Set up LLC or not?

[Mark5530]

Hi. We are new to airbnb and have just made our listing live. This is our only home and we will rent it out periodically to help finance our own travels. In our case it's only viable to rent for 30 days minimum. We will rent for anywhere from 1 to 3 months at a time, maybe longer duration in the future. When not traveling we will live in the home as always.

I understand what's involved in setting up an LLC and have previously set up a Sub S corp for my self employed business as a one person illustrator.

I have been reading on this forum and elsewhere to try and self educate regarding if it makes sense for us to set up an LLC for our airbnb rental. 

Please correct me if I am wrong. My current understanding is:

1. An LLC will separate personal assets from the LLC assets.
2. If the LLC incurs debt or other obligations, the assets of the LLC can be taken, but personal assets outside of the LLC are not at risk.
3. An LLC does not provide any liability or risk coverage for things like tenant injury or other physical damage or harm.

Regarding income taxes.

1. An LLC requires that a separate bank account be established and all rental income goes into the separate bank account.
2. Setting up an LLC allows a direct pass thru of the income to ones personal tax return and a separate tax return is not required.
3. When transferring the money from the LLC to ones personal account are payroll tax withholdings or W2 or 1099 forms required?
4. If not operating as an LLC I'm assuming there is a form or etc I would include in my personal tax return whereby I would report the income and deduct the expenses incurred against the income received

My current inclination is to not set up an LLC but to just claim the rental income on my tax return.  Not worth the hassles of setting it up, maintaining another bank account, more complicated tax reporting, etc. I cannot imagine a possibility where the LLC would incur some debt or financial obligation that would put our personal assets at risk.

I have a basic homeowners insurance policy and a $3M umbrella policy that I believe/hope covers us for physical harm types of liability.

Here is a link to our listing if you care to see it.

https://www.airbnb.com/rooms/1149299401380487377?adults=2&search_mode=regular_search&check_in=2024-0...

Thanks in advance for any comments or advice!

[Bhumika]

Hi @Mark5530 , Such great questions!

Although I'm not quite sure of the resources that could be helpful here , I am inviting a few Hosts who engaged in similar discussions related to setting up an LLC, if they could kindly provide us some guidance and help with your questions : @Anuj88 @Jeff2866 @Jeremy908 @Kelli405 @Lorna170 . Thank you for sharing your guidance in advance 🌻

[Mark5530]

@Bhumika , Thank you so much for your kind assistance!

[Bhumika]

@Mark5530 , have you found any supporting information in the meantime since you posted? 

[Mark5530]

@Bhumika , No I have not found any info that specifically answers these questions. Including doing internet searches.

[Bhumika]

I see @Mark5530 , hope other Hosts who have some experience with the LLC process can chime in to help us here 🌻

[Mark5530]

@Bhumika , Thanks again. I asked my CPA, who I like and is good, but the mention of liability seemed to be all she could understand and the answer was, “talk  to a lawyer”. She did not comment on the tax part of the question(s). 

I asked my insurance agent  if my homeowners policy plus umbrella policy covered me for the physical and damage type liability.  His first response was a knee jerk no, you need landlord insurance and it’s going to be real expensive like $1K per year more than you have now. (what is it with these guys?) He said he would put something together and get back to me in a day or two. It’s been a week and a half and no follow up yet.

[Mark5530]

sorry, for some reason I could not get the BOLD to turn off on the above reply.