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By Genki Hirano
Published on 17 Jan 2023 Updated on 1 Mar 2024 8 min read Updated on 1 Mar 2024
Learn the steps to forming an LLC for your Airbnb business. From choosing the right business structure to registering in your state, our guide has everything you need to know to protect your personal assets and stay compliant. Get on the road to success today!
We’ve personally helped hundreds of entrepreneurs, business owners, and rental property owners grow their capital from their Airbnb. Here are the benefits of an LLC for an Airbnb business and how to set up shop.
Benefits of Setting up an LLC for an Airbnb Business
Looking for a way to make your Airbnb business more successful and profitable? Forming an LLC could be the answer.
An LLC is a business structure that can combine the taxation of a partnership or sole proprietorship with the limited liability of a corporation.
Every business needs a foundation and knowing the legal aspects and benefits of the business structure that works best for you is critical to a successful business.
Below are some of the key factors when it comes to understanding the benefits of an LLC.
- Personal and business assets
- Protection from legal action
- Tax benefits of an LLC
LLCs separate personal assets from your Airbnb business
An LLC business structure allows you to separate your personal assets from your Airbnb business.
When you operate your Airbnb business as an LLC, the business is considered a separate legal entity from you as an individual.
This means that your personal assets, such as your home, car, and personal income, aren’t at risk if your business faces a liability or goes bankrupt.
Forming an LLC for your Airbnb business can give you peace of mind and more security in your business ventures and as an Airbnb host.
LLCs can help protect you personally from legal action
An LLC acts as a separate legal entity providing the separation of business and personal assets.
This separation protects your assets, such as your home, car, and bank accounts, from being seized or attached in the event that your business is sued or incurs debt.
LLCs also offer personal liability protection—you will not be held responsible for any debts or obligations of the business.
By establishing an LLC for your business, you can gain an additional layer of protection.
LLCs have tax benefits
The tax benefits of an LLC can be advantageous for small business owners. One of the primary tax benefits is the ability to choose how the business is taxed.
LLCs can elect to be taxed as a sole proprietorship, partnership, corporation, or S corporation. This flexibility allows business owners to choose the tax structure that is most favorable for their particular business.
Additionally, LLCs may be eligible for pass-through taxation, meaning that the business itself is not taxed on its profits, but rather the profits are passed through to the individual owners and taxed at the personal income tax rate.
This can be beneficial as it can help to reduce the overall tax burden for a rental business!
Steps to Setting Up an LLC for Airbnb
doola makes it easy for you to set up your LLC for your Airbnb, get your EIN, and handle any necessary documentations to get approved as an Airbnb host—all for an affordable price.
To get started, you’ll need the following documents and information.
- Company name
- Personal Address
- Type of business
- Address of the Airbnb
- Government ID or (valid passport for non-U.S. citizens)
You can find more details on how to get started in under 10 minutes here.
Setting up your Airbnb LLC with doola
doola offers a step-by-step process of forming your business, getting your EIN (Employer Identification Number) from the IRS (Internal Revenue Service), and opening your U.S. bank account so you can earn U.S. dollars through your business!
Note: Tax and payouts are subject to change depending on the country. You can read about withholding taxes more in detail here.
Like with any business, you can deal with the paperwork on your own or,take advantage of doola’s tax compliance and bookkeeping services to reduce the headaches of confusing terms and reduce the risk of getting unnecessary fines.
Setting up an Airbnb LLC through your state
Airbnb businesses can vary depending on the state in which you wish to establish it. Generally, the process involves filing articles of organization with the state’s business division and obtaining an operating agreement.
The articles of organization will typically include information such as the LLC’s name, registered agent, and purpose. Additionally, most states require an LLC to file annual reports and pay annual fees to maintain the company’s good standing.
To set up an LLC, you will need to choose a unique name for your business that is not already in use by another LLC in your state.
You will also need to appoint a registered agent who is responsible for receiving legal documents on behalf of the LLC. Some states require you to publish a notice of your intent to form an LLC in a local newspaper as well.
Once all documents are submitted, and fees are paid, the LLC can be formed. Processing the application to form an LLC usually takes 2-3 weeks, but it may take longer if there is a problem with your application or the state has a backlog.
It’s also recommended to consult with legal counsel or an accountant to ensure compliance with state and federal tax laws and regulations.
Tax Advantages of an LLC
One of the main appeals of owning an LLC is the tax advantages. Below are some of the main tax advantages of an LLC.
- Pass-through taxation
- Business expenses
- Taxing options
- Income distribution
Pass through taxation
Pass-through taxation refers to a tax structure in which income earned by a business is “passed through” to the individuals who own the business, rather than being taxed at the corporate level.
Under this system, business owners report their share of the company’s income or loss on their personal tax returns and pay taxes at their individual income tax rate.
Business expenses
Business expenses are costs incurred to operate a business, such as office rent, salaries for employees, and supplies. These expenses can provide tax benefits to business owners because they can be used to reduce taxable income.
This is done by deducting the expenses from the gross income of the business, resulting in a lower net income and, therefore a lower tax liability.
Taxing Options
An LLC may be taxed as a sole proprietorship, partnership, S corporation, or C corporation. Those who choose to function as a sole proprietorship or partnership can avoid double taxation in contrast to an S corporation or C corporation.
Each option has its qualities and money-saving benefits—leaving the option up to the business owner and what suits them best.
No taxes for non-U.S. businesses
If your business is located outside of the United States, there is a possibility that you will not have to pay taxes on your business. This is subject to change depending on the country and its tax rules—also depending on whether you have someone in the U.S. as a member of your LLC. Even as a non-U.S. citizen, you can benefit from registering an LLC, but there are regulations you must follow, such as applying for an EIN (Employer Identification Number)
You can read the full article on tax advantages and benefits here.
Legal Protection with an LLC
The legal protection associated with an LLC constitutes a variable of rules and regulations that every business owner must abide by. But what are the different type of legal protection that comes with an LLC?
Here are the four main factors of legal protection with an LLC.
- LLC debts and personal liability
- Action by co-owners and employees
- Personal accountability
- LLC’s members’ debts
LLC debts
In the event that your business goes under and has accumulated a significant amount of debt. With a limited liability company, you are not responsible for these losses as you would be with personal liability insurance. Creditors can go after your LLC’s banks and assets, but your personal assets are protected, such as your car, home or bank account.
Action by co-owners and employees
One key benefit of having an LLC is the protection of your personal assets in the case that a co-owner or employee is liable for any fraudulent or unsavory acts not in favor of the LLC. Members are typically only liable for the debts of the LLC to the extent of their capital contributions or any personal guarantees they have made.
However, in certain situations, such as fraud, members may be held personally liable for the company’s debts beyond their capital contributions.
Personal accountability
The one exception legal protection for personal liability is no longer applied— is when the owner of the LLC makes neglectful and illegal decisions that go against protection liability regulations.
For example, an LLC owner may not:
- Neglect to pay taxes on their employees’ income
- Mindlessly injure someone during the course of business
- Commit fraudulent activity and intentionally harm themselves, employees, or others.
- Mix one’s personal affairs with the LLC as appose to a separate business entity.
Establishing an LLC does not exempt you from getting penalized for abusing these regulations. This also creates confusion for the creditors to distinguish personal assets from LLC assets—leading to further complications in which the creditors must take more aggressive legal action.
LLC member debts
Creditors of an LLC member cannot seize the LLC’s assets to pay personal debts. However, they can take other legal action to collect the debt.
Options such as dissolving the LLC or filing for foreclosure of the business are serious cases that a creditor will take if you have outstanding interest and cannot resolve the situation. In the case of foreclosure of your business, you will no longer have access to the assets, and the creditor will have full control over the finances and profits of the LLC.
Flexibility of an LLC
By now, you know the fundamentals of an LLC and what to consider when it comes to legal action. But how is an LLC flexible, and what does it mean for you?
LLCs can be run by their members or by appointed managers, allowing them to choose the management structure that best fits the needs of the business.
They also have the option of being taxed as a partnership, corporation, or even as an individual, depending on the number of members and other factors.
This feature, known as pass-through taxation, means that LLCs can take advantage of different tax structures—ideal for a business owner who may have different circ*mstances they need to cater to.
In addition, LLCs are subject to fewer formalities and regulations compared to corporations, which allows for more freedom in decision-making and financial management. These features make LLCs an attractive option for small businesses and entrepreneurs seeking a more flexible business structure.
Conclusion
Setting up an LLC for an Airbnb business is a smart move for many reasons. An LLC provides personal liability protection, which can give business owners peace of mind knowing that their personal assets are generally protected in case of a lawsuit.
Additionally, an LLC can provide tax advantages and flexibility in income distribution, which can help to lower the overall tax burden for the business.
Setting up an LLC can also help to establish a professional image for your business, which helps attract more customers and increase credibility.
Ready to get your Airbnb up and running with an LLC?
Start here with doola with a step-by-step process on how to set up your LLC for your Airbnb business.
FAQS
How to start an LLC for Airbnb?
You can an LLC by setting up your business formation, getting your EIN, and setting up your business bank account.
Do you need an LLC for Airbnb?
It is highly recommended that every Airbnb host gets an LLC in the event of a lawsuit or liability.
How to file Airbnb income?
You should file your income on your tax return using Schedule E (Form 1040 or 1040-SR)
How do I put my Airbnb in an LLC?
Apply for an LLC in your state for your rental property and consult with a registered agent for further assistance and guidance.
