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How To Setup An Airbnb LLC For Your STR Business
Many Airbnb owners and hosts will reap the benefits of a limited liability company (LLC). You can create an Airbnb LLC to protect your personal assets, increase your tax options, and improve your credibility.
Running Airbnb Through LLC Guide
LLC for airbnb business can be a cost-effective way to protect personal assets and reduce taxes. When there is any risk to your business, or when you think your business might benefit from tax options or increased credibility, it’s a good idea to form an LLC.
LLC For an Airbnb Business Benefits
- Protect your savings and car with limited-liability protection
- More tax advantages and options
- Increase your business's credibility
Limited Liability Protection
LLCs offer personal liability protection. In the event that your business is sued, or defaults on a loan, your personal assets (e.g. car, house, bank account, etc.) will be protected.
Airbnb companies will often be eligible for liability protection, as there is a lot of risk in running an Airbnb.
Example: An accident occurs at an Airbnb property. The host is held responsible in court. The host’s assets and insurance limits are exceeded, and the damages are extinguished.
LLC Benefits and Options for an Airbnb
By default, LLCs are treated as pass-through entities and taxed the same way as sole proprietorships or partnerships. The net income of the business is passed on to the individual’s tax return. The net income then becomes subject to income taxes, based on the owner’s tax bracket, and self-employment taxes.
Partnerships and sole proprietorships are subject to the same tax as LLCs. However, they don’t provide limited liability protection or any other tax options.
S Corp Option for LLCs
An LLC can choose to be an S corporation (Scorp) which is an IRS tax status. The S corp status allows business owners and employees to be treated the same way as employees for tax purposes.
S corp status is a tax relief that can lower self-employment taxes. It also allows business owners to contribute pretax dollars to a health insurance premium or 401k.
An S corp status means that the business must pay the employee-owner(s), a reasonable salary for the work performed.
The business may also need to spend more money on bookkeeping, accounting, and payroll services. These costs can be offset by savings of approximately $2000 per year in taxes.
According to our estimates, if an Airbnb owner can afford a decent salary and receive at least $10,000 each year in distributions, they may be eligible for S corp status.
Trust and Credibility
Airbnb hosts depend on the trust of their customers. In creating and maintaining any business, credibility is essential.Companies gain trust by setting up an LLC. An LLC can help a growing business to get small business loans, grants and credit.
What's an LLC?
The most popular legal structure in America is the limited liability company (LLC). An LLC provides limited liability protection and tax options to any business size. Limited liability legally protects business owners’ personal assets in the case of a lawsuit or default on a debt.
An LLC is a better business structure than any other. This is because LLCs cost little to set up and are easy to run. LLCs also protect the business owner from creditors and lawsuits. Sometimes, business owners decide to create an LLC by themselves. This can be done following our step-by–step Guides for Forming an LLC.
We recommend that you hire an LLC formation company so that you have confidence everything is setu correctly and concentrate on growing and generating income.
Forming an LLC
It is simple to form an LLC. You have two options to form your LLC:
- Hire a company and let them file it for you
- Do to your desired state and search for the business registration website and file yourself
1. Decide On An LLC Name
You’ll need to give your business a unique name when you file your Airbnb LLC documents. If you need help determining your name, you can use a business name generator to help get you started. It’s always best to refine from there.
After you have found a business name to use, check if it is available for a web domain or available with minor variations.
Buy your domain name, create a website, then use a logo maker to create a logo. Canva is a great resource to generate free Logos
2. Find a LLC Registered Agent If Needed
Your LLC registered agent will accept legal documents and tax notices on your LLC’s behalf. Your LLC will use the registered agent’s address for all business communications. You will list your registered agent when you file your LLC’s Articles of Organization.
Hiring a registered agent service offers a number of benefits, including privacy and peace of mind. However, this is not needed if you live in the state the LLC is being formed in as you can use the Airbnb address, a business address, or your personal address.
3. File Your Articles of Organization With State
You will need to file the Articles of Organization (also known as a Certificate of Formation, or Certificate of Organization in certain states) to register your LLC. Again you can do this yourself, hire a local company to do it, or an online formation company.
4. Create Your Operating Agreement
An LLC Operating Agreement is a legal document that describes the ownership and duties of your LLC. It’s essential to have especially in multiple-member LLCs so that no disagreements come up resulting in potential legal issues.
4. Obtain EIN From IRS
The US Internal Revenue Service (IRS), which uses an Employer Identification Number (EIN), to identify and tax companies, has a way of identifying them. It’s basically a Social Security Number for a business.
When you apply directly to the IRS, EINs can be obtained for free.
It’s that simple to create your Airbnb LLC. Your personal assets and liability are now protected from potential lawsuits. This guide is not to be considered legal advice and when forming any entity that can result in potential legal issues arising, consulting a Lawyer who specializes in these issues is recommended,