Turning your vacation home into short-term rentals is a profitable business. In 2023, the US saw 2.5 million listings with more than 785,000 individual hosts. With growing popularity, many states require hosts to have a license registration for their Airbnb. It then becomes important to know how to start an Airbnb LLC as well.
While an LLC secures your personal assets, converting your short-term rental into a business entity provides several tax benefits. This is especially useful if you’re managing multiple properties. Unsure of where to start? Here’s a step-by-step guide on how to start an Airbnb LLC.
There are multiple documents required to get your Airbnb LLC. One of them is an Article of Organization.
Article of Organization is a formal document stating all details of your company. This includes the name, official address, duration, name of the registered agent, and business management structure. This indicates the owners and managers of the firm.
Creating one on your own is difficult which is why we have the perfect template for you ⤵️
What is an LLC?
A Limited Liability Company or LLC is a business structure designed to protect the owner’s assets and properties against legal and financial liabilities. It provides the benefits of a corporation and a partnership.
In an LLC, the business owners remain protected against financial losses. The business is treated as a separate legal entity. So it can collect assets, have a debt and work under a name separately.
LLCs are also of different types like a Private Limited Company (Ltd.), Public Limited Companies (PLC), or Limited Liability Partnership (LLP)
Features of LLC
- Personal liability protection: An LLC protects your personal assets like home, car or savings from business-related lawsuits. So your risk in the business is limited to what comprises the LLC.
- Flexible ownership and management: LLCs can follow a flexible management structure. You can have multiple members appointed at different positions to run the business. Two friends can run multiple Airbnb rentals under one registered LLC. It is similar to hiring someone to run the rental for you, while you focus on other aspects like marketing, maintenance, guest relations etc.
- Pass-through taxation: This business structure avoids double taxation (where both the owner and business are taxed). You can report the income earned from your Airbnb LLC in your personal tax returns.
- Easy to form: Compared to corporations, LLCs are very easy to form. The paperwork and legal hassles are very less. You can form an LLC within a few weeks.
- Simplified compliance: While record-keeping is mandatory in every business, in an LLC you have comparatively lesser reporting. You don’t have to file a board or directors meetings or annual shareholder meetings.
Maintaining separate bank accounts and reports eases compliance for taxes.
Is It Necessary for Airbnb to Have an LLC?
No, starting an LLC for your Airbnb is not mandatory– but it is beneficial in the long run.
It provides legal, financial and operational benefits that protect you and your business. It separates your personal finances from the rental business. So in case, a guest sues you for damages in unforeseen circumstances, your savings are secured.
A new tax law passed recently enables New York counties to create registries for short-term rentals. Short-term rental owners have to pay sales taxes similar to hotels. Forming an LLC also complies with such local laws and regulations. It helps you avoid fines or legal issues.
With an LLC, you can also form a clear structure to expand your short-term business on a larger scale, to include multiple properties. You can apply for loans and other types of Airbnb financing, add partners and divide the roles clearly among the team.
When Should Airbnb Hosts Form an LLC?
Airbnb hosts get into short-term rentals to earn some extra side cash. This is considered a self-employed business operation. Income earned from these rentals must be reported in your personal income tax returns.
You should know how to start an Airbnb LLC if you:
- Want to grow your passive rental income
- List multiple properties
- Build trust and credibility among guests
- Maximize your tax deductions
- Scale your STR portfolio
Benefits of Forming an Airbnb LLC for Hosts
Protecting your Airbnb business and running it by the rules should always be a priority for hosts. Forming an LLC gives you that advantage in the following ways:
1. Compliance with local regulations
Most states and local counties require business registration. If your Airbnb is in a different district from where you live, an LLC helps establish trust and guarantees compliance with local regulations. This is also essential when you’re making tax payments.
2. Liability protection
In business-related lawsuits, your personal assets often get targeted first. When resorting to an LLC structure, personal assets like your home, car, and bank accounts remain protected from legal action. It separates your vacation rental from you–an individual owner.
2. Affordable and easy processing
Starting an Airbnb LLC is not as much of a hassle; It requires a one-time filing process. Taxation requirements include your annual report, profit and loss statements with no additional complicated documentation.
3. Tax deductions
You enjoy flexibility in filing taxes. LLCs fall in pass-through taxation, which means you can declare your earnings as personal income. It will then be taxed as self-employment taxes.
You also benefit from filing your Airbnb expenses such as mortgage interest, maintenance costs, utilities bills or promotional costs under deductions to reduce your taxable income.
4. Credibility and trust
Would a ‘John Doe Seaside Apartment’ be more attractive or ‘Beachside Bliss LLC?’ With a definite brand name, you can build more trust and credibility among the audience. LLCs can secure rental insurance covering liability. Guests are assured of booking with a reliable company instead of an individual homeowner.
A brand name also gives better marketing opportunities. Hosts can create a website or a social media account with the same name. When planning to scale your business with multiple properties, you could include them under your LLC and build trust among everyone.
How to Start an Airbnb LLC? Step-By-Step Guide
This comprehensive guide is all you need to know how to start an Airbnb LLC:
Step 1: Choose a Business Name
Select a suitable name for your rental home. Make sure it is unique, does not contain any vulgar words/phrases and adheres to your property. Remember, it will have LLC at the end so select an appropriate name.
Some name examples: Mountain Homes LLC, Beachside Escapes LLC, Cosy Dens LLC, etc. Let the name convey the highlight of your homes if possible.
- Once you decide on a name, check if the name is available for use and does not violate any trademark.
- Visit the Secretary of State’s website and search the business entity database to confirm the availability.
Step 2: Choose a Registered Agent
A registered agent will handle all the legal paperwork and taxation of your LLC. The person acts as a point of contact between your LLC and the official system. They will receive and handle all your legal documentation. They are also responsible for all the regulatory compliance of your business going forward.
Step 3: Prepare Articles of Organization
Article of Organization is a formal document stating all details of your company. This includes the name, official address, duration, name of the registered agent, and business management structure. This indicates the owners and managers of the firm.
Some US states have a standard form for this step. Download it from the state’s website, fill and submit it without any errors. For online filing in the state of New York, click here.
Step 4: Pay fees
On submission of the documents along with Articles of Organization, pay the filing fees. The amount differs from state to state, typically from $50 to $500.
Step 5: Draft LLC Operating Agreement
As you wait for the approval, prepare an operating agreement. This states how your LLC will conduct the business. Think of it as drafting a business plan to give legitimate proof of your operations. It should:
- Clarify the roles of people involved in the company
- Include details of the property manager or a co-host, if you plan to have one
- Mention the terms for profit distribution and dispute resolution
Step 6: Get an EIN
Employer Identification Number or EIN is a unique number assigned by the IRS for taxation purposes. This is necessary for tax filings, opening a separate bank account and hiring employees in future. You can get your EIN online on the IRS website.
Step 7: Open a business bank account
Once you get the approval, proceed for a new bank account for your LLC. A separate bank account makes it easier to keep track of your income and expenses from Airbnb. It is helpful for documentation during tax filing.
How to Link Your LLC to Airbnb Account?
After your LLC is registered, you can undertake operations as usual, once you link it to your Airbnb account. Other than seamless management, it also ensures compliance with state regulations that mandate hosts to have a license for short-term rental operations.
Chicago, Los Angeles, Washington DC, Seattle, Palm Springs, and Santa Monica have stricter rules and require license registration for short-term rentals. Texas, Arizona, and Florida have fewer regulations, but local governments can apply certain implications to regular short-term rentals.
If your vacation rental is in another state from where you reside, it is best to link your LLC with your Airbnb account.
Here are the steps to follow:
- Login to your Airbnb host profile and go to Account Settings
- In the dropdown menu, go to Settings
- Look for an option about creating business account
- Click on it and feed all the details of your business correctly. This typically includes:
- Your company name
- Registered address
- Registration number
- Location of incorporation
- Date of incorporation
- Save and wait for confirmation
Common Mistakes to Avoid When Forming an Airbnb LLC
1. Not researching enough
When you consider registering your Airbnb business into an LLC, spend some time researching the local laws and regulations. Certain cities have zoning laws which can impact your operations. Also, understand the LLC structure well so see which type suits you best.
2. Choosing the wrong business structure
An LLC also has different types like sole-proprietorship, Single-member LLC, multi-member LLC, Series LLC etc. It is essential to understand which structure suits your business. The right setup can assist your Airbnb financing and save money in the long run.
3. Skipping insurance
Airbnb hosts shouldn’t completely rely on their LLC to limit their liability costs. Airbnb hosts do enjoy an Airbnb AirCover that provides three main types of host protection. But, having a separate insurance policy is also necessary for major damages or natural disasters.
Forgetting tax registration
When you secure an EIN, you must register the business for tax filing. Depending on the state and local laws, additional permits and specific taxes may apply.
Not keeping records
Creating a business account makes it easier to manage your income and expenses. However, if you don’t keep proper records and mix them with your personal bank account, it can lead to improver auditing.
Conclusion
If you’ve been hosting for long, you’d have an idea about the potential of driving expansion. Understanding how to start an Airbnb LLC would only be the first step to scale your short-term rental into a thriving business. With protected assets and maximum ownership, you would be better equipped to market and maximize your income. A credible name with trusted reviews will also give you a scope or Airbnb price optimization. To simplify this property management and maximize revenue, trust PriceLabs.