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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.
Tip: There are additional expenses to having your LLC taxed as an S-Corporation Most new business owners shouldn’t make this tax election until their business is established and revenue is consistent. Once there is at least $70,000 in annual net income per LLC Member, we recommend speaking to your accountant about this option.
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.
Note: This election is not common. Most of our readers don’t choose to have their LLC taxed as a C-Corporation.
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:
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.
Tip: Save time by hiring an expert. We recommend using TaxJar. They'll help you register for, collect, and pay sales tax.
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 guide on how to find an accountant.
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.
Washington LLC Taxes FAQs
Do I have to pay an annual fee for my LLC in Washington?
Yes, all Washington LLCs have to pay an annual fee by filing a Washington LLC Annual Report every year. This is separate from the federal, state, and local taxes that you pay.
The LLC Annual Report is filed with the Washington Secretary of State. It is not a tax paid to the Washington Department of Revenue.
The Annual Report for Washington LLCs costs $90 per year. This is paid every year for the life of your LLC.
How much is an LLC in Washington?
Washington LLC Costs include:
$200 to form your Washington LLC (to file your LLC Certificate of Formation).
$90 in annual fees (to file your LLC Annual Report).
Do I need to file a Washington state tax return for my LLC?
Good news! Washington State doesn’t have an individual income tax or a corporate income tax. This means you don’t have to file a Washington state tax return.
Single-Member LLC taxed as a Sole Proprietorship: No. You only need to file your personal tax return (Federal Form 1040) and include your LLC profits on the return.
Multi-Member LLC taxed as a Partnership: No. Your LLC must file an IRS Form 1065..
LLC taxed as a Corporation: No. Washington doesn’t have a state corporate income tax, either.
That said, you may owe other state taxes, including the Business and Occupation (B&O) Tax.
Check with your accountant to make sure you file all the correct documents for your LLC.
How do I know my LLC tax classification?
You can tell your LLC’s tax classification by looking at how many Members are in your LLC.
This is because LLCs receive their tax classification from the IRS based on the number of Members (owners) your LLC has.
If you have one Member, your LLC is taxed as a Sole Proprietorship.
If your LLC has more than one Member, your LLC is taxed as a Partnership.
This is called being taxed in your default status. Meaning, you don’t have to file any paperwork to let the IRS know that’s how your LLC will be taxed because they tax LLCs that way by default.
However, in order for your LLC to be taxed as a Corporation, you or your accountant would have to file paperwork with the IRS letting them know you’ve chosen to be taxed as a Corporation.
And then the IRS would mail you an Approval Letter to confirm you’ve chosen the Corporate tax election for your LLC.
Note: Being taxed as a Corporation is rare for LLCs, so most people don’t need to worry about this.
And if you’re still unsure about how your LLC is taxed, we recommend calling your accountant or the IRS (1-800-829-4933). To speak to a live person at the IRS, press option 1, option 1 again, and then option 3.
How to start an LLC in Washington?
Here are the steps for starting an LLC in Washington:
- Choose an LLC name and make sure it’s available
- Choose who will be your Washington Registered Agent
- File the Washington LLC Certificate of Formation
- Complete and sign an LLC Operating Agreement
- Get a Tax ID Number (EIN) from the IRS
- Open an LLC bank account
- Check whether you need a business or sales tax license in Washington
References
IRS: Tax Information for Businesses
Washington State DOR: Other Taxes
Washington State DOR: Income Tax
Washington State DOR: Property Tax
Washington State Employee Security Department: Unemployment Taxes
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.
Washington LLC Guide
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hi matt I’m max i start my bussines landscape llc, this year and some one just help me to grab the license and insurance&bonded , but im stuck i dont know how do the tax report and deductions, and is me (self) just working . i need grab a accounter to help with this process??
Hey Max, yeah, definitely best to work with an accountant for something like this. We’ll soon have recommendations on this page (account for my LLC). You’ll also want to make sure your insurance and bond coverage are in the name of your LLC. Hope that helps.
Hello Matt, this is super helpful. Thanks for putting this together!
If I have an LLC taxed as a sole proprietorship do I need to run payroll? What are my options? The business consistently makes six-figures.
Thank you!
Hey Jeremy, you’re very welcome man! You wouldn’t actually be able to take a “salary” (official definition) if your LLC is taxed as a Sole Proprietorship. If your net income is around $70,000 per year, it’s a good idea to begin looking into having your LLC taxed as an S-Corporation. In this setup, you’d become an employee-owner and you’d then take a salary and run payroll (and you’d save some money on self-employment taxes too). Hope that helps!