Complete Guide to Washington LLC Taxes in 2025
Washington State stands out as one of just nine states with no personal income tax. For LLC owners, this means pass-through income from your LLC to your personal tax return is not taxed at the state level. However, do not mistake "no income tax" for "no state taxes." Washington imposes several other taxes that can significantly affect your LLC's bottom line, most notably the Business & Occupation (B&O) tax.
This comprehensive guide covers every tax obligation your Washington LLC faces in 2025, from the B&O tax on gross receipts to sales tax collection, payroll taxes, and federal self-employment tax. Whether you are forming a new LLC or reviewing your existing tax obligations, this guide provides the detail you need to plan effectively.
Washington B&O Tax: The Core Business Tax
The Business & Occupation (B&O) tax is Washington's primary business tax and the most important tax for LLC owners to understand. Unlike income taxes in other states, the B&O tax is levied on gross receipts — your total revenue before deducting any expenses, costs of goods sold, or losses.
This is a critical distinction. A business that generates $500,000 in revenue but only $50,000 in profit still pays B&O tax on the full $500,000. For businesses with thin margins, the B&O tax can represent a larger percentage of profit than income taxes in other states.
Key Insight: The B&O tax applies to gross receipts, not net profit. This means your LLC pays tax regardless of whether it is profitable. Plan your cash flow accordingly, especially in the early years of business.
B&O Tax Rates by Business Classification (2025)
Your B&O tax rate depends on the nature of your business activities. Washington's Department of Revenue assigns classifications based on what your business does, not how it is structured. Here are the current rates:
| Business Classification | B&O Rate | Example Industries |
|---|---|---|
| Retailing | 0.471% | Retail stores, restaurants, online sales |
| Wholesaling | 0.484% | Wholesale distribution, drop shipping |
| Manufacturing | 0.484% | Production, assembly, fabrication |
| Service & Other | 1.5% | Consulting, professional services, SaaS |
| Real Estate | 1.5% | Real estate brokers, property management |
| Government Contracting | 0.5% | Federal, state, local government contracts |
| Printing & Publishing | 0.484% | Publishers, printers, media |
| Travel Agents | 0.275% | Travel agencies, tour operators |
| Extracting (Timber) | 0.484% | Logging, timber, forestry |
| Uranium/Plutonium | 3.3% | Nuclear fuel processing |
If your LLC engages in multiple types of activities, you must report income under the appropriate classification for each activity. For example, if you both manufacture and retail products, the manufacturing revenue is taxed at 0.484% and the retail revenue at 0.471%. However, be aware of the Multiple Activities Tax Credit (MATC), which prevents double taxation when the same income is subject to two or more B&O tax classifications.
B&O Small Business Tax Credit
Washington offers a valuable Small Business B&O Tax Credit for businesses with relatively low revenue. The credit phases out as your gross income increases:
- Under $28,000/quarter ($112,000/year): Full credit — your B&O tax is effectively eliminated
- $28,000–$56,000/quarter: Partial credit — gradually phases out
- Over $56,000/quarter ($224,000/year): No credit available
This credit is particularly valuable for new LLCs and small side businesses. If your quarterly gross income stays below $28,000, you may owe zero B&O tax, making Washington extremely competitive for small businesses.
Washington Sales Tax
If your LLC sells tangible personal property or certain services, you must collect and remit sales tax. Washington's state sales tax rate is 6.5%, but when combined with local taxes, the total rate ranges from 7.0% to 10.6% depending on location.
Notable combined rates for major cities in 2025:
| City | Combined Rate | Local Portion |
|---|---|---|
| Seattle | 10.25% | 3.75% |
| Tacoma | 10.3% | 3.8% |
| Bellevue | 10.25% | 3.75% |
| Spokane | 9.0% | 2.5% |
| Vancouver | 8.6% | 2.1% |
| Olympia | 9.0% | 2.5% |
Digital Goods Alert: Washington taxes digital goods, digital codes, and Software-as-a-Service (SaaS). If your LLC provides cloud-based software or sells digital products to Washington customers, you must collect and remit sales tax. This catches many tech-focused LLCs off guard.
WA Cares Fund (Long-Term Care Payroll Tax)
The WA Cares Fund imposes a payroll tax of 0.58% on employee wages with no cap on earnings. This tax took effect in July 2023 and is designed to fund a long-term care insurance benefit for Washington workers. Key details:
- Rate: 0.58% of gross wages (no earnings cap)
- Who pays: Employees pay the full amount via payroll withholding
- Employer role: Employers must withhold and remit the tax to the Employment Security Department
- Self-employed: Not required to participate, but can opt in voluntarily
- Exemptions: Workers who had qualifying private long-term care insurance before November 1, 2021 could apply for a permanent exemption by December 31, 2022
- Benefit: Up to $36,500 (lifetime) for qualifying long-term care expenses
For an LLC with employees earning $50,000 annually, the WA Cares premium is $290 per employee per year. While the employee bears the cost, the employer handles all withholding and reporting — adding an administrative burden.
Federal Taxes for Washington LLCs
Because Washington has no state income tax, your federal tax obligations take on even greater importance. As a Washington LLC owner, you face these federal taxes:
Self-Employment Tax (15.3%) — Applied to 92.35% of your net self-employment income. This breaks down into 12.4% for Social Security (on earnings up to $176,100 in 2025) and 2.9% for Medicare (no cap). An additional 0.9% Medicare surtax applies above $200,000 for single filers.
Federal Income Tax (10%–37%) — LLC income passes through to your personal return and is taxed at your marginal federal income tax rate. The 2025 brackets apply based on your filing status and total taxable income.
Qualified Business Income (QBI) Deduction — Many Washington LLC owners can deduct up to 20% of qualified business income under Section 199A, subject to income limitations. For single filers, the deduction begins to phase out at $191,950 in taxable income (2025). Below this threshold, most businesses qualify for the full 20% deduction regardless of business type.
Washington LLC Annual Report
Every Washington LLC must file an annual report with the Secretary of State. Key details:
- Fee: $60
- Due date: Your LLC's anniversary month (the month you filed your Certificate of Formation)
- Filing method: Online through the Secretary of State's Corporations & Charities Division
- Late penalty: No formal late fee, but failure to file results in administrative dissolution
- Required information: Principal office address, registered agent details, member/manager names
Important: If your LLC is administratively dissolved for failure to file, you must pay all past-due annual reports ($60 each) plus a reinstatement fee to restore your LLC. Keep your anniversary date on your calendar to avoid this costly mistake.
Washington LLC Formation Costs
The initial cost to form a Washington LLC includes:
- Certificate of Formation: $200 (online) or $180 (mail)
- Registered Agent: $0–$300/year (free if you serve as your own)
- Business License: Free state business license through the Master Business Application; local licenses vary by city
- EIN (Federal Tax ID): Free from the IRS
- Annual Report: $60/year (ongoing)
Comparing Washington to Other No-Income-Tax States
Washington is one of nine states with no personal income tax. But how does it compare for LLC owners?
| State | Income Tax | Unique Business Tax | Annual LLC Fee |
|---|---|---|---|
| Washington | None | B&O Tax (0.13%–3.3%) | $60 |
| Wyoming | None | None | $60 min |
| Nevada | None | Commerce Tax ($4M+ revenue) | $150 |
| Texas | None | Franchise Tax (0.375%–0.75%) | $0 |
| Florida | None | None for LLCs | $138.75 |
Washington's B&O tax is unique because it applies to all revenue from dollar one (after the small business credit threshold). While the rates are low, the gross-receipts basis means high-revenue, low-margin businesses may pay more tax in Washington than in states with a traditional income tax. Conversely, highly profitable service businesses benefit enormously from the low B&O rates.
Tax Planning Strategies for Washington LLCs
To minimize your overall tax burden as a Washington LLC owner, consider these strategies:
- Monitor your B&O classification carefully. Ensure your revenue is reported under the correct (and lowest applicable) classification. Misclassification can lead to overpayment or penalties.
- Maximize the small business credit. If your LLC is near the $28,000/quarter threshold, timing of revenue recognition can determine whether you qualify for the full credit.
- Consider S-Corp election. While Washington has no state income tax, the federal self-employment tax savings from an S-Corp election (splitting income between salary and distributions) can be substantial for LLCs netting over $50,000.
- Claim the Multiple Activities Tax Credit. If you engage in both manufacturing and selling, the MATC prevents double taxation on the same revenue.
- Use destination-based sales tax. Washington uses destination-based sourcing for sales tax. If you ship to lower-tax areas, your sales tax collection may be lower than your local rate.
- Maximize the QBI deduction. The 20% qualified business income deduction can significantly reduce your federal tax bill. Consult a tax professional to ensure you qualify and maximize this deduction.
Key Washington Tax Deadlines for LLCs
| Tax/Filing | Due Date | Filed With |
|---|---|---|
| B&O Tax Return | Monthly, quarterly, or annually (based on volume) | WA Dept. of Revenue |
| Sales Tax Return | Same as B&O (combined return) | WA Dept. of Revenue |
| Annual Report | Anniversary month of LLC formation | WA Secretary of State |
| WA Cares Premium | Quarterly with payroll reports | Employment Security Dept. |
| Federal Income Tax | April 15 (or next business day) | IRS |
| Quarterly Estimated Tax | Apr 15, Jun 15, Sep 15, Jan 15 | IRS |
Washington Use Tax
If your LLC purchases taxable goods from out-of-state sellers who do not collect Washington sales tax, you owe use tax at the same rate as sales tax. This commonly applies to online purchases, equipment bought from out-of-state, and goods imported for business use. The use tax is reported on the same combined excise tax return as your B&O and sales tax.
City of Seattle Business License Tax
If your LLC operates in Seattle, be aware of the Seattle Business License Tax. This is a city-level B&O-style tax with its own rates, separate from the state B&O tax. Seattle's rates differ by classification, and most businesses earning over $100,000 annually in Seattle must pay. The most common Seattle B&O rate is 0.415% for services and 0.215% for retailing. A small business threshold of $100,000 applies.
Washington Capital Gains Tax
Effective January 1, 2022, Washington imposes a 7% capital gains tax on the sale of stocks, bonds, and other capital assets exceeding $250,000 in annual profits. While this primarily affects individual investors, LLC members who realize capital gains from the sale of financial assets may be subject to this tax. Real estate sales and retirement account withdrawals are exempt.
Note: The Washington capital gains tax was upheld by the state Supreme Court in 2023 as an excise tax, not an income tax. LLC members with substantial investment income should factor this 7% tax into their planning.
Registering Your LLC with the Department of Revenue
All Washington LLCs that engage in business activities must register with the Department of Revenue using the Business Licensing Service (formerly the Master Business Application). This registration covers:
- State business license (no fee for the state license itself)
- B&O tax account
- Sales tax permit (if applicable)
- Use tax account
- City endorsements for local business licenses
The registration process is completed online and typically takes 2-3 business days. You will receive your Unified Business Identifier (UBI) number, which serves as your state tax identification number.