If you are renting out a place on Airbnb you may want to consider creating an LLC for your short-term rental business. A Limited Liability Company is a legal entity that separates business assets from personal assets. Owners of an LLC are known as “members.” An LLC can be owned by a single proprietor (single-member LLC) or multiple individuals (multi-member LLC).
The crucial advantage of an LLC is liability protection against potential lawsuits. It comes with greater taxation flexibility that can save you money. Setting up an LLC for an Airbnb rental property is surprisingly straightforward and something to consider at any stage of launching your Airbnb empire.
Thinking about becoming an Airbnb host? Check out Matador’s complete guide to everything you need to know, do, and plan for:
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Is an LLC necessary for an Airbnb rental?
An LLC isn’t mandatory for an Airbnb host. However, the associated benefits and ease of forming one may make it worth your while.
Protection for personal assets
An LLC will protect you from personal liability. In the case that a guest planned to take legal action or sue the rental business, they would only be able to target business assets and money owned by the LLC. Any personal assets – your home, vehicle, and personal earnings – are untouchable.
Potential for tax deductions
As an Airbnb Host, you are entitled to claim deductibles on your rental income. Setting up an LLC qualifies you to claim far more items as a business expense. If you choose to be taxed as a sole proprietor or partnership you will avoid double taxation.
The IRS considers a single-member LLC as a “pass-through entity”. The LLC doesn’t pay taxes but the member must report profits and losses on their personal tax returns.
A Limited Liability Company with at least two members will be taxed as a partnership and must file a 1065 form as well as an individual 1040 tax return.
Listing an LLC moniker on your profile gives you more credibility as an Airbnb host. It legitimizes your business to prospective guests and may drive more bookings. This is one of the main reasons to consider setting up an LLC at the start of your Airbnb hosting venture to inspire booking confidence in guests.
How to set up an LLC for your Airbnb rental properties
Creating an LLC is relatively uncomplicated – especially in the states where the process is digital. Single-time filing fees and annual maintenance charges vary from state to state.
Choose a name for your LLC
The name of your LLC can simply be your own name or you can choose something creative. The name must not already be in use with another registered LLC business. The Secretary of State in your territory has a database of existing limited liability companies.
File the Articles of Organization
After the name is confirmed, you will file your LLC’s “Articles of Organization” with your state. This document details your business name and address plus the contact details of a person who can receive lawsuits or legal notices involving the LLC.
Each state has its own form and filing protocol. Filing fees range from $50 to $500 so you’ll want to clarify this before getting started
Register your Limited Liability Company
Once the Articles of Organization paperwork is complete you can register your LLC with the state as per their filing process and pay the fee.
Create an Operating Agreement
The “Operating Agreement” is a legal document that establishes the rights and responsibilities of each LLC member. It details how the Airbnb business will be managed, the ownership percentage of the LLC, and accounting information.
An operating agreement is only a legal requirement in select states but it’s beneficial to draw one up regardless – especially in the case of a Multi-Member LLC (MMLLC).
Acquire an Employee Identification Number
An EIN identifies your business with the IRS and may be used in place of your Social Security Number (SSN). You will need a valid Taxpayer Identification Number (TIN) or SSN to apply for a free EIN using Form SS-4.
An Employee Identification Number (EIN) isn’t necessarily needed unless you are planning on hiring employees. As with the operating agreement, it’s wise to cover all bases.
Opening a business bank account
While forming your Airbnb LLC, remember to open a business bank account. It makes it easier to track income and expenses related to your Airbnb rental business. You can use this account to pay any recurring fees for your LLC.