LLC Tax Basics for Washington Business Owners

The IRS tax treatment depends on the number of LLC members and any tax elections made. The same LLC can be taxed in more than one way over its life, so "LLC" describes the state-law structure, not a fixed federal tax category.

A single-member LLC is generally treated as a disregarded entity for federal income-tax purposes unless it elects corporate treatment. Business activity is generally reported on the owner's federal return, depending on the type of activity.

A domestic LLC with two or more members is generally treated as a partnership for federal income-tax purposes unless it elects corporate treatment.

LLCs may qualify to elect different federal tax treatment, including treatment as a corporation or an S corporation. Whether an election helps depends entirely on the business's numbers — income, payroll, deductions, and the owners' overall situation.

No election is automatically better, and an S corporation does not automatically save taxes. If you're weighing an election, discuss the decision with a qualified tax professional who can run the numbers for your situation.

LLC owners may have federal self-employment and estimated-tax responsibilities depending on their situation. In general, income that isn't subject to withholding may require quarterly estimated payments to avoid an underpayment at tax time.

Washington does not have a general individual state income tax, but businesses may have Washington tax obligations including Business & Occupation (B&O) tax, retail sales tax, use tax, and other taxes depending on their activities.

What applies to your LLC depends on what you sell, where you sell it, and your gross receipts — the Washington Department of Revenue's site explains each tax and how to register.