As a vacation rental business owner, you work hard to provide amazing experiences for your guests and maintain your property. See how an LLC could further protect yourself, your property, and your assets from the unexpected.
The ZenBusiness Guide to Property LLC Formation
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When it comes to your vacation rental property, insurance can be one source of protection — but there’s an additional way that could lower your risk. Enter: LLCs. Vacation rental property owners are strongly advised to form a Limited Liability Company (LLC) for their business. LLCs can offer protection for your personal assets, tax benefits (for some), and peace of mind.
While short-term rentals may be an easy way to earn extra income, operating them is still a business. And as a business owner, you may want an extra layer of legal protection in place once you start dealing with customers — or in this case, guests.
To help you form your LLC without having to wade through all the legalese, we’ve partnered with ZenBusiness created a guide to LLC Formation for Property Owners. Get the answers to common questions like:
- What is an LLC and how does it benefit vacation rental owners?
- What are the pros and cons of forming an LLC?
- How do you maintain an LLC?
ZenBusiness will show you how to simplify the LLC formation process, so you can get the coverage you need quickly and easily.
What is an LLC and how could it benefit vacation rental owners?
An LLC is a business classification that legally separates an individual’s personal assets from their business debts and other liabilities. In other words, LLC status could help create a protective barrier around your personal assets if a lawsuit is ever filed against you and your LLC. Since vacation rental owners are always responsible for what happens on their property, an LLC can help safeguard owners from guest claims of injury, theft, or other damages.
Doesn’t homeowners insurance cover possible damages?
Although homeowners insurance may cover some damages and claims, it may not cover all costs in certain scenarios. In fact, in the event your homeowners insurance can’t cover all costs, your personal assets could become fair game for damages.The good news is that an LLC could helps lower or limit your liability, just like the name says. Plus, it could be a lot less expensive to form an LLC than it is to pay the price of not having one at all.
Besides liability protection, what are other possible benefits of forming an LLC?
Besides helping shield and separate your personal assets from your business assets, an LLC could also streamline bookkeeping and even give your short-term rental business more flexibility and profitability. Here’s how:
1. An LLC could increase your tax write-offs
While it’s recommended by many to work with a financial adviser or tax professional to work out the specifics, operating under an LLC typically lets you claim expenses like business loans, legal or bookkeeping fees, transaction fees from payment processors, and license fees when you file your taxes.
Some other great tax benefits of forming an LLC?
- In general, forming an LLC only requires owners to report company revenue as personal income. This means you could avoid getting taxed twice (unless you elect to be taxed as a C corporation, where you will have to pay both personal income taxes and taxes as a business owner or employee).
- Another great thing about LLCs is you could choose how you want your LLC to be taxed — so you can pick the option that will most benefit your vacation rental business.
For more information about S corps, C corps, and taxes, be sure to reach out to your tax professional.
2. LLCs could create clear boundaries in business partnerships
If you’re sharing a rental property with family or friends, an LLC could let two or more parties enter into a clear, low-risk agreement in a way that protects everyone involved. Plus, an LLC’s operating agreement should clearly outline how your business is run. This means you could have documentation of how profits are divided, or even what happens when a member leaves the rental property ownership agreement, which can help prevent major disagreements down the line.
3. Forming an LLC could make it easier to track revenue and expenses
"Need home repairs? Want to bring in a property manager? As an LLC, it could be much easier to cut checks straight from the bank when you need them. This is because you would have to maintain a separate bank account for all financial matters related to your LLC.
As a bonus, separating your personal and business assets could let you see exactly how much revenue is flowing in and out of your business for more informed financial decisions.
Plus, having your assets already separated could make it a lot easier to do your taxes when everything is clearly delineated.
LLCs may also have easier access to certain types of loans, like SBA Loans, Unsecured Loans, or Business Lines of Credit."
4. LLCs could grant you more privacy
Along with possibly more flexibility and profitability, LLCs could also offer a certain degree of privacy with the appointment of a Registered Agent. Your LLC’s Registered Agent is the person you appoint to act as a go-between with the Secretary of State and other official government offices for all your official correspondence. Basically, the Registered Agent is expected to always be present during business hours to receive and sign for your official mail and paperwork.
Having a Registered Agent could give you and your business added privacy and could serve as extra protection for your assets. Most importantly, having a Registered Agent could help to ensure compliance with all the rules and regulations related to maintaining your LLC status with the state.
Are there any drawbacks to forming an LLC for vacation rental owners?
Although they’re minor, there may be a few drawbacks to forming an LLC, including:
Spending extra time and money maintaining your LLC
While maintaining an LLC isn’t necessarily difficult, it does take some time and money. Some states require an annual LLC fee, while others collect a fee every two years. The important thing here is to weigh the benefits against any additional time and cost LLC status may bring. Since every vacation rental business is different, they will have different needs.
Additional tax preparation to file your LLC taxes
Even though operating under an LLC makes bookkeeping easier and offers plenty of tax benefits, preparing and actually filing taxes may get too difficult to do on your own. Depending on your tax classification, you may have to file both personal and business taxes, which could add more costs to filing. ZenBusiness recommends discussing all tax matters with your financial advisor or tax professional, so you’re fully aware of how filing as an LLC will affect you.
Ready to form an LLC for your vacation rental business?
Like most legal processes, filing for an LLC can be complicated — especially if you go about it alone.
Here are a few tips to get you started:
- Consider if you need multiple LLCs: If you own multiple rental properties, you may want to consider forming an LLC for each specific location. Work with a tax professional who can help you see if the benefits would outweigh the costs. A formation service like ZenBusiness, lets you do everything online. They file and send all your important business documents to the state for an affordable price — instead of having to deal with an attorney and high fees.
- Take deadlines seriously: Complying with each state’s requirements can be confusing. To make it worse, missing deadlines can take you out of compliant standing with that state. When you form your LLC with ZenBusiness, you will automatically get alerts when important deadlines are coming up. You'll also get help with filing important documents like your annual report to keep your records current.
Want help getting started?
ZenBusiness offers a fast, simple, and affordable five-step formation process that streamlines your LLC formation so you don’t have to pay for an attorney or spend time trying to figure out how to file your LLC on your own. ZenBusiness files, delivers, and maintains all of your LLC documentation so you can focus on providing excellent guest experiences that will grow your vacation rental business.
To see how you can easily form your LLC with ZenBusiness, check out the link below. Plus, you'll be able to grab a special discount.
