How are Washington Businesses Taxed?
If you are planning to form a startup in Washington, then one of the important annual requirements will be filing business taxes. The state does not have any corporate or personal income tax but there are several other types of small business taxes in Washington. The taxes and the business tax rate may vary depending on the type of business structure as well as the location of the company. You may need to file more than one type of business tax and therefore, it is important to use a Washington business tax calculator to determine the taxes. Let us look at the different types of entities and their tax obligations in this state.
Taxes for an LLC
If you are thinking of starting an LLC in Washington, then for taxation purposes, it will be considered a pass-through entity. This means that your LLC will not be required to file federal or Washington business tax. Instead, the income will pass through to you, the owners, and other members. Normally, in such a situation, members have to file personal income taxes, but the state doesn’t have any. Consequently, other forms of business taxes will be applicable for a limited liability company in Washington.
The most common Washington LLC tax is the business and occupation (B&O) tax. The tax rate will vary according to the tax classification, which is the type of business activity your limited liability company specializes in. Apart from this, you may also be required to file retail sales tax or use tax, other industry-specific taxes, and even personal property tax. An LLC in Washington may require its members to file self-employment tax if they are taking profits from the said limited-liability company.
Taxes for a C Corporation
If you are planning to form a Washington C corporation then the good news is that there are no corporate taxes in this state. Alternatively, your company will be subjected to business and occupation (B&O) tax. The other types of Washington Corporation taxes applicable include:
- Retail sales tax – Applicable on sales of any tangible personal property to consumers like office & stationery supplies, prepaid wireless cards, T-shirts, etc
- Use tax – It is applicable on goods purchased outside Washington and sold in the state like showroom and office supplies, equipment, mechanical and electrical parts, accessories, etc.
- Other industry-specific taxes – This is a type of excise tax administered by the Department of Revenue in specific industries or business activities like aircraft, spirits sales, and petroleum products, among others.
- Personal property tax – This small business tax in Washington will be applicable if the personal property owned by individuals is used for business including land, structures, and equipment.
Taxes for S Corporation
If you choose S Corporation tax treatment then one of the Washington benefits is that you will be exempt from self-employment taxes. An S corporation will be required to file the business and occupation (B&O) tax. Washington Corporation tax applicable for an S Corporation would include retail sales tax, use tax, excise taxes, and other industry-specific taxes.
Taxes for a Sole Proprietorship
If you form a sole proprietorship in Washington then you will need to report your profits by filing the income as individual tax returns. These taxes have to be filed with the IRS every quarter and you will need to use Form 1040-ES (estimated tax form). Apart from this, you may be required to file other small business taxes in Washington like retail sales and use tax depending on the business activity and jurisdiction of your business.
Taxes for Partnerships
If you form a partnership company in Washington then the applicable taxes would be similar to the Washington LLC tax or taxes for sole proprietorships. Partners will be required to file individual tax returns based on the income they have earned through the business. If you use a personal property for business then you will have to file personal property tax. You may also need to file sales and use tax depending on your business activity.