Washington D.C. LLC Taxes

How Is an LLC Taxed in Washington D.C.?

Taxation in Washington D.C. 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 to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take. 
• 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 D.C. to help you ensure your LLC navigates them effectively.

Washington D.C. Taxes

Instead of statewide taxes, businesses based in Washington D.C. are only required to pay taxes at the local level. In the sections below, we’ve explored the local taxes you’ll need to pay as an LLC in DC in more detail.

Personal Income Tax

Washington D.C. has a gradual individual income tax, with rates ranging from 4% to 10.75%, depending on the taxable income. 

By default, LLCs are treated as pass-through entities, which means that your LLC itself does not pay income tax, but the members pay tax on their share of the LLC income.

Note: To find out what taxes you need to pay, see the graduated income tax rates and brackets provided by the OTR. 

Corporate Franchise Tax

If your LLC has elected to be taxed as a C Corp, it will need to pay corporate franchise tax on the total income it earns from business activity or other sources within DC. This tax is levied at a flat rate of 8.25% for all C Corps with the following fees:

• A minimum tax of $250 if gross receipts are $1 million or less or 
• A $1,000 tax if gross receipts exceed $1 million

Alongside paying these taxes, your LLC is also required to file Form D-20 with the District of Columbia Office of Tax and Revenue (OTR).

Note: To find out more about the District of Columbia’s corporate franchise tax rates, you can check out the DC Business Franchise Tax Rates page on the OTR website.

Unincorporated Business Franchise Tax

Washington D.C.’s unincorporated business franchise tax applies to businesses that are not taxed as a corporation, such as partnership, sole proprietorships, and joint ventures. 

Only LLCs that are classified as pass-through entities for federal income tax purposes have to pay this tax — this means that the LLC’s members have to report and pay this tax on their portion of the LLC’s income. This tax is imposed at a flat rate of 8.25% on all unincorporated businesses alongside the following rules:

• A $250 minimum is imposed on business with gross DC receipts of $1 million or less; or 
• A $1,000 tax for businesses with gross receipts that exceed $1 million.

While the figures may be similar to the corporate income tax, these two taxes are different in terms of who they apply to and how they are calculated. For example, unincorporated businesses can benefit from certain deductions and exemptions, such as a 30% salary allowance for owners and a $5,000 exemption. 

Note: In order to submit your tax returns for unincorporated business franchise tax, your LLC will need to file Form D-30 with the OTR. 

Sales and Use Tax

In Washington D.C., any business that sells, leases or rents taxable goods or services must register with the OTR and collect and remit sales tax to the OTR. This includes businesses that are located in Washington D.C., as well as those that are located outside the state but have a physical presence or business connection in the District, such as having employees, inventory, property, or agents. 

If your LLC engages in taxable transactions in Washington D.C., you are still subject to sales and use taxes and must register, collect, and remit sales tax to the OTR. 

The sales and use tax rate in Washington D.C. is 6% for most goods and services, though there are some exceptions and special rates for certain items and transactions:

• 10.25% for alcoholic beverages sold for off-premises consumption
• 10% for restaurant meals, liquor and soft drinks for consumption on the premises, and rental vehicles
• 14.95% for hotels (transient accommodations)
• 18% for parking motor vehicles in commercial lots
• 8% for sales and use tax on soft drinks
• 5.75% for tickets to legitimate theaters and entertainment venues

Some items are also exempt from sales and use taxes in Washington D.C., such as groceries, prescription drugs, non-prescription drugs, newspapers, magazines, and textbooks.

If you want to learn more about the sales and use tax rates in Washington D.C., you can visit the Office of the Chief Financial Officer website, which is the official source of tax information and guidance for the District of Columbia.

Note: If your business sells taxable goods or services, you must also register for a Basic Business License with the Business Licensing Division. You may have to get more than one license to do business in Washington D.C., depending on your type of business. 

Property Taxes

Washington D.C. requires property taxes from businesses that own or lease real property in the state. Real property is land and anything permanently attached to it, such as buildings, structures, fixtures, and improvements.

The assessed value is determined by the OTR based on the market value of the property and the property tax rate, which in Washington D.C. is currently $0.85 per $100 of assessed value for commercial properties.

If your LLC owes any property tax, it will need to register its property with the OTR and file a tax return twice a year, on March 31 and September 15.

Note: You can find your tax bill online by using the Real Property Tax Database Search or the MyTax DC portal. 

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 D.C.

Below, we’ve outlined the general process an LLC in Washington D.C. 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.
• Local Tax Returns: Since Washington D.C. does not have its own state tax system, LLCs that operate or earn income in the District must register, file, and pay all applicable local taxes to the OTR via the MyTax.DC.gov portal.

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 D.C. 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 D.C. LLC Biennial Report

LLCs are required to file a biennial report every two years with the District of Columbia Department of Licensing and Consumer Protection (DLCP) in order to remain in compliance in this jurisdiction. This report keeps your LLC’s information (e.g., address, registered agent, member names, etc.) up to date with the District.

The biennial report fee is $300 and is due by April 1 of every odd-numbered year. As an example, if your LLC was formed in 2023, your biennial report would be due by April 1, 2025. 

Pay attention to these deadlines, as failing to file your biennial report on time can lead to your LLC being charged a $100 late fee. If you continue to ignore this requirement, your LLC may be administratively dissolved by the DLCP, which means your LLC will lose its legal status and protection.

Note: You can file your biennial report online through the CorpOnline website.

Licensure and Tax Requirements

In Washington D.C., 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:

• Basic Business License: To conduct business in the District, you need to apply for a Basic Business License (BBL) with the endorsement category that matches your business activity. This registration provides your business with a unique sales tax number (DC Sales Tax ID Number). 
• Professional Licenses: If your LLC plans to offer certain professional services in Washington D.C., such as accounting, engineering, law, medicine, or real estate, you may need to obtain a professional license from the DLCP, which oversees more than 125 occupational and professional boards. 
• Environmental Permits: If your LLC engages in activities that may affect the environment in Washington D.C., you may need to obtain an environmental permit from the Department of Energy and Environment (DOEE). You can find out if your activity requires a permit and how to apply for one by visiting the Environmental Applications, Licenses, and Permits website.

Note: In Washington D.C., taxpayers are required to obtain a Certificate of Clean Hands online at MyTax.DC.gov. This certificate shows you have paid all your taxes and fees to the District. If you owe more than $100 to the District or have not filed your tax returns, you cannot get any city services like licenses, permits, grants, or contracts.