Starting a limited liability company (LLC) for your Airbnb can provide several benefits.
Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.
For an Airbnb business, lawsuits can arise from things like disputes with neighbors, injuries that occur on your property, or defaulted loans.
LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your Airbnb appear more credible.
Recommended: You can use Northwest to form an LLC for $29 (plus state fees).
Do I Need an LLC for my Airbnb?
LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.
You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.
LLC Benefits For an Airbnb Business
Limited Liability Protection
LLCs provide personal liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.
The potential for personal injury on the Airbnb property is something hosts should consider when deciding whether or not to form an LLC.
Example 1: Your Airbnb guest decides to throw a party without your consent. As a result of an uncontrolled fire, your neighbor’s home is damaged. As they cannot find the responsible party, they decide to file a lawsuit against you, seeking compensation. If your Airbnb business is registered as an LLC, your assets will remain protected.
Example 2: You take on quite a large loan to remodel your Airbnb, as well as purchase new, top-of-the-line furniture. Because you are registered as an LLC and you did not personally guarantee a loan, you rest easy knowing that your personal assets will remain safe regardless of whether you will be able to pay the loan back in the future.
Example 3: One of your Airbnb guests accidentally cuts himself while making dinner. Since there is no antiseptic kit found in your Airbnb, your guest’s cut becomes infected, and eventually requires a hospital visit. Claiming that this situation could have been averted if you had taken the proper precautions, your visitor files a lawsuit against you. Here, you will not be held personally liable, regardless of the validity of the lawsuit brought against your company.
Important: To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.
LLC Tax Benefits and Options for an Airbnb
LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return. The net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.
Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.
S Corp Option for LLCs
The S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).
S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to a 401k or health insurance premiums.
You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.
Credibility and Consumer Trust
Consumers place more trust in businesses that have formed an LLC.
A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.
How to Form an LLC
Select Your State
- Alabama LLC
- Alaska LLC
- Arizona LLC
- Arkansas LLC
- California LLC
- Colorado LLC
- Connecticut LLC
- Delaware LLC
- Florida LLC
- Georgia LLC
- Hawaii LLC
- Idaho LLC
- Illinois LLC
- Indiana LLC
- Iowa LLC
- Kansas LLC
- Kentucky LLC
- Louisiana LLC
- Maine LLC
- Maryland LLC
- Massachusetts LLC
- Michigan LLC
- Minnesota LLC
- Mississippi LLC
- Missouri LLC
- Montana LLC
- Nebraska LLC
- Nevada LLC
- New Hampshire LLC
- New Jersey LLC
- New Mexico LLC
- New York LLC
- North Carolina LLC
- North Dakota LLC
- Ohio LLC
- Oklahoma LLC
- Oregon LLC
- Pennsylvania LLC
- Rhode Island LLC
- South Carolina LLC
- South Dakota LLC
- Tennessee LLC
- Texas LLC
- Utah LLC
- Vermont LLC
- Virginia LLC
- Washington LLC
- Washington D.C. LLC
- West Virginia LLC
- Wisconsin LLC
- Wyoming LLC
For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.
Do LLCs Need Insurance?
Yes, all LLCs need business insurance in order to protect their assets.
This is especially the case when it comes to Airbnb businesses, as the nature of the sector means that you will inevitably face a certain degree of foreseeable risk (e.g., a guest damaging furniture, etc.).
Common Situations Business Insurance May Cover for an Airbnb Business
Example 1: A guest slips and falls while taking a shower in your rental. He sustains injuries and decides to take legal action against you to cover his medical bills. The general liability insurance policy you carry will pay for the cost of hiring an attorney and any settlement that you may wind up paying, up to your policy limits.
Example 2: A clogged gutter causes water to pool on the walkway to the house, which then freezes into an ice sheet during winter. A guest is bringing groceries inside the rental when she slips on the ice, falls, and sustains injuries. She files a lawsuit against you. Your general liability coverage will pay for your legal defense costs and the cost of a settlement.
Example 3: A section of asphalt in the driveway of your rental is washed away in a storm. A guest fails to see the damage and rides his expensive racing bicycle into the damaged area, which bends the front wheel. Your general liability policy should cover the cost of repairing the broken bike.
Other Types Of Coverage Airbnb Businesses Need
While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all Airbnbs should obtain:
Cyber Liability Insurance
Any information you keep related to your guests could be compromised by cybercriminals. If the information is stolen, guests could decide that you are responsible for the damage caused by the compromised information, and they could take legal action against you. Cyber liability insurance is designed to help cover the costs of hiring an attorney and any settlements that you wind up paying guests, up to your policy limits.
Commercial Property Insurance
If your commercial property is damaged, such as in the event of a fire or a major storm, repairs are likely to be expensive. A commercial property insurance policy will help to cover the cost of repairing the damage and replacing what needs to be replaced. With this kind of policy, you can get your rental fixed up and get back to renting the property out to guests.
In addition to the policies outlined above, there are a few other types of coverage your Airbnbs may require depending on certain aspects of your operations. Some of these might not apply to you, so be sure to ask your agent which policies are right for your business.
Home-Based Business Insurance
If you run your Airbnb rental business from your home, there is a good chance that your homeowner’s insurance policy will not cover accidents related to your business. A home-based business insurance policy will ensure that you have more-comprehensive coverage, helping to pay for the cost of damage resulting from business activities.
Commercial Umbrella Insurance
During certain situations, like expensive lawsuits, the limits on your general liability insurance may be exhausted. Instead of needing to pay the extra costs out of pocket, you can carry a commercial umbrella insurance policy. The umbrella policy will pick up where the general liability policy leaves off. Once the general liability limits are reached, the umbrella insurance will begin to pay up until the point where its limits are reached.
Should I Start an LLC FAQ
Which is better for my Airbnb — an LLC or sole proprietorship?
Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.
Visit our LLC vs Sole Proprietorship guide to learn more.
What are the costs to start and maintain an Airbnb business?
Presuming you already have your own property, most of the startup costs of an Airbnb business are maintenance costs.
For example, you will need to purchase cleaning supplies, business insurance, and might also have to purchase new furniture depending on the state of your Airbnb.
You will also experience fees directly from Airbnb, such as a renter service fee (3%).
Visit our How to Start an Airbnb Business guide to learn more about the costs of starting and maintaining this business.
What are your ongoing expenses when running an Airbnb business?
Regularly re-stocking amenities in your rental(s) and periodically updating towels and linens will constitute a portion of your expenses. Any repairs, cleaning services, taxes, or maintenance fees will be incurred, as needed.
Learn more about running an Airbnb.