Washington State LLC Taxes

If you are forming a Washington limited liability company (LLC), it's important to consider the specific tax requirements that apply to your business. 

In this guide to Washington LLC taxes, we provide a complete overview of the tax responsibilities for LLCs in Washington State at the state, local, and federal level, as well as delineate how you can go about filing them.

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

How Is an LLC Taxed in Washington?

Taxation in Washington isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity from its owners and is not subject to personal or corporate income tax in Washington State. However, an LLC may be subject to business and occupation tax based on gross receipts.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay self-employment tax or FICA tax on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Washington to help you ensure your LLC navigates them effectively.

Washington Local Taxes

In Washington, local tax regulations vary by municipality, with several taxes in place. Below, we have listed down these local taxes that you may encounter with your LLC: 

Local Retail Sales Tax 

Washington imposes a retail sales tax on the sale of tangible personal property and certain services within the state.

If you're a business making retail sales in Washington, you'll need to collect retail sales tax and remit this tax to the Washington State Department of Revenue. On the other hand, if you're a business purchasing items for resale, you'll need to provide a reseller permit to the seller or pay the tax on the purchase.

The retail sales tax rate is made up of both state and local components. The local rate depends on where you are located, and can be up to 4.1% higher than the state rate of 6.5%. 

While most retail sales in Washington state are subject to this tax, there are some exemptions:

• Food
• Prescription Drugs
• Sales to Nonresidents
• Federal Government Sales
• Interstate and Foreign Sales
• Manufacturers’ Machinery and Equipment Exemption
• Newspapers 

Note: To find out the latest local sales and use tax rates in your area, see the Local Sales & Use Tax section of the Washington State Department of Revenue’s website.

Local Use Tax

Local use tax applies to LLCs in the same way as it applies to any other consumers or businesses in Washington – LLCs are required to pay use tax on goods or services they purchase from out-of-state vendors or individuals who do not collect Washington sales tax. 

For example, if your LLC buys office furniture from an online retailer that does not charge Washington sales tax, your LLC owes use tax on the purchase price of the furniture, including any shipping or delivery charges.

Like the local retail sales tax, the use tax is also composed of both state and local components. The local rate varies depending on the location and can add up to 4.1% to the state rate. 

Note: To determine the exact rate for your business location in Washington, you can use the Tax Rate Lookup Tool by the State Department of Revenue. 

Property Taxes

In Washington, property tax is administered by county assessors and treasurers, not by the state’s Department of Revenue. The property tax is a tax on the value of real and personal property, such as land, buildings, vehicles, machinery, equipment, and furniture.

LLCs in Washington are subject to property tax on their real and personal property unless they qualify for an exemption or deferral. 

In addition, LLCs must report their property value to the county assessor every year. LLCs must also pay their property tax to the county treasurer by April 30th for the first half and October 31st for the second half.

Note: To find the contact information for your local assessors and treasurers, visit the County Assessor and Treasurer websites.

Recommended Service: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant.

Washington State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Washington. 

Business and Occupation Tax

Washington does not impose an income tax on its residents, but it does require businesses to pay a tax on their gross receipts from business activities in the state. This is referred to as the business and occupation (B&O) tax and varies depending on the type of your business classification and activities. 

There are four main B&O tax classifications: retailing, wholesaling, manufacturing, and service and other activities. Each classification has a different tax rate and applies to different types of sales or services. 

So, if you decide to form an LLC in Washington, you will be subject to the B&O tax on your gross receipts from business activities, regardless of your federal tax status. 

In order to operate legally, LLCs must register with the Department of Revenue first. Once you are registered, you will receive information about how to apply for a business license and file the B&O tax through the My DOR system.

Furthermore, you must also report your business activities under the appropriate B&O tax classification. After identifying your business classification, you can locate the corresponding B&O tax rate. 

State Retail Sales and Use Taxes

Washington’s state retail sales and use taxes apply to the sale or use of tangible personal property, certain services, and digital products within the state. 

For example, if you manage an LLC that sells clothing online and ships to customers in Washington, you will need to collect sales tax (state and local) based on the destination of the shipment. However, if you buy clothing from an out-of-state seller who does not charge you sales tax, you will need to pay the use tax on the items you purchased. 

The state use tax rate in Washington state is the same as the state sales tax rate: 6.5%. However, like local sales tax, some transactions are exempt from this tax, such as selling food, prescription drugs, or products or services that are delivered or performed outside of Washington.

Note: To find out the sales and use tax rates for any place in Washington, use the Tax Rate Online Lookup and Tax Rate Lookup App tools.

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as separate entities from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay federal self-employment taxes on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employer Taxes

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Washington

Below, we’ve outlined the general process an LLC in Washington will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Federal Tax Identification Number or Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return.

Step 2: Find The Right Tax Forms

Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State and Local Tax Returns: The easiest way to file and pay your state and local taxes is to use My DOR, a secure website by the Department of Revenue. For property taxes, you will need to pay directly to the County Treasurer’s office where your property is located. 

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.

Keep Your Washington LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Washington LLC Annual Report

Washington requires LLCs to file an annual report to keep compliant and in good standing with the Secretary of State. The annual report contains updated information about your LLC, such as your business name, address, registered agent, and members. 

Note that you first need to file an initial report with the Secretary of State when you form your LLC. You have 120 days from the date you formed your LLC to file your initial report. If you submit the report with your Certificate of Formation, there is no filing fee. Otherwise, the fee is $10.

The filing fee for the annual report is $60 and is filed through the Corporations and Charities Filing System. The due date is the last day of your LLC’s anniversary month, which is the month when your LLC was approved by the state. For example, if your LLC was approved on March 15, 2023, your annual report is due by March 31, 2024.

Licensure and Tax Requirements

In Washington, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: If your LLC sells goods or provides certain services in Washington, you must register with the Department of Revenue and collect and remit sales tax. 
• Professional Licenses: If your LLC plans to offer professional services that require a state license, such as accounting, law, or medicine, you must form a professional limited liability company (PLLC) and obtain the necessary license from the appropriate state board or agency. 
• Environmental Permits: If your LLC engages in activities that affect air, water, or land quality, or that involve hazardous waste, you may need to obtain environmental permits from the Department of Ecology. 

Note: For a full list of the statewide licenses and permits your LLC may need, visit the Washington Department of Revenue’s Business Licensing Service page or the Department of Licensing’s Professional Licenses section.

Washington LLC Taxes FAQs