District of Columbia LLC Taxes

Note: Our tax lesson is not as step-by-step as our other forming an LLC in the District of Columbia lessons, due to the uniqueness and variation among businesses. Taxes are not as straightforward as forming an LLC and things vary widely. Therefore, the information below is an overview, and not a comprehensive guide. Furthermore, there are likely additional forms and schedules you need to file. The information below covers the basics. Thank you for your understanding.

We recommend speaking with a few accountants in the District of Columbia to make sure you meet all your federal and District tax obligations. For tips on finding an accountant for your LLC, please see our how to find an accountant guide.

Tax Registration with the Office of Tax & Revenue

Before reading this lesson, make sure you have read our prior lesson: District of Columbia LLC Tax Registration. You should have already registered your LLC with the DC Office of Tax & Revenue (OTR) by filing FR-500.

Additionally, you should have received your Notice of Business Tax Registration in the mail, with your LLC’s Notice Number in the upper-right hand corner. You should have used your Notice Number when you applied for your Basic Business License.

Your LLC’s Notice of Business Tax Registration letter will also explain your tax obligations in DC and when they are due.

Federal Taxes for your District of Columbia LLC

By default, the IRS taxes the LLC based on the number of LLC Members (owners).

A District of Columbia LLC with 1 Member is taxed as a Disregarded Entity by the IRS:

• If the LLC owner is an individual, the LLC is taxed like a Sole Proprietorship
• If the LLC owner is another company, the LLC is taxed like a branch/division of the parent company

In LLC/Sole Proprietorship taxation, the LLC doesn’t file its own federal return, but rather, the LLC owner reports and pays the taxes on their personal income tax return (Form 1040). The profits and losses from the business will likely be reported on a Schedule C. You may also need to include additional Schedules and Forms, depending on how you earn income.

A District of Columbia LLC with 2 or more Members is taxed like a Partnership by the IRS.

In LLC/Partnership taxation, the LLC is a tax-reporting entity and has to file its own federal informational return (Form 1065) and issue K-1s to each Member (reporting their share of the profits). The K-1 is then attached to the owner’s personal income tax return (Form 1040).

The above types of taxation are referred to as the “default” tax classifications. You don’t have to do anything to “get them”. When you apply for your EIN, you tell the IRS how many LLC Members there are and that’s how they know what type of tax return to expect.

Besides the “default” tax classifications, you can request that the IRS tax your LLC like a Corporation instead.

There are two types of corporate taxation available for LLCs:

• LLC taxed as a C-Corp
• LLC taxed as an S-Corp

In LLC/C-Corp taxation, the LLC is treated like a C-Corporation for federal tax purposes. This is not a very common election though, because an LLC/C-Corp faces double taxation. This election usually only makes sense for large companies that are looking to raise money, go public, or have large healthcare expenses. You can find more information here: LLC taxed as a C-Corp.

In LLC/S-Corp taxation, the LLC is treated like an S-Corporation for federal tax purposes. This is a more popular election for saving money on self-employment taxes. It usually makes sense once the LLC’s net income is around $70,000 per year. This is usually not a good idea for businesses that are just starting out and haven’t generated a lot of profit yet. You can find more information here: LLC taxed as an S-Corp.

LLC/S-Corps in DC:
Unlike most states where they recognize an LLC’s federal election to be taxed as an S-Corporation, the District of Columbia does not. Instead, for DC tax purposes, an S-Corporation is treated like a C-Corporation and must meet all the C-Corporation filing requirements in the District. You’ll still be able to file taxes federally as an S-Corporation, however on the DC-level, an S-Corporation is effectively double-taxed.

Unincorporated Business Franchise Tax (Form D-30)

Applicable to:

• LLC taxed as a Sole Proprietorship
• LLC taxed as a Partnership

In DC, an “Unincorporated Business” means a business entity that is not a Corporation. More specifically, it means an LLC that is not taxed as a C-Corporation or an S-Corporation.

Therefore LLCs taxed as Sole Proprietorships (Single-Member LLCs) and LLCs taxed as Partnerships (Multi-Member LLCs) are considered “Unincorporated Businesses” in the District.

And while most other states don’t impose an income tax on the LLC directly (the income tax is imposed on the LLC owners), the District of Columbia is different. They impose a tax on your LLC’s net income.

Currently, the tax rate is 8.25% of the LLC’s net income

Looking at this from another perspective, while LLCs taxed as Sole Proprietorships and LLCs taxed as Partnerships are “pass-through” entities at the federal level, they are not “pass-through” entities at the DC level.

Deductible from net income:

You can reduce your LLC’s net income (to arrive at taxable income) via:

• the $5,000 exemption allowed for all Unincorporated Businesses
• the 30% salary allowance for owners

Who needs to file the Unincorporated Business Franchise Tax:

If your DC LLC is:

• taxed as a Sole Proprietorship (the default tax classification for Single-Member LLCs),
• or taxed as a Partnership (the default tax classification for Multi-Member LLCs),
• and has $12,000 or more in annual gross receipts;

then you must file Form D-30 (“DC Unincorporated Business Franchise Tax”) and pay taxes on the net income with the Office of Tax & Revenue each year.

Due date:

If your LLC’s tax year runs on the calendar year (January through December), then your Form D-30 (“DC Unincorporated Business Franchise Tax”) is due by April 15th each year.

Note: Most LLCs run their tax year as the calendar year.

Download Form D-30:

1. Go to the OTR’s homepage
2. Hover over “Forms” in the main menu
3. Click “Business Tax Forms and Publications”
4. Scroll down and look for “D-30”

What does Minimum Franchise Tax mean?

This means at a bare minimum (regardless of your LLC’s net income), you owe a minimum tax based on your LLC’s gross receipts (all money received from all sources):

• If your LLC’s gross receipts are $1,000,000 or less, the minimum franchise tax your LLC will owe is $250
• If your LLC’s gross receipts are $1,000,000 or more, the minimum franchise tax your LLC will owe is $1,000

Of course, depending on your LLC’s net income, you may certainly owe more franchise tax than the minimum franchise tax. The $250 minimum franchise tax is the lowest amount that can be paid (if your LLC’s annual gross receipts are more than $12,000).

If your LLC’s annual gross receipts are less than $12,000:

• You don’t have to file a Form D-30, and
• You don’t have to pay the $250 minimum franchise tax

D-30ES: Declaration of Estimated Franchise Tax for Unincorporated Businesses

If your LLC’s total franchise tax payment for a taxable year will be more than $1,000, then you must file quarterly estimated payments (similar to how quarterly federal taxes work).

Estimated payment vouchers are called D-30ES and there are 4 of them, one for each quarter.

Your accountant may provide you with the estimated payment vouchers, or you can download them from the OTR’s website:

1. Go to the OTR’s homepage
2. Hover over “Forms” in the main menu
3. Click “Business Tax Forms and Publications”
4. Scroll down and look for “D-30ES”

Quarterly DC estimated payments are due:

• Voucher 1: April 15th
• Voucher 2: June 15th
• Voucher 3: September 15th
• Voucher 4: December 15th

Note: If the 15th day falls on a weekend, then the payment voucher is due the following business day.

Penalty: If your estimated tax is underestimated or underpaid, you will be charged an “underpayment penalty”. This penalty is 10% per year, compounded daily.

LLC taxed as a Partnership with less than $12,000 in annual gross receipts (D-65)

If your LLC is taxed as a Partnership (Multi-Member LLC) and your annual gross receipts are less than $12,000, you don’t have to file a Form D-30 (and you don’t have to pay a minimum franchise tax). However, you still must file an “informational return” called Form D-65. There is more information about Form D-65 further below on this page.

Note: This doesn’t apply to LLCs taxed as Sole Proprietorships.

Corporate Franchise Tax (Form D-20)

Also known as: Corporation Franchise Tax Return

Applicable to:

• LLC taxed as C-Corporation (“LLC/C-Corp”)
• LLC taxed as S-Corporation (“LLC/S-Corp”)

In DC, both LLC/C-Corps and LLC/S-Corps must pay a tax on their net income. This tax is called the “Corporation Franchise Tax”.

This tax return (and the franchise tax payment) must be filed and paid by all LLC/C-Corps and LLC/S-Corps, regardless of their gross receipts, net income, or activity levels.

Currently, the tax rate is 8.25% of net income.

S-Corporations in DC:

• Unlike most states that recognize an LLC’s federal election to be taxed as an S-Corporation, DC does not. Instead, for DC tax purposes, an S-Corporation is treated as a C-Corporation and must meet all C-Corporation filing requirements in the District.
• Although an S-Corporation may not have Schedules attached to its federal tax return (1120S), the S-Corporation still must complete the Schedules on the D-20.

Due date:

If your LLC’s tax year runs on the calendar year (January through December), then your Form D-20 (“DC Corporation Franchise Tax Return”) is due by April 15th each year.

If your LLC’s tax year runs on a different fiscal year, then your D-20 is due the 15th day of the 4th month after your LLC’s tax year closes.

Download Form D-20:

1. Go to the OTR’s homepage
2. Hover over “Forms” in the main menu
3. Click “Business Tax Forms and Publications”
4. Scroll down and look for “D-20”

Attach your federal return: Attach your 1120 (LLC/C-Corps) or 1120S (LLC/S-Corps) federal income tax return to your Form D-20.

What does Minimum Franchise Tax mean?

This means at a bare minimum (regardless of your LLC’s net income), you owe a minimum tax based on your LLC’s gross receipts (all money received from all sources):

• If your LLC’s gross receipts are $1,000,000 or less, the minimum franchise tax your LLC will owe is $250
• If your LLC’s gross receipts are $1,000,000 or more, the minimum franchise tax your LLC will owe is $1,000

Of course, depending on your LLC’s net income, you may certainly owe more franchise tax than the minimum franchise tax. The $250 minimum franchise tax is the lowest amount that can be paid.

D-20ES: Declaration of Estimated Franchise Tax for Corporations

If your LLC/C-Corp’s or LLC/S-Corp’s total franchise tax payment for a taxable year will exceed $1,000, then you must file quarterly estimated payments (similar to how quarterly federal taxes work).

Estimated payment vouchers are called D-20ES and there are 4 of them, one for each quarter.

Your accountant may provide you with the estimated payment vouchers, or you can download them from the OTR’s website:

1. Go to the OTR’s homepage
2. Hover over “Forms” in the main menu
3. Click “Business Tax Forms and Publications”
4. Scroll down and look for “D-20ES”

Quarterly DC estimated payments are due:

• Voucher 1: April 15th
• Voucher 2: June 15th
• Voucher 3: September 15th
• Voucher 4: December 15th

The above due dates are for LLCs that have their tax year as the calendar year. If you run a different fiscal year, then Voucher 1 is due the 15th day of the 4th month of your taxable year, Voucher 2 is due the 15th day of the 6th month of your taxable year, Voucher 3 is due the 15th day of the 9th month of your taxable year, and Voucher 4 is due the 15th day of the 12th month of your taxable year.

Note: If the 15th day falls on a weekend, then the payment voucher is due the following business day.

Penalty: If your estimated tax is underestimated or underpaid, you will be charged an “underpayment penalty”. This penalty is 10% per year, compounded daily.

Partnership Return of Income (D-65)

If you have an LLC taxed as a Partnership and your annual gross receipts are $12,000 or more, you must file the D-30 as mentioned above.

However, if your annual gross receipts were less than $12,000, then you don’t have to file D-30 (or pay a franchise tax), but you do have to file an informational return, called the D-65 (“Partnership Return of Income”).

In order to download Form D-65:

1. Go to the OTR’s homepage
2. Hover over “Forms” in the main menu
3. Click “Business Tax Forms and Publications”
4. Scroll down and look for “D-65”

Due date:

If your LLC’s tax year runs on the calendar year (January through December), then your Form D-65 (“DC Partnership Return of Income”) is due by April 15th each year.

Individual Income Tax (D-40EZ and D-40)

Form D-40EZ and Form D-40 are the District equivalent of your federal income tax return (Form 1040).

It must be filed every year (due by April 15th) and must be filed by:

1. All DC residents
2. Non-DC residents who maintained a place of residence in DC for a total of 183 days or more (in a taxable year)
3. You’re in the US armed forces, but your legal residence is in DC

It doesn’t matter how your LLC is taxed since the D-40EZ/D-40 is a personal tax. Said another way, all LLC owners in DC must file a D-40EZ or a D-40.

Individual Tax Rates (4% – 9%)

• See DC Fiduciary and Individual Tax Rates for current updates

In order to download Form D-40EZ or Form D-40:

1. Go to the OTR’s homepage
2. Hover over “Forms” in the main menu
3. Click “Individual Income Tax Forms”
4. Click the appropriate tax year
5. Click on “D-40 and D40-EZ”

Who can use Form D-40EZ?

You can use this simpler version of the D-40 (the D-40EZ) if you meet all of the following:

• You don’t claim any dependents
• Your filing status is single, married/registered domestic partners filing jointly, or a dependent claimed by someone else
• You don’t claim an exemption for being 65 years or older
• You don’t claim an exemption for being legally blind
• You don’t claim “Injured Spouse Protection”
• You didn’t make any estimated income tax payments
• You don’t itemize deductions
• You don’t have federal adjustments to income
• You do not file DC Schedules S, H, U, I or N
• You were a DC resident from January 1st through December 31st
• You don’t claim a deduction for a payment to the DC college savings plan
• Your taxable income is $100,000 or less, consisting only of wages, salaries and tips; taxable scholarships or fellowship grants; unemployment compensation; and/or interest and dividends ($1,500 maximum)

D-40 Individual Tax Return:

You must use the regular Form D-40 if you don’t meet all the above requirements to using Form D-40EZ.

Combined Reporting

If you’re involved in a “Unitary Business” with one or more people (called a “Unitary Group”) who are related by common ownership, you must determine and report your tax liability based on the activities of the Unitary Group as a whole.

A “Unitary Business” is defined in Section 47-1801.04 (#55):

“A single economic enterprise that is made up either of separate parts of a single business entity or of a commonly controlled group of business entities that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts.”

Note: Combined Reporting requirements apply to both Incorporated Businesses and Unincorporated Businesses in the District. Said another way, if applicable, Combined Reporting applies to all Washington DC LLCs.

For more information, please see the OTR’s page about Combined Reporting for Business Entities.

DC Personal Property Tax (FP-31)

Applicable to: All LLCs in the District

All DC LLCs must file a Personal Property Tax Return (FP-31), however, you’ll only pay tax on your personal property (FR-31P) if the value of your LLC’s personal property is greater than $225,000.

This tax must be paid online per this 2018 press release.

$5,000 or more in taxes owed

If you/your LLC owes more than $5,000 in District taxes, you cannot pay them by mail.

Your taxes must be paid online at MyTaxDC.

Sales Tax

Registration: If applicable, your LLC will already be registered for sales tax if you filed FR-500. If you haven’t registered your LLC with the Office of Tax & Revenue, please see our prior lesson: District of Columbia LLC Tax Registration.

If your Washington DC LLC sells tangible and retail goods, you’re required to collect sales tax from your buyers. Sales tax must be collected for brick-and-mortar stores in DC as well as online sellers who ship to buyers in DC.

Services: Note, some services are also liable for sales tax. For more information, please see Taxable and Non-Taxable Services.

Form: FR-800

File online: MyTaxDC

Online filing instructions: DC Office of Tax and Revenue: General information for businesses, Sales and Use taxes

Need help with sales tax? You can automate your Washington DC sales tax filings with TaxJar. TaxJar helps online sellers as well as brick-and-mortar businesses in Washington DC. TaxJar also has helpful guides on state sales tax: Sales Tax Guide for Businesses.

Payroll Taxes

If your District of Columbia LLC will have employees, you must submit payroll taxes. Payroll taxes are essentially a collection of taxes and filings, including:

• Federal income tax withholding
• DC income tax withholding
• Social Security tax
• Medicare tax
• Federal unemployment taxes (FUTA)
• DC unemployment taxes
• DC deductions
• Employee deductions

As an employer in DC, you need to set up payroll, withhold payroll taxes from employees’ paychecks, and then submit those filings and taxes to various DC and government agencies.

Need help with payroll? We recommend using Gusto Payroll to automate your payroll filings.

Unemployment Insurance Tax

Registration: If applicable, your LLC will already be registered for Unemployment Insurance Tax if you filed FR-500 and registered with the Office of Tax & Revenue. If you haven’t registered your LLC yet, please see our prior lesson: District of Columbia LLC Tax Registration.

Department: Department of Employment Services (DOES)

Unemployment insurance:
Unemployment insurance is paid to the federal government and to the District of Columbia by both employers and employees. If an employee loses their job (not through their own fault), they are eligible for unemployment benefits and the District will provide financial assistance while they look for a new job. Unemployment insurance also supports the local economy and stabilizes the DC workforce.

Unemployment taxes:
As an employer, you must pay unemployment taxes on your employees’ wages.

Need help? If you hire a payroll company, like Gusto Payroll, they’ll take care of your unemployment tax returns.

Other Taxes

Remember, the information above doesn’t cover all types of taxes in Washington DC. You and/or your LLC may be responsible for other taxes and we recommend working with an accountant.

Working with an accountant

As you can see, figuring out the types of taxes you owe can be complicated, let alone how to properly fill out all the forms. Doing taxes improperly or missing deadlines can be harmful and costly to your business.

We strongly recommend working with an experienced accountant in DC to help make sure you file both your federal and District taxes correctly.

Check out our how to find an accountant article. You can also find accountants using Thumbtack.

Managing your books & staying organized

You can keep track of income and expenses using Microsoft Excel or Google Sheets, or you can use software to help automate things and save time.

The most popular accounting software is QuickBooks Online.

DC Office of Tax & Revenue

If you have any questions, you can contact the DC Office of Tax & Revenue at 202-727-4829. Their hours are Monday through Friday, from 8:15 am to 5:30 pm.

Matt Horwitz

Founder & Educator, LLC University®

Matt Horwitz has been the leading expert on LLC education for the past decade. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC that other companies weren't offering. He's cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.
 
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.