What business structure should I use for Airbnb? LLC, S-Corp, or sole prop?

Category: Getting Started

By: Nolan Peters

Posted: 2026-02-19T08:41:43.274Z

Been hosting for about a year as a sole proprietor (just reporting on Schedule E). My CPA suggested I look into forming an LLC or S-Corp now that I'm making decent money (~$65K gross, ~$38K net from 2 properties). What business structure do most STR hosts use? At what point does an LLC or S-Corp make sense? What are the actual benefits vs the cost and paperwork?

Reply by David Okafor:

Great question and the answer depends on your revenue, number of properties, and risk tolerance. Here's the breakdown: **Sole Proprietor (Schedule E):** - Simplest structure, no setup cost - STR income reported on Schedule E (rental income) - No liability protection — your personal assets are exposed - Fine for: 1 property, low risk tolerance concerns - Self-employment tax: NOT typically assessed on rental income (Schedule E) **Single-Member LLC:** - Treated as "disregarded entity" by IRS (same tax treatment as sole prop) - BUT provides **liability protection** — separates business assets from personal - Setup cost: $50-500 depending on state - Annual cost: $0-800/year (state filing fees, registered agent) - Recommended for: most hosts with 1-3 properties - **Each property in a separate LLC** is the gold standard for liability protection **Series LLC (available in some states):** - One "parent" LLC with multiple "series" (each acting as separate entity) - One filing fee, multiple protected units - Available in: TX, IL, DE, NV, and others - Great for scaling — add a new series for each property instead of a new LLC **S-Corp:** - Best when you have significant NET income ($50K+) and are materially participating - Can save 15.3% self-employment tax on distributions above "reasonable salary" - BUT — STR income on Schedule E usually isn't subject to SE tax anyway - S-Corp adds complexity: payroll, additional tax filings, etc. - Usually only makes sense if you're also providing property management services (Schedule C income) - **Most pure STR hosts don't need S-Corp** **For your situation ($65K gross, 2 properties):** I'd recommend 2 single-member LLCs (one per property) for liability protection. Keep reporting on Schedule E. S-Corp adds complexity you don't need yet. Get an EIN for each LLC, open separate bank accounts, and keep financial records clean. This protects your personal assets if a guest sues.

Reply by Heather Barnes:

One big thing people miss about LLCs: **you need a separate bank account and credit card for each LLC.** If you mix personal and business funds (called "piercing the corporate veil"), a court can ignore the LLC protection entirely. Also, many states have annoying annual fees: - California: $800/year franchise tax per LLC (ouch) - New York: $25/year + biennial filing - Texas: no franchise tax under ~$2.47M revenue - Wyoming/Delaware: cheap filing but may need registered agent in your state too For 2 properties in California, you'd pay $1,600/year JUST in LLC maintenance. Some hosts decide the liability protection isn't worth it and instead get a large umbrella insurance policy ($1-2M coverage for ~$200-400/year). Talk to your CPA about the cost-benefit for your state.