Managing Your Business
Should Airbnb Hosts Start an LLC?
The new gig economy has opened up a world of money-making opportunities for entrepreneurs and side hustlers alike. Airbnb, which helps turn unused rooms into cash for their owners, helped hosts earn $1.2 billion during 2020.
With some serious earning potential on the line, more homeowners are opening their doors to the Airbnb opportunity. However, with reward comes risks of personal liability and extra taxes owed. For the savvy host looking for solutions to these problems, an LLC may be the right option.
If you are a private Airbnb host weighing your options on forming an LLC, we can help. Below we will explore the benefits an LLC brings to your business.
Airbnb is an online marketplace where anyone can rent out a space for people to stay. Travelers can rent single rooms or entire homes for days, weeks, or even months at a time.
Hosts can list their accommodations through the Airbnb marketplace and select their occupancy dates and pricing through the Airbnb app. Guests can book their stay, similar to a hotel, and pay in the app. Airbnb collects fees and taxes from both the host and guest depending on the location and other factors.
While initially pitched as an idea for homeowners to make cash renting out a spare room, Airbnb is a big business today, with some hosts purchasing or leasing properties with the express purpose of listing them out through the Airbnb marketplace. This has created huge earning possibilities for individuals and businesses looking to capitalize on Airbnb's growing popularity.
What Is an LLC?
A limited liability company (LLC) is one of the most popular business structures in the United States. An LLC can be formed in any state and is relatively simple and affordable to start. Unless you have formed an LLC or other business structure, you will be considered a sole proprietor by default.
Business owners and operators often choose to form an LLC for the tax advantages and to limit their own liability should they ever get sued. Airbnb accepts businesses, including LLCs, as hosts in their marketplace, making it an ideal option for Airbnb hosts that have taken on hosting as their full-time job.
Benefits of Forming an LLC for Your Airbnb Business
There are endless possibilities for the type, size, and location for an Airbnb, and the host's personal circumstances and earning potential can vary. However, forming an LLC may be advantageous for Airbnb hosts making more than a few hundred dollars a year. Below, we'll explore some of the main benefits an Airbnb host may expect from incorporating an LLC.
Once you form an LLC, you will have the option to choose how you are taxed. An LLC can choose to be taxed as a Sole Proprietorship, Partnership, C Corporation, or S Corporation.
Sole Proprietorships & Partnership Tax Options
For single-member and multi-member LLCs, the default tax option will be pass-through taxation. With this option, profits aren't taxed at the business level. Profits pass through the business entity to the owner, who pays taxes on their personal filings.
C Corporation Tax Options
C corporation tax structure can hit you with double taxes. This means profits are taxed on a corporate level and again on a personal level if the profits are passed to the owners.
S Corporation Tax Option
Electing to be taxed as an S Corporation is not an option for everyone. A business cannot have more than 100 owners, and all owners must be a resident or citizen of the U.S. to qualify. However, this tax option may offer many benefits to Airbnb hosts, especially those operating multiple properties.
Primarily, choosing to be taxed as an S Corporation can save you on paying self-employment taxes. Instead, owners can pay themselves a reasonable salary and reinvest the rest of the money brought into the business without paying further taxes. This option can be a real game-changer for Airbnb hosts looking to improve their rental properties.
Personal Liability Protection
In addition to the tax benefits of an LLC, forming a business to host your Airbnb property could also limit your liability if a guest sues you. For example, suppose someone staying at your home gets injured and chooses to sue for damages.
Without an LLC, any personal assets, including your car, home, and property, are at risk. If you've incorporated as an LLC, only business assets can be used to pay any settlement, protecting your personal assets from any judgment against you.
Using an LLC to host on Airbnb can provide an extra layer of anonymity from Airbnb and any guests who may book your accommodations. You will be able to use your business name, address, and contact information, without the need to use a DBA — helping keep your personal information private.
Forming an LLC allows you to operate under your company name instead of your legal-given name. This can help build your brand among the Airbnb crowd and build trust among potential guests that your business offers accommodations that have been professionally cared for, including cleaning, furnishing, and other services.
Bottom Line: Is an LLC Worth It for Airbnb Hosting? Yes!
As an Airbnb host, you will need to weigh the pros and cons of forming an LLC for yourself. While there are numerous benefits like limiting your personal liability and saving money on your taxes, starting an LLC can take some time and monetary investment.
Luckily, you don't need to be a lawyer or business expert to get started, though it may require annual fees and paperwork. For those looking to make Airbnb hosting a steady stream of income, an LLC probably makes sense, and the fees could quickly pay for themselves in the tax savings alone.
Save Time & Form Your LLC Today in Just Minutes
You can set up an LLC yourself, but if you want to save yourself some time give Swyft Filings a try. We tackle the paperwork so you can focus on promoting and improving your properties. Best of all, you can do it all from the comfort of your couch. Learn how to get started here.