At some point in your short-term rental career, you’ve probably encountered the phrase “Limited Liability Company,” also known as an LLC. An LLC for an Airbnb is not required to run a short-term rental business, but it can offer some critical protections to hosts with it.
In this post, we’ll break down what exactly an LLC is, why you may want one, and a step-by-step guide to turning your side hustle into an official business.
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What is an LLC?
An LLC is a business structure that allows you to separate your personal assets from your business; it provides limited liability protection against potential lawsuits.
This means that if someone were to sue your short-term rental business, they would only be able to take money and assets owned by the LLC, not any of your personal earnings.
Why You Should Get An LLC for Your Airbnb
As we said above, an LLC is not required to run a short-term rental business, but creating one has several advantages. Let’s take a look:
Eligible for potential tax deductions
LLCs are eligible for certain potential tax deductions. An LLC allows you to qualify more items as a business expense than you would without an LLC. For example, office supplies you use to run your short-term rental business are now eligible for some tax deductions.
This could be a great way to save money on your yearly taxes, especially if you’re already running a business out of your primary residence.
Credibility and professionalism
Having an LLC can give you more credibility as a rental business owner. It will show potential guests that your business is legit, which may make some guests more likely to book with you.
An LLC for Airbnb will protect your personal assets
An LLC can help protect you from personal liability. As previously mentioned, if a guest were to sue your rental business, they would only be able to take money and assets owned by the LLC, not any of your personal items.
Setting up an LLC for your Airbnb
Creating an LLC is relatively straightforward, but there are a few steps you need to take in order to get everything set up.
Choose your LLC name.
This is the fun part: naming your business. It can be as simple as your name (Jane Doe LLC) or something creative like the Hobbit Hole LLC.
You will need to choose a name not currently used by another business. You can search for this with the Secretary of State’s office in the state you wish to incorporate your LLC in.
File the articles of organization with your state.
Once you have chosen a name, you will need to file your LLC’s Articles of Organization with your state. This is essentially the paperwork that creates your LLC. Each state has its own form and filing fee, so make sure to check these requirements before filing.
Create an operating agreement.
The Operating Agreement is a legal document that outlines how the business will be managed. This includes information such as who owns what percentage of the LLC, how profits and losses will be distributed, and other essential details.
Registering Your LLC with the State
Once your LLC is created, you will need to register it with the state. This typically involves filing annual reports and paying a fee. Depending on the state, this may be done online or through paper forms.
Establishing an Operating Agreement
You will want to create an Operating Agreement that outlines how the LLC should be managed. This agreement should include details such as ownership percentage, profit/loss distribution, and other important information.
Secure an EIN (Employee Identification Number)
Not all LLCs need an EIN, but if you plan on hiring any employees like a property manager, you will need to secure one. This number is used to identify your business with the IRS and can be obtained by filing Form SS-4.
These are some of the steps you need to take in order to create an LLC for your Airbnb business. Once everything is set up, you can
Opening a Business Bank Account
Once your LLC is registered, you will want to open a business bank account. This will allow you to easily keep track of income and expenses related to your short-term rental business.
If all of this still sounds a bit too complicated for you, you can go through a third-party service like IncFile. For a fee, they can handle all of the paperwork and filings for you so that you don’t have to worry about any of it. Plus, they’ll send you automated reminders when it’s time to pay your state fee come tax season.
Setting up an LLC for your Airbnb business can be beneficial in many ways. It provides personal liability protection, potential tax deductions, and increased credibility. Additionally, it is straightforward to set up, and with some research, you can make sure that all of the necessary steps are taken to ensure a successful setup. With the proper structure in place, your Airbnb business is on its way to success.
Host Tools provides an automated, unified calendar for short-term rental hosts, allowing you to seamlessly list on all major channels. Start your free trial today!
