Reporting & Taxes
Let’s review the most common taxes businesses are responsible for in Washington State.
Federal income tax for businesses is based on your net profits (i.e., your revenue minus your expenses). If you’re a sole proprietorship, partnership, most LLCs or an S-corporation, your profits are reported through your personal tax returns as income. Taxes on these profits are collected quarterly by the IRS using Form 1040-ES.
Payments are due:
- April 15
- June 15
- September 15
- January 15
If you are an S-corp, you are also an employee who receives standard paychecks. You may not need to make estimated tax payments if you have enough income tax withheld from your other paycheck(s).
S-corporations are generally required to make estimated quarterly payments on the 15th day on the 4th, 6th, 9th and 12th months of each fiscal year (which is not to be confused with the calendar year). If you want your corporation to be treated as an S-corporation, complete Form 2553 – Election by a Small Business Corporation – within 75 days of forming your business or within 75 days of the beginning of a tax year.
Limited Liability Companies (LLCs) are taxed like sole proprietorships if there is only a single owner. If there is more than one owner, LLCs are taxed like partnerships. However, LLCs can elect to be treated as S-corporations for federal tax purposes by filling out IRS Form 8832. You may want to contact your tax professional for more information.
If you’re the only player on your team, you need to pay self-employment taxes, which includes Social Security and Medicare taxes. These are paid by owners of a sole proprietorship, independent contractors or members of a partnership that are engaged in a livelihood (a trade) or in good faith effort to make a profit (a business). Making a profit is important but secondary to the desire to make a profit, as it’s impossible to guarantee that any business enterprise will make money. You can have a full-time job and still be required to pay self-employment taxes on the money you make from your side business or trade.
BUSINESS & OCCUPATION TAX (B&O). With all the brouhaha about the B&O, you’d think it was more controversial than the Immaculate Reception in the 1972 AFC division playoff game.
Actually, it’s pretty straightforward. Washington doesn’t tax corporate or personal income like most states. Instead, the state taxes gross receipts. The more a company makes, the less it pays in taxes compared to states with more aggressive strategies like a tax on corporate income.
Most of the tax classifications are below one percent and there is a threshold where small companies and startups don’t have to pay these taxes, but merely fill out their quarterly reports to the Department of Revenue. Many companies can also take advantage of tax credits and exemptions that lower the overall B&O tax bill.
SALES TAX. Businesses collect sales taxes from customers for most retail products, construction activities and some services. The sales tax is destination-based, meaning businesses charge the tax rate for the location where the product or service is delivered.
USE TAX. This tax is applied to businesses when purchases are made without paying sales tax. For instance, if you purchase goods from another state that doesn’t have a state sales tax (Oregon is one) or has one that is lower than Washington’s, a use tax would apply.
REAL AND PERSONAL PROPERTY TAXES. This tax is levied on the value of real estate, buildings and other structures, furnishings, equipment and other assets. These are collected by individual counties rather than the Department of Revenue.
INDUSTRY-SPECIFIC TAXES. The state collects other taxes, such as taxes on hotel and motel stays, rental cars, cigarettes, etc.
Most businesses need to file an excise tax return with the Department of Revenue. Your filing frequency is assigned after you submit your Business License Application, which is based on an estimate of the amount of tax you will owe. You can file your taxes electronically using the Department of Revenue’s online filing system.
Still with us?
We don’t blame you if you’re ready to head to the showers in the locker room at this point. But there are a few more taxes to cover. Depending on your team’s size and type, these may or may not apply to you:
If you have employees, unemployment taxes are due quarterly. Reporting and payment is generally done online through the Department of Employment Security. Taxes are calculated based on the rate provided to your business by Employment Security multiplied by each employee’s wages up to an annual maximum.
Due dates for the preceding calendar quarters are:
• April 30
• July 31
• October 31
• January 31
Premiums are due quarterly to the Department of Labor & Industries (L&I). These can be reported online and the due dates are the same as Unemployment Taxes. Premiums are calculated based on the classification rates provided to your business by L&I, multiplied by the hours worked by employees in that risk classification. Employers can deduct from the employees’ pay a portion of the premium amount.
License & Permit Renewals
- Corporations, limited liability companies and limited partnerships must file an annual report with the Office of the Secretary of State.
- You may need to renew specialty licenses, local licenses and professional licenses annually to keep your team in the game. Be sure to keep track of your renewal dates to ensure your licenses are current to avoid additional fees and penalties. For example, if you are a contractor, you need to register with the Department of Labor & Industries. Their office can also be reached at (800) 647-0982.
- If you’re handling or selling food, you need to contact your local health department to comply with their requirements.
If you are new to the Washington business tax system, you may want to speak with your tax professional or CPA to discuss which taxes apply to your business to ensure that you file your returns correctly.
Local Business Taxes
Cities and Towns. Most cities have local sales taxes as well as local B&O taxes. The Department of Revenue collects sales taxes for local communities, but cities have the option of collecting their own local B&O taxes. Depending on the amount of money your business makes, your local B&O tax may be due quarterly or annually and is paid to the respective municipality, not the state’s Department of Revenue.
Counties. Counties are responsible for assessing and levying property tax on real and personal property. For the purposes of this discussion, personal property includes business furnishings, fixtures, equipment, supplies and other assets. If assessed and collected, property taxes are usually due April 30 and October 31 of each year.
Washington State and many county and local governments offer special tax incentives for specific growth industries. These can offset some of the taxes you may otherwise pay. Be sure to check with the Department of Revenue’s list of incentives to see if your business qualifies for specific reductions on B&O taxes, deductions, credits and other offsets.
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