How to Incorporate in Washington vs. How to Start a Washington LLC

There are basic components true of all LLCs and corporations that you can use to base your decision:

• Maintenance
  The LLC is known for its simple maintenance and a user-friendly structure. LLCs will need only minimal paperwork, have flexibility when a decision is needed, and have low annual upkeep. An LLC is your best bet if you have a small to medium-sized business and can only handle a low amount of maintenance. Conversely, a corporation needs a high level of maintenance, both on a day-to-day and annual basis. Corporations have more legal formalities than an LLC, like electing a board of directors, holding shareholder meetings, and maintaining internal records such as meeting minutes and stock issuance.
• Tax Structure
  LLC’s are known as pass-through entities, since it’s not a separate taxable entity apart from its owners. Income and losses pass through the business and onto the members to report on their individual income tax return. LLCs are the overall simpler and less expensive option in terms of time and paperwork for business owners during tax season. Corporations are more advanced for a business owner to take care of during tax season. A standard corporation defaults to a tax structure called a C corporation, and is known for what’s called double taxation, where a business’s net income is taxed initially by a corporate tax, and then taxed again on personal income, after shareholders receive their profits (dividends) and losses. C corporations are typically taxed at a lower rate on profits, and have opportunities for tax deductions such as health care and travel, and can retain its earnings to be reinvested into the company’s growth. A corporation can potentially elect an S corporation tax status if it’s more beneficial. When you elect an S corporation tax status, your corporation becomes a pass-through entity, and is allowed tax advantages such as dividends not subject to self-employment tax.
• Prospective Investors
  Corporations are designed to take on investors, and investors are more likely to put their time and funds in a familiar and reputable business structure like a corporation. Entrepreneurs looking to expand their company in the future will most likely need investor funds, making the corporate entity the suitable choice. Investors are more comfortable investing their time and money in a traditional business structure that offers stock, like a corporation. Investors don’t have to worry about complicating their personal taxes when they invest in a corporation, and only get taxed on profits actually distributed to them, unlike an LLC. Investors view corporations as a dependable business structure that will provide them with a return on their investment. Having a corporate structure will profoundly impact the ability to raise investment money. Investors can still invest in an LLC by owning a percentage of that LLC. Owners of LLCs will have to pay taxes on their distributive shares, even if they haven’t received a distribution on those profits, and can’t issue stock, which is a turn-off for many investors. A corporation should be considered if you are serious about gaining investors.
• Prestige
  A business starts with its appearance, and having the “LLC” or “Inc” title in your business name will provide your company with certain a level of prestige. These endings convey permanence and encourage trust from likely investors or clients, and show that you are serious about your business. While both entities provide a level of prestige, incorporating provides a higher level of prestige for your business, since the corporation is the oldest and most traditional entity type. It’s important to remember that LLC’s have surpassed corporations in popularity in most states, and an LLC’s prestige is continually growing.

Note that whether you form an LLC or a corporation, you’ll need to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) once your company is officially formed with the state of Washington. This report provides the federal government with identifying information about your company and those with the most control over profits and business operations. However, unlike state filings, the information shared in your report does not go on the public record and there is no filing fee. (Though if you don’t want to file this on your own, we offer BOI filing service for just $25.)

Now that we’ve covered the basic components that apply to all corporations and LLCs, next is to dig into more specific characteristics of what makes a Washington LLC or Washington corporation different from other states, bringing us to the final answer on which entity you should choose for your business. Each state has its own unique statutes and tax laws that govern the way its businesses operate, and these unique details must be considered when choosing your business entity.

This section will provide specifics for the Washington LLC and the Washington corporation.

• No Corporate Income Tax in Washington
  Washington is one of six states that does not impose a corporate income tax, saving corporations in Washington a significant amount of money every year.
• Washington Business and Occupation Tax
  The Washington business and occupation tax (also known as the B&O tax) is a gross receipts tax on corporations and LLCs doing business in the state. This tax rate varies by the business’s classification, ranging from .13% through 3.30%. There are dozens of classification levels, and the top three classifications are as follows:
  • Retail: 0.471%
  • Manufacturing: .484%
  • Services and other activities: 1.5%The B&O tax is fairly inexpensive compared to similar taxes imposed on businesses in other states. This tax typically is not a make-or-break situation, although it’s still important to see a tax professional and learn how this tax will affect your business.

• No Personal Income Tax in Washington
  Washington is one of seven states that does not impose a personal income tax. This is a point of interest if you’re considering starting an LLC, since business income typically passes through LLC’s and onto the members to report on their personal income taxes. In Washington, this income that passes through will not be subject to any kind of taxation, providing a great perk for businesses.
• Washington LLC Foreclosure Vulnerability
  LLCs in Washington do not have the same level of protection as most states, and creditors (a person who is owed funds or assets by a debtor) in Washington have an extra remedy against LLCs that owe them by having the courts order a foreclosure on an LLC. In most states, creditors have one remedy against the debtor of an LLC, which is a charging order that puts a lien on a debtor’s interest (funds and assets) and creditors then have a right to receive any distributions made to the debtor from the LLC, if the LLC makes a distribution. Often times, this leads to the creditor ending up with nothing, since creditors can’t order the LLC to make distributions. For Washington LLCs, this same charging order and same lien can be placed, except if a creditor can prove to a court that those distributions under the charging order will not pay off the debt, “the court may order a foreclosure upon the transferable interest subject to the charging order at any time (WA §25.15.256).”

Washington LLC or Washington Corporation? Final Answer.
Deciding on either an LLC or a corporation as the structure for your company means considering the size of your business, priority of investors, level of maintenance you’ll need, and the most beneficial tax structure for the future of your business.

Forming an LLC in Washington will be your best choice if you have a small to medium-sized business. LLCs in Washington stay true to design in terms of easy formation and maintenance, simple management, strong flexibility in decision-making, and limited liability protection. If growing your company large with investors is not your top priorities, you’re looking for the least expensive and sophisticated taxes and annual maintenance, and you’re just needing limited liability protection for your business, the LLC is your answer.

Incorporating in Washington will be your best choice if you plan to grow your business big with the funds from investors, and you have the means for the amount of maintenance required. a Washington corporation remains true to character in its substantial amount of paperwork, higher maintenance, and involved yet beneficial tax structure.

If a Washington corporation is the best choice for you, you’ll need to file the Articles of Incorporation with the Washington Secretary of State to become officially incorporated. You can download the Articles of Incorporation online at the Washington Secretary of State website. Once your Articles of Incorporation are approved, your corporation is officially formed.

You can file the Articles of Incorporation in a few ways:

• Online at the Washington Secretary of State website
• By postal mail
• In person at the Washington Secretary of State office

We recommend filing your Washington Articles of Incorporation on the website since it’s the fastest, most secure, and preferred method by the Secretary of State. The fee for filing your Articles of Incorporation costs $180. The state of Washington processes business formation documents in about 3 business days.

To complete your Washington Articles of Incorporation, include the following information:

If forming a Washington LLC is the best choice for you, you’ll need to file the Certificate of Formation with the Washington Secretary of State to make it official. You can download the Certificate of Formation online at the Secretary of State website. When your Certificate of Formation is approved, your LLC is officially formed.

You can file the Certificate of Formation in the following ways:

• Online at the Washington Secretary of State website (recommended)
• By postal mail
• In person at the Washington Secretary of State office

We recommend filing your Washington Certificate of Formation online since it’s the fastest, most secure, and preferred method by the Secretary of State. The fee for filing your Certificate of Formation costs $180. The state of Washington processes business formation documents in about 3 business days.

To complete the Washington Certificate of Formation, include the following information:

To keep your business in good standing with the state of Washington every year, you must take care of a few annual maintenance tasks.

• File your annual report
• File your Washington business tax returns

In this section, we’ll explain the basic instructions and resources you’ll need to help you take care of your tax-related upkeep and annual maintenance.

What is a Washington annual report?
A Washington annual report updates or confirms the records for your business, such as officer/member names and addresses or registered agent. This report lets your business remain in good standing with the state. Both LLCs and corporations that do business in the state are required to file annual reports with the Washington Secretary of State.

How do I file my annual report in Washington?
Corporations and LLCs in Washington need to either file their annual reports online at the Secretary of State website (recommended), or by postal mail.

How much does it cost to file an annual report in Washington?
For both LLCs and corporations, the annual report fee in Washington is $60.

When are Washington annual reports due?
Your Washington annual report is due by the end of the month you first formed your business (your anniversary month).

The filings can get complicated and you may need the help of a tax service or CPA to complete these requirements, but regardless of your accounting skills, we’re here to help get you started.

Check out our Washington Business Tax FAQ below:

Is there a corporate income tax in Washington?
Washington is one of six states that does not impose a corporate income tax, saving corporations in Washington a significant amount of money every year.

What is the Washington Business and Occupation Tax?
The Washington business and occupation tax (also known as the B&O tax) is a gross receipts tax on corporations and LLCs doing business in the state. This tax rate varies by the business’s classification, ranging from .13% through 3.30%. There are dozens of classification levels, and the top three classifications are as follows:
• Retail: 0.471%
• Manufacturing: .484%
• Services and other activities: 1.5%

Is there a personal income tax in Washington?
Washington is one of seven states that does not impose a personal income tax. This is a point of interest if you’re considering starting an LLC, since business income typically passes through LLC’s and onto the members to report on their personal income taxes. In Washington, this income that passes through will not be subject to any kind of taxation, providing a great perk for businesses.

What forms do you file for your Washington business taxes?
State Business Taxes:
For the Washington B&O tax, you will need to submit the Combined Excise Tax Return form.

Federal Business Taxes:
For C corporations, submit Form 1120 federal income tax return.
For S corporations, submit Form 1120S federal income tax return for an S corporation.
For single member LLCs, submit Schedule C as part of your Form 1040 individual income tax return.
For multi-member LLCs, submit Form 1065 partnership income tax return along with Schedule K-1.

When are my Washington business tax returns due?
Your Washington B&O state tax return is due on the 15th day of the 4th month after the end of the fiscal year, or April 15th for calendar year filers (on the federal tax return due date).