Airbnb LLC | Should I Incorporate my Airbnb Business?

Airbnb LLC | Should I Incorporate my Airbnb Business?

1. What is an LLC and what does it do?

A Limited Liability Company, most commonly called an LLC, is a legal business structure that protects your personal assets (your home, car, and personal bank accounts) in the event your company is sued. An LLC is most often used to operate a business (you can have multiple businesses in one LLC), but LLCs can also be used to take title to assets. For example, an LLC can be created to own real estate (when should I form an LLC for real estate?), vehicles, boats, and aircraft.

  • The owners of an LLC are called “Members”
  • An LLC can be owned by one person (called a Single-Member LLC)
  • Or an LLC can be owned by two or more people (called a Multi-Member LLC)
  • The LLC is created by filing a form (called an LLC Articles of Organization) with your state’s Secretary of State office, or similar government agency, and paying a one-time filing fee.

2. Why do people form an LLC?

The primary reason to form an LLC is for personal asset protection. By forming an LLC you create a “protective wall” between your business and your personal assets. Your personal assets include everything that you own: your home, cars, trucks, bank accounts, investment properties, boats, jewelry, etc. A creditor cannot go after your personal assets.

If your LLC is sued, creditors can only attack the assets of your LLC to settle those business debts and liabilities. Your personal assets are safe and secure. They are not considered a part of the business. Again, without forming an LLC, your personal assets are at risk if your business is sued.

3. What’s better: an LLC or a Corporation?

A lot of people wonder if they should form an LLC or form a Corporation? Let’s look at the major differences.

  • LLCs don’t have to elect a board of directors; Corporations do.
  • LLCs don’t need to hold board meetings; Corporations do.
  • LLCs don’t have to keep records of all their meetings; Corporations do.
  • LLCs are not subject to double taxation; Corporations are.
  • LLCs can distribute profits however they want; Corporations can’t.

In short, LLCs are the most popular and the most flexible business structure for business owners, entrepreneurs, real estate investors, and Airbnb business owners.

4. Why should you consider LLC?

LLCs are affordable to set up

You’ll pay a one-time filing fee to form your LLC. The setup fee is cheap compared to forming other types of business entities (like a Corporation). Losing your personal assets is much more expensive than setting up your LLC. And even if your state has higher filing fees, they are well worth the assurance of knowing your assets are fully protected.

LLCs are low maintenance

Once your LLC is set up, there are only a couple of requirements to keep it active. The first requirement is sending your LLC Annual Report to the state. And the second requirement is to file your state and local taxes. Other than that, the only additional “work” you’d need to do is file a simple form if you change your address.

LLCs are easy to maintain

An LLC can be used to run multiple businesses. You can use one LLC for multiple business activities. Or you can create multiple LLCs. You could also have two businesses under one LLC.

5. How do I form an LLC?

  1. Pick a name for your LLC.
  2. Prepare your Articles of Organization, Certificate of Organization, or Certificate of Formation. File by mail or file online with the Secretary of State and pay the state filing fee.
  3. Wait a few business days for your LLC to be approved.

That’s how to form an LLC. Yes, there are a few more steps, like Operating Agreement, Federal Tax ID Number (EIN), and Annual Report, but these are the basic steps to getting your LLC started.

6. When forming an LLC, who is the Registered Agent?

When forming an LLC, it is a state requirement that you designate a Registered Agent. The only exception is in West Virginia. This is how the US court and legal system works. If somebody wants to sue a company, there needs to be a reliable person (or company) and a reliable street address where court documents, such as a subpoena, summons, petition, or complaint, can be served. This is what a Registered Agent is; a person or company who agrees to accept legal mail (called “Service of Process“) on behalf of your LLC in the event of a lawsuit or other court proceeding.

Registered Agent synonyms: In some states, a Registered Agent is called a Resident Agent, Statutory Agent, Statutory Agent for Acceptance of Process, or Agent for Service of Process. They all mean the same thing though. The laws regarding Registered Agent requirements vary by state, but in the vast majority of states, the following hold true:

• If the LLC’s Registered Agent is a person, that person must be a resident of the state where your forming your LLC, be at least 18 years of age, have a street address located in the state where your forming your LLC, and be available during normal business hours, Monday through Friday, 9am to 5pm.

• If the LLC’s Registered Agent is a company, that company needs to be registered to do business in the state in which you are forming your LLC.

• The Registered Agent must have an actual street address. Post Office (PO) boxes are not allowed.

7. Where should I form an LLC for Airbnb arbitrage?

Where an LLC should be formed (or registered as a foreign LLC) comes down to where it is legally transacting business. While it is best practice to speak to an attorney, generally speaking, most Airbnb hosts will be doing business in their home state and in the state where they are arbitraging properties. For most Airbnb hosts, they are usually living and doing business in their home state.

8. How to add your LLC to your Airbnb account?

So you have your LLC formed, now what? How do you connect it to your Airbnb account?

Here are the steps:

  1. Login to your Airbnb account (Airbnb: login or signup)
  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. For example, DOS ID Number in New York, Entity Number in California, Document Number in Florida, and SOS File Number in Texas. 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.
  10. __ Date of incorporation__: This is the same thing as your LLC effective date. It’s the date your LLC went into existence. This date can also be found in your LLC approval documents or by doing a search on the Secretary of State website.

9. What local laws should be kept in mind?

While Airbnb will take care of local tax collection, your LLC will also need to adhere to local real estate laws. Meaning, 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 can’t comment on 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 & 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:

A husband and wife LLC (in a community property state where the couple files 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.

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