LLC for AirBnB

If you have been hosting for a couple of months and want to include a layer of risk insurance, you should consider having an LLC for your AirBnB business. Most insurance agencies have no issue including your LLC as an additional insured entity. You can even have privacy by removing your name from government records and have a separate bank account for your business as well.

Should I create an LLC for Airbnb?

Forming an LLC is a great your Airbnb business because they are easy to form and maintain. The preparation of tax forms each year is also significantly less complicated than for an S Corporation. LLC’s provide the same liability protection as S and C Corporations, and like C Corporations are pass-through entities. Forming an LLC has all the same benefits as an S Corporation without the complicated paperwork.

For LLC owners, filing taxes only needs to be performed once per year on April 15th. For a single-member LLC, the taxpayer is required to file a form 1040 and a Schedule C. These are the same requirements as a sole proprietorship.  

One thing to note however, there are some situations when the liability protection of a corporation or LLC doesn’t apply, when there was negligence on your part.  A court may make the decision to “pierce the corporate veil,” which is the legal decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders.

This means that the owners of the business, including its officers, directors and shareholders, would become personally liable for the debt of the company. Closely held companies are generally more susceptible to losing limited liability status. If you want to protect your personal assets and maintain the limited liability status of the corporation or LLC, it is important that you comply with all of the rules for forming and maintaining your LLC or corporation.

You should also make enough investment in the LLC or corporation to ensure that it is adequately capitalized to be considered as a separate entity. Make sure to never commingle personal assets with the LLC. The best way to avoid becoming personally liable for the debts of your business is to avoid use the LLC to engage in activities that are fraudulent, illegal or negligent in the first place.

Business Deductions to Help You Save on Your Taxes for AirBnB LLC.

Forming an LLC or corporation for your Airbnb business can also help you to save on your taxes. You might consider depreciation methods and figuring out which business start-up costs you can deduct. Business start-up costs include costs incurred while:

• Creating an active trade or business
• Investigating the creation or acquisition of an active trade or business

Some of the costs of forming a corporation may also be deductible, such as the costs to hire lawyers, accountants or tax professionals. These costs have to be amortized to be deducted.

Overall, an LLC or corporation offers a viable way to protect your personal assets when you operate an Airbnb rental business. However, make sure that you also check the start-up rules for your state as the filing and reporting requirements vary from state to state.

How to form an LLC for Airbnb

Here are the steps to form an LLC for Airbnb and there may be additional steps and quirks, depending on the state.

1. Select the state to form your LLC
2. Choose an LLC name and search the state’s database
3. Choose your LLC’s Registered Agent 
4. File the LLC’s Articles of Organization (also known as a Certificate of Organization or Certificate of Formation)
5. Get an EIN for your LLC from the IRS
6. Check on the annual LLC requirements, if applicable
7. If necessary, register your domestic LLC as a foreign LLC in the other state(s) where it’s transacting business

Add your LLC to your Airbnb account

Connect your LLC to your Airbnb account

Here are the steps:

1. Login to your Airbnb account 
2. Click the icon/photo in upper right, then click “Settings” (sometimes appears as “Account Settings”).
3. Click “Settings” again in the menu.
4. Click “Create company account”.
5. Company name: enter your LLC name.
6. Address: enter your LLC’s address.
7. Business address and registered office address are the same uncheck this box if your LLC’s Registered Agent address is different, and then enter that address.
8. Select “United States” for country of incorporation.
9. Registration number: Airbnb is asking for your LLC’s Secretary of State “ID Number”. Depending on the state where you formed your LLC, this will be called something different. It’s basically your LLC’s numerical “identifier”. You can find this by looking at your LLC’s approval documents, usually a stamped and approved Articles of Organization, Certificate of Organization, or Certificate of Formation, or by running an LLC name search on the state’s Secretary of State (or equivalent) website. The registration number is known as a DOS ID Number in New York, Entity Number in California, Document Number in Florida, and SOS File Number in Texas. 
10. Date of incorporation: It’s the date your LLC went into existence.   This is the same thing as your LLC effective date. This date can also be found in your LLC approval documents or by doing a search on the Secretary of State website.

Beware of Local Laws for your AirBnB LLC

Your LLC will need to adhere to local real estate laws, but Airbnb will take care of local tax collection. Occasionally the city, town, or county you’re doing business in may require a short-term/vacation rental license.

There are over 70,000 licensing jurisdictions in the U.S., so we cannot list each one here. It’ll be your responsibility to get in touch with the municipalities where you’re transacting business to check on any business licenses or permits that your LLC may need to obtain.

Airbnb LLC and Federal Taxes

There are several ways your Airbnb LLC may be taxed by the IRS for federal taxes.

A Single-Member LLC (only one owner) is taxed as a Disregarded Entity. That means the LLC is “ignored” and the tax filing obligations are the owner’s responsibility.

• If the LLC owner is a US person, they’ll file taxes as a Sole Proprietor
• If the LLC owner is a non-US person, they’ll file taxes as a non-US resident
• If the LLC owner is another company, it will be taxed as a branch/division of the parent company

A Multi-Member LLC (two or more owners) is taxed as a Partnership by default.

For both Single-Member LLCs and Multi-Member LLCs, instead of the default tax classifications, they can elect to be taxed as a Corporation. There are two types of corporate taxation available:

• LLC taxed as an S-Corporation (more common once net income is sufficient)
• LLC taxed as a C-Corporation (less common)

(Note: An LLC with corporate taxation may not be ideal if you own the property. It may be ideal if you are subletting. We recommend you speak with a qualified tax professional.)

A husband and wife LLC (in a community property state where the couple file jointly) can choose to be taxed as a Sole Proprietorship instead of a Partnership. This is a special type of tax election with the IRS called a Qualified Joint Venture LLC.

AirBnB for non-US residents

If you’re not a citizen or resident of the US, the “home state” stuff doesn’t apply to you. Instead, you’ll want to just form the LLC in the state where you are doing Airbnb.

If you want to extend your Airbnb to other states, then you’ll want to register a foreign LLC in the other states where you’re doing business.

Keep in mind, as a non-US resident, getting an EIN and opening an LLC bank account are a little different.

How do I start an Airbnb business?

1. Be Upfront With Guests- When you’re filling out your host profile, be honest about yourself and the conditions of your domicle.
   
2. Familiarize Yourself With Local Laws- Keep in mind the local laws, while many manage to be hosts without having any issues, keep in mind that if your landlord or neighbors find out about it.
   
3. Adopt a Business Mindset – If you’re looking to really make money through Airbnb hosting, consider what you can offer to make your listing even more attractive. 
4. Most of Your Guests Will Be Great – Most of the people who stayed at your AirBnB will act like normal guests. 
   
5. Have House Rules – Make sure you fill out the House Rules section on your host profile so guests know what’s okay and what’s not okay while they’re staying there.
   
6. Consider Making Minimum-Night Stay Requirements – You also might miss out on a longer and more lucrative booking simply because a one-night stay overlaps with it, so listing your place with minimum-night stay requirements might work out better for you.
   
7. Keep All Payments and Messaging Within Airbnb – Airbnb does take a cut of your profit, and while it may be tempting when you get an offer to be paid with cash or otherwise handle the booking one-on-one without the middleman, you’ll be leaving yourself vulnerable. Hosting your place through the service means you’re ensured by Airbnb for up to $1 million in case something happens. It also means there’s an added security benefit since the company vets and knows who is coming into your home.
   

How is Airbnb income taxed?

Airbnb hosts who offer their property for short-term rental are subject to the income tax rules for residential rental property. Airbnb may issue you Form 1099-K (Payment Card and Third Party Network Transactions), or make available an Earnings Summary, reporting the gross amount of rent earned during the calendar year. Regardless of whether you receive a Form 1099-K, the rental income you earned from Airbnb is reportable on Form 1040, unless the non-taxable rental exception applies (discussed below). It is important to note that the gross amount reported to you will exceed the actual amount paid-out by Airbnb. Refunds, services fees, and adjustments are not included in the gross amount. These differences will be accounted for as deductions on your tax return.

Additional guidance from a qualified tax professional should be sought if you are a real estate dealer or professional, or if this activity is incidental to a non-rental activity. Tax advice is complicated and you should do your own diligence when receiving advice. Airbnb is not responsible for any tax or other advice provided by any outside entity.

Where to Report the AirBnB Rental Activity

The first step to properly prepare your tax return is to determine where the rental activity should be reported. Short-term rental activities can be classified into three different classes.

• Schedule E Rentals – Most common classification; occurs when a host does not provide “substantial services” to their guests. This income is not subject to self-employment tax.
• Schedule C Rentals – A rental will typically fall into this category when “substantial services” are provided to guests, though there are other rare cases where this can occur. This income is subject to the self-employment tax.
• Non-Taxable Rentals – A rental may not be taxable (no matter how substantial the amount) if the (1) property was used by a host personally as a residence during the year, AND (2) it was not rented at a fair rental price for more than 14 combined days during the year. The only deductions allowed related to the rental will be otherwise deductible property taxes and mortgage interest (Sch. A). When this is the case special reporting procedures must be taken on your tax return to avoid IRS Form 1099 matching errors. 

Determining if Vacation Home Rules Apply to your AirBnB LLC

If you used the residence for your own personal purposes (as a personal residence, vacation property, etc.) you must determine if the vacation home rules will apply. This is true even if you would not otherwise classify the property as a vacation property. These rules determine how your expenses related to the rental will be treated. Use the following flow chart to make this determination. These rules may be ignored if you personally never used the property. Note that allowing someone to stay in the property for free or less than FMV is considered a personal use day by you.