like QuickBooks or even hire an accountant to handle your bookkeeping for you.

7) Handle taxes, licenses, and permits

Depending on your state, you may need a general business license to operate your LLC in compliance with state requirements. An Airbnb host may need several different licenses based on their location. For example, we took a look at the requirements to operate an Airbnb business in Seattle, Washington, where you need four licenses: a business license tax certificate, short-term rental operator’s license, Rental Regulation and Inspection Ordinance, and bed and breakfast operator’s license. Don’t forget to check with your state to see if there are franchise or privilege taxes assessed on LLCs, and also see if your municipal and/or county government entities have any further licensing requirements.

8) Understand maintenance requirements (annual reports, franchise taxes, etc.)

Again, these requirements can vary by state, but most states require some sort of regular report to ensure that your LLC’s info is up-to-date in the state’s business database. Some states require reports each year, while others only require them biannually or not at all. No matter what your state requires, you’ll need to stay on top of it to keep your LLC in good standing.

The 3 Best LLC Websites

When forming an LLC for your business, you generally have three main options. You can form your own LLC using the DIY method, you can hire an attorney, or you can hire an online business formation service.

The DIY route can require quite a bit of effort, and if you’re not comfortable with the process, it can cause some undue stress. As for hiring a lawyer, many startups can’t afford to spend the thousands of dollars it can cost for an attorney to form your business entity.

This leads us to the third option, hiring an online LLC service. There are dozens of reputable companies offering this service these days, and they can all save you a tremendous amount of money compared to an attorney. In addition, while these companies may not have as much expertise as an attorney does, they still provide a considerable amount of peace of mind compared to the DIY route.

If you want to take a look at the top options for online business formation services, head on over to our guide to the seven best LLC services available. In addition, we’ll briefly break down our top three options on this page. These are, in our opinion, the best options for business formation service:

🥇 ZenBusiness – Best Overall Value

ZenBusiness truly has it all. They provide complete LLC formation service along with a full year of registered agent service for one incredibly low rate, and they also have stellar customer feedback. It’s the best LLC service online.

ZenBusiness.com     

IncFile – Cheapest LLC Service

IncFile has a business formation package that is free of charge, as long as you pay your own state fee. That’s obviously an enticing offer, especially when you consider that they also provide a year of registered agent service. Throw in their strong customer feedback, and IncFile is an excellent choice for LLC formations.

Incfile.com     

Northwest – Premium Support

Northwest is a bit more expensive, but their industry-best registered agent service includes local scanning of every document they receive on your behalf. They also have the best customer support for LLC services. If you’re looking for a premium service, Northwest is excellent.

Northwest.com     

Additional Resources for Starting an Airbnb Hosting Business

1) Airbnb Resource Center

If you operate an Airbnb hosting business, it’s hard to argue that one of the best places to find the tools you need is straight from the source. The official Airbnb Resource Center has extensive guides on setting up successful listings, creating guest-friendly spaces, health and wellness concerns, and much more.

2) AirHost Academy

AirHost Academy provides Airbnb hosts with everything they need to get their businesses off the ground. They have resources on getting started, sending booking messages, interior design ideas, and more. You can even find articles about the best kitchen accessories and mini-fridges for Airbnb properties.

3) Lodgify

With Lodgify’s vacation rental software, you can get more bookings, place higher in Airbnb search results, and save time and money by automating some key facets of your business. In addition, Lodgify has an excellent resources page, as well as a helpful blog with plenty of great tips and tricks in it.

4) Get Paid for Your Pad

The Get Paid for Your Pad site has lots of great information for Airbnb hosts, but our favorite section of their site is “Airbnb tools.” This page has 26 resources and apps that can help you with anything from pricing and messaging to market research, listing management, payment, and area guidebooks.

5) Laptop Landlord

Laptop Landlord’s “Airbnb Tips for Hosts” page is split up into eight clickable chapters covering topics including getting started, taking great photos of your rentals, how to price your listings, cleaning your properties, how to get positive reviews, and much more. It’s an excellent resource for newbies and experienced Airbnb hosts alike.

Frequently Asked Questions

What liability risks do Airbnb hosts face?

There are many potential liability issues that Airbnb hosts need to keep in mind. You could be liable if one of your guests becomes injured on your property or their property is damaged in your unit.

Additionally, you may be liable for any property damage to neighboring properties, or if you fail to secure all of the relevant licenses and permits required to operate an Airbnb in your location.

Why should I form an LLC instead of a corporation?

Everyone’s situation is different, and we are not here to provide legal advice. That said, the limited liability company has some concrete advantages over the corporation that makes it the preferred option for most small businesses. Corporations tend to have more complex formation and maintenance requirements, and they don’t have the taxation advantages of an LLC.

The corporation has some advantages of its own (for example, it’s easier to attract investors to a corporation) that make it worth a look but the LLC is a simpler and more flexible business structure.

Can I serve as my LLC’s registered agent?

You certainly can! Every state allows entrepreneurs to serve as their own registered agents. However, while the role of the registered agent can seem like that of an unnecessary middleman, there is more complexity to this position than some people realize. For instance, you would need to be present and available at your business location during all standard business hours.

In addition, if you serve as your LLC’s registered agent, you may need to make your home address a matter of public record. Not only does this have privacy concerns, but there’s also the matter of unwanted junk mail as well.

Why should I hire an LLC service when I can form my own LLC?

The DIY route is always an option for LLC formation. However, LLC services are so affordable that there’s really no good reason not to use one these days. IncFile will even form your LLC for free! In addition, these companies often throw in free bonus features like a year of registered agent service that make them an even better bargain.

Should I form my LLC in my home state, or choose a state like Delaware or Wyoming?

Some people like to form their LLCs in states with favorable legal settings. For instance, Delaware is often seen as the most business-friendly state, as it has an entire court system that’s dedicated solely to business matters. As for Wyoming, this state has some of the most generous anonymity laws for LLC ownership.

However, for most people, your best option is to simply form your business in your home state. Forming in a different state can be a tremendous hassle, and it can add some unnecessary complexity to tax issues as well.

How much does it cost to form an LLC?

The costs of LLC formation can vary quite a bit depending on which state you’re forming one in. For in-depth information about LLC formation costs in your specific state, take a look at our comprehensive guide to state-by-state expenses.