Washington State LLC Tax Rate: Everything You Need to Know
The Washington state LLC tax rate is variable and depends on taxable net income.3 min read
The Washington state LLC tax rate is variable and depends on taxable net income. One advantage of an LLC when it comes to tax time is flexibility. The members of the LLC determine how the business will be classified for taxes on a federal level. An LLC can be classified as a sole proprietorship, a partnership, or a corporation.
Starting a Washington State LLC
If you are considering filing a Washington LLC, you will want to be aware of the taxation that will occur in your business. To start a Washington LLC, you must file the Washington Articles of Organization with the Washington secretary of state. A Washington LLC can be started with one or more people. The members of the LLC are not required to be listed in the Articles of Organization.
A Washington state LLC will be taxed in several different ways:
- Federal income tax
- State business tax
- State employer tax
- Sales and use tax
- Business and Occupation Tax.
Federal Income Tax
Sole proprietorships and single member LLCs are treated the same under the tax code. In this case, the individual simply reports business profits on his or her individual 1040 tax return. Just like any other self-employment business, self-employment taxes are owed on the net income of a Washington LLC.
Many LLCs that consist of multiple members decide to file as a partnership, using IRS form 1065. In this case, the profits of the business are divided among the owners per the agreement. Each individual owner then reports his or her share of the profits on his or her individual 1040 tax form.
With any Washington LLC, profits are always taxed to the owners, whether or not the profit was actually distributed. If the profits went back into the business to pay expenses, the owners are still taxed on this money regardless.
An LLC can also choose to be taxed as a corporation by filling out IRS form 8832. This may be an option for those looking to avoid pass-through taxes. If this is elected, the federal government taxes the business as a C corporation.
State Business Tax
Washington state does not have personal or corporation income tax, and it is one of the few states that does not. Because there is no income tax, most LLCs will not owe any state tax. This holds true both for LLCs that have elected to be taxed as a pass-through and LLCs that have elected to be taxed as a corporation.
State Employer Tax
State employer tax is only applicable for Washington state LLC businesses that have employees. The business will need to register to pay taxes for state unemployment insurance through Washington's Employment Security Department.
This is a simple enough tax to complete, and it can be completed online through the website of the state's Business Licensing Services or through Form BLS-700-028. This tax requires that each quarter, the business pays UI (Unemployment Insurance) taxes and report wages paid out.
Sales and Use Taxes
Sales and Use Taxes are applicable to any business that sells products in the state of Washington, and it requires the business to collect and pay sales taxes on a periodic basis.
To comply with this tax, the business will need to register online with the Department of Revenue, Business Licensing Services. You can also download a paper business license application. The tax returns will need to be filed periodically, such as quarterly or monthly.
In Washington, the current sales tax is 6.5 percent. Depending on the locale where your goods are sold, there may be extra taxes that the city, the special district, or the county adds. Washington is a designation-based state, and the sales tax is determined by the address in which the product is shipped to, not necessarily where it is sold.
Business and Occupation Tax
Business and Occupation tax is a tax applied to any business operating in Washington state to pay for the privilege of operating a business in the state. Business and Occupation tax for a business is based on the classification of the business. Example classifications are:
Thirty-nine cities in Washington have a business and organization tax on top of the state tax.
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