District of Columbia LLC Taxes

After you start a District of Columbia LLC, there are two main types of ongoing filings. The first is the Biennial Report with the DC Department of Licensing and Consumer Protection, and the other is taxes.

Paying taxes is an important part of running a business, but figuring out which taxes you need to pay can be a pain.

This lesson will provide you with general resources and the basics of District of Columbia LLC tax filing requirements.

What taxes does a Limited Liability Company pay in DC?

Each LLC has a different tax situation, so the taxes paid for a District of Columbia LLC varies.

The amount of taxes owed for your LLC depends on rules like:

• how your LLC is taxed
• state and local tax rules
• any sales and use tax requirements, or
• whether you have employees

Additionally, some business types are required to register for industry-specific taxes.

Pro Tip: We recommend hiring an accountant to ensure your LLC meets all of its tax obligations.

We also recommend getting an EIN Number for your LLC. An EIN is also called a Federal Tax Identification Number. They mean the same thing.

Not only will an EIN number be used to open an LLC bank account, but it will also be used for filing taxes with the local, state, and federal governments.

LLC pass-through taxation (Who pays the taxes?)

By default, LLCs don’t pay taxes.

Instead, the LLC Members are responsible for reporting the income (or losses) on their personal 1040 tax return. The Members pay taxes on any LLC profits. This is because of LLC pass-through taxation.

Simply put, pass-through taxation means the responsibility for reporting tax information from an LLC “passes through” the LLC to the LLC Members.

How are LLCs taxed in DC?

By default, a District of Columbia LLC is taxed by the Internal Revenue Service (IRS) based on the number of Members the LLC has. Then the DC Office of Tax and Revenue honors this and taxes your LLC the same way at the state (district) level.

An LLC with 1 owner (Single-Member LLC) is taxed like a Sole Proprietorship.

An LLC with 2 or more owners (Multi-Member LLC) is taxed like a Partnership.

The above are referred to as the “default status“. Meaning, they are automatically applied based on the number of LLC Members.

Alternatively, you have the option of requesting an “elective status” for your LLC. This is done by filing an extra form with the IRS. Once granted, this elective status means the IRS will treat your LLC as a Corporation (either an S-Corporation or C-Corporation) for tax purposes.

Note: Your District of Columbia LLC Operating Agreement should also include information about how your LLC is taxed.

Federal Income Taxes

There are several different options for how the IRS can treat your LLC for tax purposes.

Single-Member LLC taxes (default status)

The IRS treats all Single-Member LLCs as Disregarded Entities for tax purposes. This just means that the IRS doesn’t expect the LLC to file its own federal income tax return.

Instead, the owner of the Single-Member LLC files the return (and pays the federal income taxes).

How the LLC pays federal income tax is determined by who owns the LLC:

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

Multi-Member LLC taxes (default status)

If an LLC has two or more owners, the LLC is taxed like a Partnership.

The LLC needs to file a 1065 Partnership Return and issue a Schedule K-1 to the LLC owners.

The K-1s report each owner’s distributive share of profits. And the K-1 income “flows through” to the owners. The income taxes are then paid by each owner on their personal income tax return (Form 1040).

Husband and Wife LLC taxes

You may have heard that in some states, a husband and wife LLC has the option to file taxes as a Single-Member LLC (aka Qualified Joint Venture) instead of a Multi-Member LLC.

This is true for community property states (like Texas). That said, DC isn’t a community property state, which means Qualified Joint Ventures are not available in the District.

Electing to have your LLC taxed as a Corporation

Instead of the default statuses above, a Limited Liability Company (LLC) can be taxed like a Corporation.

Note: We recommend speaking with an accountant before making a corporate election.

There are two types of corporate elections:

• S-Corporation
• C-Corporation

LLC taxed as an S-Corporation (elective status)

By filing Form 2553 with the IRS, your LLC can request to be taxed like an S-Corporation.

Being taxed as an S-Corp can help businesses (with established profits) save money on self-employment taxes.

LLC taxed as an C-Corporation (elective status)

By filing Form 8832 with the IRS, your LLC can request to be taxed like a C-Corporation.

Being taxed as a C-Corp can help large employers save money on healthcare fringe benefits.

DC Income Tax for District of Columbia LLCs

Single-Member LLCs in DC: The LLC itself usually doesn’t file a state-level return. However, the owner files a personal state-level return that includes the LLC’s profits or losses.

Multi-Member LLCs in DC: The LLC itself may need to file a Partnership return at the state-level. And the owners file a personal state-level return that include the LLC’s profits or losses.

There are other types of District of Columbia business tax that apply to certain industries and types of businesses.

We recommend hiring an accountant to prepare and file your DC income taxes.

You can also contact the DC Office of Tax and Revenue for more information about DC taxes.

Local Income Tax for District of Columbia LLCs

You and/or your LLC may need to file and pay income taxes with your local municipality (town, city, county, etc.).

We recommend hiring an accountant to prepare and file your local income taxes.

You can also contact your municipality to check on their requirements.

District of Columbia Sales Tax

If you sell products to consumers in DC, you may need to collect sales tax and get a Seller’s Permit.

A Seller’s Permit is the license that allows you to collect sales tax on retail sales in the state where you do business. It’s sometimes also called a:

• resale license
• wholesale license
• sales tax permit/license
• reseller permit

They all mean the same thing and we may use these terms interchangeably.

You can get a Seller’s Permit online from the DC Office of Tax and Revenue using MyTax DC. That said, if you’ve already filed DC Form FR-500, then your LLC should already be registered for sales tax.

If you haven’t registered your LLC with the Office of Tax & Revenue, please see our prior lesson for step-by-step instructions: DC LLC Tax Registration.

You can read more information about District of Columbia sales tax from these DC Office of Tax and Revenue resources:

• General Information for Businesses – Sales and Use Taxes
• Taxable and Non-Taxable Services

For more information on permits, read DC Business Licenses and Permits.

And if you have any questions about whether you need a Seller’s Permit, you can contact the DC Office of Tax and Revenue at 202-727-4829.

DC Unincorporated Business Franchise Tax

LLCs in DC that are taxed as Sole Proprietorships or Partnerships at the federal level are required to pay the Unincorporated Business Franchise (UBF) Tax.

The UBF Tax in DC is a tax on your LLC’s gross receipts. Meaning, it’s a tax on how much money your LLC made that year.

You need to file the UBF Tax if your DC LLC:

• is taxed as a Sole Proprietorship or a Partnership, and
• has $12,000 or more in annual gross receipts

If your LLC meets these requirements, you must file Form D-30 (“DC Unincorporated Business Franchise Tax”) and pay taxes on the net income with the DC Office of Tax & Revenue each year.

How much will I pay in UBF Tax?

The amount of UBF tax your LLC will owe varies depending on your net income. That said, there is a minimum amount you will need to pay based on your LLC’s gross receipts.

This is sometimes referred to as the Minimum Franchise Tax.

What does Minimum Franchise Tax mean?

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

• If your LLC’s gross receipts are between the $12,000 threshold and $1,000,000, then 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 owed.

Remember, only LLCs with annual gross receipts of $12,000 or more are required to file Form D-30 and pay the Minimum Franchise Tax.

This means that 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

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 Forms and Publication page.

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.

DC Corporate Franchise Tax

In DC, LLCs taxed as S-Corporations or C-Corporations (LLC/C-Corps and LLC/S-Corps) must pay a tax on their net income. This tax is called the “Corporation Franchise Tax” and is filed every year using DC Form D-20.

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.

And the DC Corporate Franchise Tax Rates from the Office of Tax and Revenue may vary from year to year.

S-Corporations in DC

Unlike most states that recognize an LLC’s federal election to be taxed as an S-Corporation, DC doesn’t. 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.

Make sure you attach your 1120 (LLC/C-Corps) or 1120S (LLC/S-Corps) federal income tax return to your Form D-20.

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.

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.

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

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.

You must pay your DC Personal Property Tax paid online using MyTaxDC.

District of Columbia LLC Payroll Taxes

If your District of Columbia LLC will have employees, you must submit payroll taxes. Payroll taxes are essentially a group 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 (SUTA)
• Local/county 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 government agencies.

Although you can file payroll taxes yourself, the calculations can be burdensome and very complex. And if done improperly can lead to penalties and fines. Most people hire a payroll company or ask their accountant for help.

Our favorite payroll company is Gusto Payroll. They’ll automate and take care of your payroll taxes.

For more DC payroll tax resources, please see the references section at the bottom of this page.

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 accounting software we recommend is Quickbooks Online.

Working with an accountant

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

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

Check out our guide on how to find an accountant.

DC Office of Tax and Revenue Contact Information

There are other types of District of Columbia business tax that apply to certain industries and types of businesses.

You can contact the DC Office of Tax and Revenue at 202-727-4829 for more information about DC state taxes. Their hours are Monday through Friday, from 8:15am to 5:30pm, Eastern Time.

District of Columbia LLC Taxes FAQs

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.