Washington State LLC Taxes

After you start a Washington LLC, there are two main types of ongoing filings. The first is the Annual Report with the state, 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 Washington LLC tax filing requirements.

What taxes does a Limited Liability Company pay in Washington?

Each LLC has a different tax situation, so the taxes paid for a Washington 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 Washington?

By default, a Washington LLC is taxed by the Internal Revenue Service (IRS) based on the number of Members the LLC has. There is no state-level income tax in Washington State.

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.

Federal Income Taxes

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

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

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

In community property states like Washington, 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.

On your EIN Application, you can choose to have your husband and wife Washington LLC taxed as a Qualified Joint Venture. If you already have an EIN for your LLC, you can send a letter to the IRS requesting that your LLC be taxed as a Qualified Joint Venture.

Otherwise, a husband and wife Washington LLC will be taxed in the default status as a Partnership.

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.

Washington State Income Tax for Washington LLCs

Good news! Washington doesn’t have state-level income tax. This means you don’t have to file a state-level income tax return for your Washington LLC income if you have a Single-Member or Multi-Member LLC.

That said, there are other types of Washington business tax that apply to certain industries and types of businesses.

Business & Occupation Tax

Although Washington State doesn’t have an individual or corporate income tax, all businesses must pay the Business & Occupation (B&O) Tax.

The B&O Tax is a gross receipts tax, which means the amount you owe for this tax is based on the gross income of your Washington LLC.

Said another way, you have to pay B&O tax on all of the money that your LLC earned that year without considering deductions (like manufacturing costs or overhead expenses).

For example: Let’s say your LLC-operated store sells a baseball bat that costs $20 to manufacture to a customer for $50. After the sale, your LLC can be said to have earned a gross income of $50. If you deduct the $20 manufacturing cost, then your LLC will have earned a net income of $30.

Your LLC’s B&O Tax rate will be based on the Washington Department of Revenue’s business classification (and will be determined during your Business License Application). The Department also keeps a classification of common business activities.

And it doesn’t matter how your Washington LLC earns its income. The B&O tax is still due regardless of the type of activity used to generate income.

Where are B and O taxes reported?

Your Washington LLC’s B&O taxes are reported on the Business Excise Tax Return.

How often do I need to file B and O taxes?

Your tax filing frequency will be assigned to your LLC after you complete the Business License Application. Your LLC will be assigned a monthly, quarterly, or annual filing frequency.

We recommend getting help from your accountant to make sure you properly pay and file your LLC’s B&O Tax in Washington.

You can also contact the Washington Department of Revenue for more information about Washington state taxes.

You may also owe B&O taxes to your local municipality.

For local B&O tax information, you can read this article from the Washington Department of Revenue: License and Tax Information for Cities and Towns.

Local Income Tax for Washington 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.

Washington Sales Tax

If you sell products to consumers in Washington, you may need to collect sales tax and get a Seller’s Permit. You can get a Seller’s Permit from the Washington Department of Revenue (DOR).

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 read more information about Washington sales tax from these Washington DOR resources:

• Retail Sales Tax
• Local Sales & Use Tax
• Services Subject to Sales Tax
• Use Tax

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

And if you have any questions about whether you need a Seller’s Permit, you can contact the Washington Department of Revenue at 360-705-6705.

Washington LLC Payroll Taxes

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

• Federal income tax withholding
• Social Security tax
• Medicare tax
• Federal unemployment taxes (FUTA)
• State unemployment taxes (SUTA)
• Local/county deductions
• Employee deductions

As an employer in Washington, you need to set up payroll, withhold federal payroll taxes from employees’ paychecks, and then submit those filings and taxes to various state and 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 Washington 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 Washington to help make sure you file your federal, state, and local taxes correctly.

Check out our list of accountant recommendations in all 50 states. We recommend phoning a few to see which one you feel most comfortable with, and who understands your business fully.

Washington Department of Revenue Contact Information

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

You can contact the Washington Department of Revenue at 360-705-6705 for more information about Washington state taxes. Their hours are 8am -5pm, Monday through Friday.

Washington LLC Taxes FAQs

Matt Horwitz

Founder & Educator, LLC University®

Matt Horwitz is the leading expert on LLC education, and has been teaching for 15 years. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC. 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.