If you want to start and run a District of Columbia (Washington D.C.) limited liability company (LLC), you'll need to prepare and file various documents with the state. This article covers the most important ongoing reporting and state tax filing requirements for District of Columbia LLCs.
The District of Columbia requires you to file a biennial report for your LLC. The first biennial report is due April 1 of the calendar following the year in which you formed your LLC. Subsequent biennial reports are due on April 1 each second calendar year thereafter. You can file your biennial report online at the DCRA website or in person at the Business License Center. The current filing fee is $300. There is a $100 penalty for reports filed late. Reports filed in person incur an additional expedited processing fee.
When it comes to income taxes, most LLCs are so-called pass-through tax entities. In other words, the responsibility for paying federal income taxes passes through the LLC itself and falls on the individual LLC members. By default, LLCs themselves do not pay federal income taxes, only their members do.
The District of Columbia, however, imposes a separate franchise tax on some LLCs. Generally speaking, the tax applies to unincorporated businesses with gross income of more than $12,000 from D.C. sources and that are not otherwise exempt. The tax is usually calculated at a flat rate of taxable income. There is also a $250 minimum franchise tax. The tax is payable to the Office of Tax and Revenue (OTR) using Form D-30. If your tax year matches the calendar year, the tax is due on April 15. For more information, check the OTR website.
In some cases, the owners of an LLC choose to have their business treated like a corporation for tax purposes. This choice is made by filing IRS Form 2553 with the IRS. (See the IRS website for the form.) Unlike the default pass-through tax situation, when an LLC elects to be taxed as a corporation, the company itself must file a separate tax return. The District of Columbia, like almost every other state, taxes corporation income. In the District of Columbia, this occurs via the business franchise tax and using a small series of marginal tax rates applied to taxable income. If you have chosen to have your LLC taxed as a corporation you'll need to pay this tax. Use the OTR's corporation franchise tax return (Form D-20) to pay the tax. For more details, including regarding online filing, check the OTR website.
Does your LLC have employees? If so, you'll need to pay employer taxes. Some of these taxes are paid to the federal government (the IRS) and are not covered here. (But note that federal employer tax obligations start with obtaining a federal employer identification number (EIN).) However, District of Columbia employers also must pay taxes to the state.
First, you'll need to withhold and pay employee income taxes to the Office of Tax and Revenue. Begin by registering your business with the OTR either online (through the Electronic Taxpayer Service Center (eTSC)) or on paper (using Form FR-500, Combined Registration Application for Business DC Taxes/Fees/Assessments). Once you've registered, you'll need to file withholding taxes on a periodic basis (for example monthly or quarterly) using the appropriate version of Form FR-900. You'll also need to file an annual reconciliation of your LLC's tax withholding using Form FR-900B. For more information, including regarding online filings, check the OTR website.
In addition, you'll probably need to register to pay state unemployment insurance (UI) taxes. These taxes are handled through the DC Department of Employment Services (DES). You can register for these taxes online or on paper (Form FR-500). Then, each quarter, use Forms UC-30 to report on wages and pay the UI taxes. For more information, check the DES website.
If your LLC will sell goods to customers in District of Columbia, you will need to collect and pay sales tax. This means you'll have to register for this purpose with the OTR and then make periodic sales tax payments for goods sold. You can register online or mail in Form FR-500. Then, on a periodic basis (for example monthly or quarterly), you must submit sales tax returns to the OTR. You can do this on paper (use the appropriate version of Form FR-800) or online. For more information, check the OTR website.
If you will be doing business in states other than District of Columbia, you may need to register your LLC in some or all of those states. Whether you're required to register will depend on the specific states involved: each state has its own rules for what constitutes doing business and whether registration is necessary. Often activities such as having a physical presence (a business location) in a state, hiring employees in a state, or soliciting business in a state (such as by telephone, print ads, mail, or the Internet) will be considered doing business for registration purposes. Registration usually involves obtaining a certificate of authority or similar document.
For more information on the requirements for forming and operating an LLC in District of Columbia, see Nolo’s article, 50-State Guide to Forming an LLC, and other articles on LLCs in the LLC section of the Nolo website.