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Although the District of Columbia is not an independent state, it is home to 670,000 people and thousands of businesses. Just as the 50 states do, the District of Columbia has unique laws and regulations when it comes to starting a limited liability company.
The limited liability company is a popular business structure because of its numerous advantages. For example, members of an LLC risk only their investment in the business and not their personal assets. However, the tax structure of an LLC is more complex than that of a business partnership.
The government of the District of Columbia, often referred to as Washington, D.C., wants to make the process of forming and operating an LLC as quick and simple as possible for new business owners. The best way you can prepare to complete the forms is to gather contact information such as name, address, email and telephone number for each member of the LLC.
Here are the six steps you will need to complete when forming an LLC in the District of Columbia:
This guide will walk you through each of the six steps in detail.
Just as each of the 50 states do, the District of Columbia imposes specific regulations when it comes to naming a new business. These include:
You will also need to conduct a name search at this link to ensure that the name you want to give your business is available within the District of Columbia. Be sure to check if the intended name of your business is also available as a web domain, even if you do not plan to develop a website right away.
New business owners in Washington, D.C., have the option to choose a “doing business as” name. An example of when this would be a good idea is when you have one name for your parent organization and other names for the companies underneath it. A DBA can come in handy in referring to all companies by the same name.
You are ready to file articles of organization once you have settled on a name for your business and made sure that it is available for use. Once you have completed the forms, you will need to file them with the Department of Consumer and Regulatory Affairs. You can either complete and submit the forms online, mail a hard copy, or submit your articles of organization in person.
The current fee to form an LLC and file the required articles of organization in the District of Columbia is $220.
You will need the following information available when you complete your articles of organization forms:
If you choose to file your paperwork online, navigate to this link, follow the online instructions, and pay your fee after you have completed all the forms. When mailing the form, you can download it and then send it to the following address:
Department of Consumer and Regulatory Affairs
PO Box 92300
Washington, DC 20090
Should you decide to submit the forms in person, you can do so at the Department of Consumer and Regulatory Affairs office located at 1100 4th St. SW in Washington, D.C. You will need to pay an extra $100 if you choose to hand-deliver your completed paperwork.
A registered agent is a person who accepts responsibility for sending and accepting legal documents on behalf of your LLC. The District of Columbia requires all new LLCs to list the registered agent’s name, street address during regular business hours, and other contact information. The registered agent must meet the following requirements:
All new businesses forming under the LLC structure need to list the name of a registered agent in the District of Columbia. Besides regular communications from the Washington, D.C., government, this person receives notifications of lawsuits and other legal information delivered by a process server. You can be the registered agent or name another member of your LLC. However, you can also choose any person you trust, as long as the person is over 18 and has a street address within the District of Columbia.
Some new business owners choose to work with a registered agent service rather than choose a friend or LLC member. You have the assurance of knowing you are working with a professional who will make sure your business remains compliant if you choose this option. Working with a service also protects your privacy, since the government publishes the names and addresses of registered agents in the District of Columbia Public Entity Search. The entry for your business will show the name of the company you hired instead of your personal name if you go this route.
An operating agrement outlines the rules and expectations for operating your business while also giving the new company greater credibility from a legal standpoint. Although many new LLCs prepare an operating agreement at the time of filing the articles of organization, you can always create one later. The information contained in the operating agreement remains private, and you do not have to file it with the District of Columbia government.
No. The District of Columbia does not legally require LLCs to have an operating agreement, but preparing one provides additional protection for you and your business partners. Here is some information to include in this document if you and your business partners choose to create it:
The requirement to apply for an employer identification number is the same regardless of the location of your business within the United States. The Internal Revenue Service offers EIN processing as a free service. Tailor Brands also offers EIN applications and processing as part of our LLC formation services.
For tax reporting purposes, the IRS requires detailed information about the person considered the true principal operator of the business. This information includes the person’s full name and Social Security number, individual tax identification number, or previous/other EINs. The IRS considers the entity or person who controls, directs and manages funds and assets for the organization to be the responsible party.
The fastest way to obtain an EIN is to apply online. The website automatically generates a number once you have completed all the required information. The IRS currently issues only one EIN to one responsible party each business day. The rule will only apply to you if you want to use different EINs for separate divisions of your company.
Another option is to complete Form SS-4, Application for Employer Identification Number, and fax it to 855-641-6935 or mail it to the following address:
Internal Revenue Service
Attn: EIN Operation
Cincinnati, OH 45999
By this point in starting an LLC, you should have already filed Form FR-500 with the District of Columbia Office of Tax and Revenue. The District of Columbia local government should also have sent you a Notice of Business Tax Registration form. If so, you are ready to begin submitting taxes and reports to the local taxing authority.
The IRS bases taxation decisions on how many members the LLC has. However, you can request that the IRS tax your company as if it were a corporation instead of an LLC. You can break that down further by requesting taxation as an S corporation or a C corporation.
The IRS taxes a District of Columbia LLC with one member as a disregarded entity. If the owner of the LLC is an individual, that person pays taxes as a sole proprietor. When the owner of the LLC is another business, taxation occurs as a division or branch of the parent company.
Sole proprietors with an LLC do not file a tax return on behalf of the business but rather report income, losses and expenses on their personal tax returns. If this describes your situation, you should use Schedule C of Form 1040 to report profits and losses from your LLC. Additional forms may be necessary, so consider working with a tax adviser when the time comes to complete your annual tax return.
If you operate an LLC with one or more business partners, the IRS considers it a separate entity for tax reporting purposes. You will need to file Form 1065 and ensure that every member of the LLC receives Form K-1 listing their share of the company profits. All members should also attach Form K-1 to Form 1040 when filing their personal income tax returns.
The IRS defaults to one of the two methods described above to tax your LLC when you apply for an EIN. You do not need to do anything other than inform the IRS of how many members your LLC has when you apply for an EIN.
The current sales tax rate in the District of Columbia is 6%. Washington, D.C., does not allow cities and counties within the district limits to impose additional sales tax on top of this amount. You do not have to collect sales tax when you sell groceries, prescription drugs or nonprescription drugs, but the District of Columbia collects extra tax on certain goods and services. These include:
You can learn more about your responsibility to collect and remit sales tax by reviewing the District of Columbia Sales Tax Handbook.
As a member of an LLC, you are subject to 15.3% self-employment tax on your portion of the business profits. The Federal Insurance Contributions Act specifies that monies collected go toward Medicare, Social Security and other public benefit programs. The IRS does allow LLC members to deduct certain business expenses from their reportable income for the purpose of lowering their self-employment tax liability.
Another way you can potentially lower the amount of self-employment tax you owe is to form an S corporation. However, you should always seek legal and financial advice from professionals before changing your business status or tax filing status.
You will need to submit payroll taxes and reports to the local District of Columbia government if your LLC has at least one employee. This requires you to establish a payroll system, withhold the required taxes from each employee’s paycheck, and submit the funds to the proper taxing authority. Typical examples of payroll taxes include:
You are free to calculate and submit the tax amounts and reports yourself. However, many LLC owners prefer to hire a payroll specialist or outsource the work to ensure the calculations are accurate. Mistakes can happen easily, especially when you have so many other tasks that require your attention. Unfortunately, the IRS will penalize you for failing to submit payroll taxes on time or submitting the wrong amount, even if you feel it was an honest mistake.
You may need to pay taxes to states outside the District of Columbia in certain situations. Common examples include maintaining a warehouse, storefront or office in another state or frequently engaging in interstate transactions. Typical examples of interstate transactions include construction work, providing labor, or selling goods or services. Here are some typical exclusions of activities that would not obligate you to pay taxes to another state:
The IRS and state governments consider any business that conducts all transactions across state lines, such as a long-distance moving company, to be an interstate company. You are not subject to multiple state taxes with this designation. Should your LLC qualify as an interstate business, you will need to register with the taxing authority of each state where you regularly conduct business.
You still have some housekeeping items to attend to once you have received formal recognition of your LLC. We cover the four most important ones below.
Even if you operate your LLC as a sole proprietor, it is extremely important to separate your business and personal finances. Not only will having separate accounts produce fewer headaches at tax time, but a business bank account helps to protect your personal assets. If creditors or customers attempt to sue your LLC, they might not be able to go after the funds you hold in a personal checking, savings or investment account.
LLCs need to pay an annual fee to the Washington, D.C., government to remain compliant and in good standing. You must pay the fee even if your business’s expenses are greater than its revenue. If you do not, the District of Columbia has the power to dissolve your LLC. As of 2022, the initial LLC filing fee in the District of Columbia is $99 and the LLC annual fee is $300. You need to submit your $300 payment by April 1 each year.
After establishing a separate bank account, you can consider applying for credit under your business name if needed. Be sure to establish a budget and track all income and expenses closely, especially during your first several months in business. Hiring an attorney and an accountant is the best way to ensure that your business remains on track toward its goals in the weeks, months and years after its launch.
The District of Columbia requires each business operating within district limits to obtain a business license. The requirement is mandatory for all LLCs, regardless of size or profitability. You must have completed each of the following four steps before you can apply for a District of Columbia business license:
Keep in mind that you need a business license prior to the launch of your business within the District of Columbia. The business license ensures that you operate the LLC safely and according to the established guidelines for your type of business. The government will determine which category your business falls into and whether you need to meet additional licensing requirements. Here are the options available when applying for your basic business license:
Completing and submitting the required documents online is always the fastest way to complete your LLC registration requirements. You may be able to get your business license the same day when you apply in person, but this depends on your business category and how many other applications come in at the same time.
Last, be sure to research the types of insurance your business will need and obtain the appropriate amounts of coverage to protect yourself, your employees and your assets.
This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.