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Run Your Business

RUN your business


Run your business

When your business is up and running, there are certain things you need to do to meet regulatory and tax requirements. These activities vary based on your business activity, the business size, and whether or not you have employees.

 


1. Federal business income taxes

Federal income tax for businesses is based on net profit (your revenue minus your expenses). With sole proprietorships, partnerships, most LLCs, and S-corporations, tax on business income is paid by the owners through their personal tax returns. This is called “pass-through taxation.” Owners are generally required to make quarterly estimated tax payments during the tax year using Internal Revenue Service (IRS) Form 1040-ES. These payments are due April 15, June 15, September 15 and January 15.

If you’re a working owner of an S-corporation, 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 paycheck.

Standard corporations are generally required to make quarterly estimated tax payments on the 15th day of the 4th, 6th, 9th, and 12th months of each fiscal 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 (see Form 2553 Instructions).

Limited Liability Companies (LLCs) are taxed like sole proprietorships if there is only one owner. If there is more than one owner, LLCs are taxed like partnerships. However, LLCs can elect to be treated as standard or S-corporations for federal tax purposes by filing an IRS Form 8832. Consult your tax professional for more information.

Business Structure

Required Form

Due Date(s)

Sole proprietorships and single owner LLCs

1040 Schedule C, 1040 SE (self-employment tax), 1040 ES (estimated tax)

File by April 15 (as part of the owner’s personal tax return). Estimated tax is due April 15, June 15, September 15, and January 15.

Partnerships and multiple owner LLCs

Form 1065 plus 1065 K-1 forms for each owner,

1040 SE (self- employment   tax), 1040 ES (estimated tax)

Businesses using the calendar year must file by April 15. Businesses using a fiscal year must file by the 15th of the 4th month after the end of a fiscal year.

Estimated tax is due April 15, June 15, September 15, and January 15.

 

Standard corporations (or LLCs that have formally elected to file as standard corporations)

Form 1120 (plus withholding from owner’s paycheck for income taxes, Social Security and Medicare)

Businesses using a calendar year must file by March 15. Businesses using a fiscal year must file by the 15th of the third month after the end of a fiscal year.

 

S-corporations (or LLCs that have formally elected to file as S-corporations)

Form 1120-S and 1120 K-1 forms for each owner (plus withholding from each owners’ paycheck for income taxes, Social Security and Medicare)

Businesses using a calendar year must file by March 15. Businesses using a fiscal year must file by the 15th of the third month after the end of a fiscal year.

 

2. State business taxes

Washington State does not have a personal or business income tax. Instead, its tax structure includes the Business & Occupation Tax, sales and use taxes, property taxes, and a variety of industry-specific taxes. The Washington Department of Revenue (DOR) administers over 60 different taxes.

Most small businesses need to file an excise tax return with DOR. Your tax filing frequency, assigned after you submit your Business License Application, is based on an estimate of the amount of tax you will owe. Businesses are required to file taxes electronically using My DOR, DOR’s online filing system, and pay electronically using one of several payment options. For assistance with My DOR registration and filing, call 360-705-6705. If you are unable to file electronically, you can request a waiver. State taxes include:

  • Business and Occupation (B&O) tax – This is a tax on the business’ gross revenue. In addition to the state B&O tax, many cities and towns also impose local B&O taxes (see below).
  • Sales tax – Businesses collect sales taxes from customers on the sale of most retail products, construction activities, and some services.
  • Use tax – Use tax applies when businesses make purchases without paying sales tax, such as internet purchases or purchases made in Oregon.
  • Real and Personal Property Taxes – Businesses pay a property tax based on the value of real estate, buildings and other structures, furnishings, equipment and other assets. Property tax is collected by counties rather than by DOR.
  • Industry-specific taxes – There are a variety of taxes that apply to specific industries, such as hotel/motel, rental cars, cigarettes, etc. Click the heading to see if any specific taxes apply to your business.

Because sales tax is destination-based, businesses that collect sales tax must charge the tax rate of the location where the product or service was delivered. DOR has a look-up tool to determine tax rates and the location code.

DOR provides New Business Tax Workshops throughout the state during the year. Below are links to additional information and tools provided by DOR to assist in tax calculation and reporting:

Consult your tax professional for further information. DOR cannot discuss confidential tax account information with a tax representative/preparer until you complete a Confidential Tax Information Authorization form.


3. Local business taxes

Cities & towns

Most cities and towns have a local sales tax and a local business & occupation (B&O) tax. DOR collects sales tax for local communities, but cities and towns collect their own local B&O. Depending on the amount of money your business makes, your local B&O tax may be due quarterly or annually. Contact the cities and towns where you do business for more information.

Counties

Counties are responsible for assessing and levying property tax on both real property and personal property. While the title “personal property” may not imply as such, it includes business furnishings, fixtures, equipment, supplies and other assets.

Personal property tax

Most people know that property tax applies to real property; however, some may not know that property tax also applies to personal property. Most personal property owned by individuals is exempt. For example, household goods and personal effects are not subject to property tax. However, if these items are used in a business, property tax applies. Personal property tax does not apply to business inventories, or intangible property such as copyrights and trademarks.

Personal property is subject to the same levy rate as real property. The characteristic that distinguishes real and personal property is mobility. Real property includes land, structures, improvements to land, and certain equipment affixed to land or structures. Personal property includes machinery, equipment, furniture, and supplies of businesses and farmers. It also includes any improvements made to land leased from the government (leasehold improvements).

Property taxes are due April 31 and October 31 of each year. Contact the counties where you do business for more information.


4. Federal employment taxes

  • For instructions related to federal employment taxes, refer to the IRS Employer’s Tax Guide. Employers are responsible for collecting employee income, social security, and Medicare taxes, plus paying the employer share of social security and Medicare taxes (6.2% and 1.45% of wages respectively). When and how you have to pay that money to the IRS depends on the amount of taxes being collected.
  • Quarterly 941 Forms report gross wages and federal taxes (income, social security and Medicare). They are due to the IRS by April 30, July 31, October 31 and January 31 for the preceding calendar quarters.
  • W-2 Forms report wages and withholdings for the calendar year. They must be provided to each employee by January 31 of the following year.
  • W-2 Forms and the accompanying W-3 transmittal form are due to the Social Security Administration by February 28 of the following year.
  • Annual 940 Forms report federal unemployment taxes. They are due to the IRS by January 31 for the preceding calendar year. The tax rate for most employers is 0.6% of the first $7,000 each worker earns, up to a maximum of $42 per employee. For very small employers, these payments may be made at the time of annual filing but larger employers are required to make payments quarterly. See the IRS Employer’s Tax Guide for more information.

5. State employment taxes

  • Unemployment taxes are due quarterly to the Employment Security Department (ESD). Reporting and payment is generally done on-line. Due dates are April 30, July 31, October 31 and January 31 for the preceding calendar quarters. Taxes are calculated based on the rate provided to your business by ESD, multiplied by each employee’s wages up to annual maximum. Additional information about Unemployment Insurance taxes and benefits is available through the ESD website.
    • If you are facing a temporary decline in business, the SharedWork Program offers you a viable way to retain your workforce. Instead of enduring a layoff, you can reduce the work hours of your permanent employees, and they can collect partial unemployment benefits to replace a portion of their lost wages.
    • Corporate Officers who provide services in Washington are automatically exempt from unemployment insurance unless the employer specifically requests to cover them. If you want to cover your corporate officers, you must submit a Voluntary Election Form. (Note: this applies only to corporations. Find out more here).
  • Paid Family and Medical leave premiums are due quarterly to the Employment Security Department (ESD) and both are employee and employer paid. Employers may follow an approved voluntary plan or use the state plan. Premium calculations may be different if using a voluntary plan. To estimate your paid leave payments, use the premium calculator. Detailed information about employer’s roles and responsibilities is available at Paidleave.wa.gov employer responsibilities.
  • Workers’ compensation premiums are due quarterly to the Department of Labor & Industries (L&I). Reporting and payment is generally done on-line.  Due dates are April 30, July 31, October 31 and January 31 for the preceding calendar quarters. Premiums are calculated based the risk classification rate(s) provided to your business by L&I, multiplied by the hours worked by employees in that risk classification. Employers can deduct from employees’ pay a portion of the premium amount, as shown on the rate notice received from L&I. Additional information about Workers’ Compensation is available through free L&I Essentials for Business webinars.

6. Annual report, license and permit renewals

  • Corporations, limited liability companies, and limited partnerships must file an annual report. Profit corporations, nonprofit corporations, limited liability companies, and limited partnerships file their annual reports with the Secretary of State and all services are available online at www.sos.wa.gov/corps.
  • Your state’s business license may have state or city endorsements that are renewed annually. Many specialty licenses, permits, local licenses, and professional licenses also require annual renewal. Keep track of your renewal dates to ensure your licenses are current and to avoid extra fees. You may need to check with the individual state agency where the permit was issued.
  • Renewal of contractor registration is required every two years, and cost $113.40. You renew your registration with L&I. L&I also renews specialty licenses related to trades (such as electrical, plumber, etc.).
  • Health provider license and facility renewals.
  • If you are now doing business in cities and towns where you weren’t licensed previously, you will need to get additional local licenses. “Doing business” can include sales, delivery, installation, or service. Contact the cities or towns for further information.

7. Regulatory compliance

There are many regulations that businesses must comply with on an ongoing basis or otherwise face potential citations and penalties that can prove challenging and costly. Below is a basic listing of some of the agencies and regulations not addressed previously in this chapter. Be aware that the list isn’t fully comprehensive. You should seek advice from your attorney, industry or business association, and other advisors to ensure you are in compliance with all applicable regulations. Agencies want to help you understand your responsibilities, so please ask for their assistance.

Federal

State

Local

  • County health departments – Regulate food establishments, hazardous materials, environmental health, etc.
  • County assessors – Provide valuations of business real estate, equipment, furnishings and other assets for property tax purposes.
  • Cities – Regulate zoning, signage, parking, and issues building and business permits, etc.
  • Fire departments – Regulate fire code.

Note: Please check with cities where your employee(s) work, as cities may have different minimum wage and/or paid sick leave requirements.


8. Prepare for the unexpected


9. Need assistance?

State of Washington Small Business Liaisons can help you get the information and resources you need. Also, help us improve the Small Business Guide by filling out a short, confidential survey.