LLC vs. S Corp in Washington 2024: A Comprehensive Comparison

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LLC vs. S Corp in Washington: Understanding the Differences

Embarking on the entrepreneurial journey in Washington, also known as The Evergreen State, is an exciting and transformative experience. Washington LLC and S Corporation are two popular options that often top the list of considerations for entrepreneurs. This article serves as your comprehensive guide, comparing LLC vs. S Corp in Washington and ultimately assisting you in determining the best fit for you.

Dive into business formation with confidence and clarity as LLCBase expert analysis simplifies the complexities of LLCs and S Corps, shedding light on their unique advantages and drawbacks. So, let’s explore the fascinating world of LLCs and S Corps and set your business on the path to success in Washington.

What are an LLC and an S-Corp

A Limited Liability Company (LLC) is a popular legal business structure that offers a combination of benefits from both corporations and partnerships. It is specifically designed to provide personal asset protection to its owners, known as members. This protection ensures that the owner’s personal assets are separate from the business liabilities, such as debts and lawsuits.

In Washington, forming an LLC involves several steps, including paying an initial filing fee. Additionally, LLCs in Washington are required to pay an annual fee of $60 to maintain their legal status and stay compliant with the state regulations.

An LLC in Washington offers an attractive option for entrepreneurs seeking a flexible business structure with added liability protection and favorable tax treatment.

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On the other hand, an S-Corporation, or S-Corp, is not a separate legal business entity like an LLC. Rather, it is a tax classification that existing corporations and LLCs can elect. A business can bypass double taxation by opting for this tax status, as the profits and losses are directly passed through to the owner’s personal tax return. Starting an S Corp in Washington  allows business owners to report and pay taxes on their business income as part of their individual income tax filings, eliminating the need for separate corporate taxes.

In Washington, it is crucial for business owners considering this tax classification to fully understand the implications and requirements of being an S-Corp in Washington. This includes adhering to specific rules and regulations related to ownership, shareholder limits, and tax filing deadlines. If you want to start an S-Corp, LegalZoom will help you every step of the way!

LLCs and S-Corporations Comparison

Let’s explore the comparison between LLCs and S-Corporations to help you make an informed decision.

1. Taxation Differences in Washington

One of the main differences between LLCs and S-Corporations in Washington lies in how they are taxed. LLCs are typically subject to pass-through taxation, meaning the business profits and losses are reported on the owner’s personal tax return. In contrast, S-Corporations must adhere to specific tax requirements, including distributing salaries to shareholders and adhering to the state’s income tax rate.

  • Federal Taxes: When choosing between an LLC or S-Corporation in Washington, it’s essential to consider several federal tax factors. These factors include differences in Pass-Through Taxes and Self-Employment Taxes.
  • Pass-Through Taxes: Both LLCs and S-Corporations in Washington benefit from pass-through taxation at the federal level. Due to pass-through taxation, these entities do not pay federal income taxes as separate legal entities. Instead, their owners are required to pay federal income taxes on their share of the business income. This type of taxation prevents the company from being taxed twice. In contrast, C-Corporations in Washington are subject to double taxation, meaning they must pay federal taxes at the entity level and their owners’ taxes.
  • Self-Employment Taxes: Many LLC owners in Washington opt for S-Corporation taxation to reduce their self-employment taxes. An S-Corporation owner is not considered self-employed; they can become an employee of the company and receive regular salary benefits. Conversely, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings when calculating their self-employment tax. Share distributions determine the corporate income of S-Corporation shareholders. For example, suppose you are the sole owner of an LLC in Washington with an annual profit of $150,000 and a fair wage for someone in your location doing the same job as you is $100,000. Under the default LLC taxation, you must pay self-employment taxes on the $150,000 profit. However, if your company is taxed as an S-Corp in Washington, you would be responsible for paying payroll taxes only on the $100,000 standard wage. Income tax would still apply to the remaining $50,000.
  • Washington State Taxes: No major tax differences exist between regular LLCs and S-Corporation LLCs at the state level. For filing an annual report in Washington, it costs $60, which can be paid to the DCRA. Additionally, before forming the LLC, you must pay $200 (online and $180 by mail).

On the other hand, if you form an S-Corporation in Washington, you will also need to pay taxes. This includes the S-Corp filing fee and an annual report fee after establishing your S-Corp for one year. You must also go to the DCRA to make these payments.

2. Liability Protection

LLCs and S-Corporations in Washington provide liability protection for their owners. This means that the owner’s personal assets are protected from business debts and lawsuits. However, S-Corporation status does not offer the same level of protection as an LLC, as it is primarily a tax designation.

The following factors exclude certain individuals and entities from becoming shareholders in an S-Corporation in Washington:

  • Insurance businesses
  • Domestic international sales corporations
  • Partnerships
  • Corporations
  • Unauthorized immigrants
  • Specific financial institutions

While understanding the ownership requirements of LLCs and S-Corporations in Washington is essential, seeking legal counsel when establishing your business is still advisable. For assistance with your Washington LLC or Washington S-Corp, consider consulting with professionals.

3. Ownership Requirements and Restrictions

LLCs and S-Corporations in Washington have specific ownership requirements and restrictions. For instance, an LLC can have unlimited members, while an S-Corporation is limited to 100 shareholders. Additionally, S-Corporations can only have one class of stock and must follow strict rules regarding shareholder eligibility.

Easier to File in Washington: LLCs or S-Corporations

While filing an LLC or S-Corporation in Washington requires time and preparation, proper planning can make the process manageable. Both LLCs and S-Corporations can be filed through the Washington Registered Agent.

To start an LLC in Washington, you must submit the Certificate of Formation to the Washington Secretary of State. This document should contain all the necessary information for your LLC, along with the payment of the associated filing fee.

On the other hand, if you want to elect S-Corporation status for your Washington LLC, you will need to submit additional paperwork. First, file Form 8832 with the Internal Revenue Service (IRS) to indicate your preference to tax your LLC as a corporation rather than a partnership. Next, submit Form 2553 to choose S-Corporation status.

Remember, maintaining legal compliance is crucial for your LLC. This means submitting annual tax returns and reports after establishing your business entity.

With that, we’ve carefully curated a list of the best LLC services in Washington to support and guide you through filing an LLC and S-Corp. Check them out!

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Filing Process for LLCs vs. S-Corporations in Washington

Forming an LLC in Washington involves several crucial steps. To start, you must file Certificate of Formation with the Washington Secretary of State and pay the associated filing fee of $200 (online and $180 by mail). Once your LLC is established, you must comply with annual reporting and tax requirements.

On the other hand, if you want to elect an S-Corporation status for your existing LLC or corporation, the process is slightly different. Firstly, you must file Form 8832 with the Internal Revenue Service (IRS) to classify your LLC as a corporation for tax purposes. Then, you must submit Form 2553 to the IRS to choose S-Corporation status. In Washington, the S-Corporation filing fee is $180 for online and by mail filing.

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The LLC formation and S-Corporation election processes can be completed through two methods, online and by mail. Online incorporation is available at Get the eForm from the SOS site, login/subscribe to the site, fill up the form, submit online, while offline incorporation can be done at Send the form by mail to Secretary of State, Corporations Division. P.O. Box 40234. It is essential to stay up-to-date with any ongoing reporting and tax requirements for your chosen business structure.

The filing process for LLCs and S-Corporations in Washington varies slightly, with each requiring specific forms and fees. It’s essential to consider the unique requirements of each business structure before making a decision. Consulting with a legal or financial advisor can provide valuable guidance on which structure best suits your business in Washington.

FAQs

What is an LLC in Washington?
An LLC is a business structure in Washington state that protects personal assets from business debts and obligations.
What is an S Corp in Washington?
An S Corp, also known as a Subchapter S Corporation, is a business structure that provides tax benefits while protecting personal assets.
What are the main differences between LLC and S Corp in Washington?
The main difference is the way they are taxed. LLCs are taxed as pass-through entities, while S Corps are subject to income taxes.
Can an LLC be taxed as an S Corp in Washington?
Yes, an LLC can elect to be taxed as an S Corp in Washington.
What are the taxation requirements for an LLC in Washington?
LLCs in Washington are subject to a state business tax and any applicable local taxes.
What are the taxation requirements for an S Corp in Washington?
S Corps in Washington are subject to the state’s Business and Occupation (B&O) Tax.
Do LLCs have shareholders in Washington?
No, LLCs do not have shareholders in Washington.
Do S Corps have shareholders in Washington?
Yes, shareholders are a requirement for S Corps in Washington.
Can an LLC have unlimited shareholders in Washington?
Yes, an LLC in Washington can have an unlimited number of members.
Can an S Corp have unlimited shareholders in Washington?
No, an S Corp in Washington cannot have more than 100 shareholders.
Can LLCs be owned by non-US citizens or residents in Washington?
Yes, foreign nationals and nonresident entities can own an LLC in Washington.
Can S Corps be owned by non-US citizens or residents in Washington?
No, S Corps in Washington require all shareholders to be US citizens or residents.
What is the cost to form an LLC in Washington?
The filing fee to form an LLC in Washington is currently $200 (as of October 2021).
What is the cost to form an S Corp in Washington?
The filing fee to form an S Corp in Washington is currently $180 (as of October 2021).
Can an LLC operate in multiple states, including Washington?
Yes, an LLC can operate in multiple states, including Washington.
Can an S Corp operate in multiple states, including Washington?
Yes, an S Corp can operate in multiple states, including Washington.
Do LLCs have annual reporting requirements in Washington?
Yes, LLCs in Washington are required to file an annual report with the Secretary of State.
Do S Corps have annual reporting requirements in Washington?
Yes, S Corps in Washington are required to file an annual report with the Secretary of State.
Are LLCs required to hold annual meetings in Washington?
No, LLCs in Washington are not required to hold annual meetings.
Are S Corps required to hold annual meetings in Washington?
Yes, S Corps in Washington are required to hold annual shareholder meetings.
Are LLCs subject to double taxation in Washington?
No, LLCs in Washington are not subject to double taxation.
Are S Corps subject to double taxation in Washington?
No, S Corps in Washington are also not subject to double taxation.
Can an LLC issue both common and preferred stock in Washington?
No, LLCs cannot issue stock in Washington, including preferred stock.
Can an S Corp issue both common and preferred stock in Washington?
Yes, S Corps in Washington can issue both common and preferred stock.
Do LLCs have limited liability protection in Washington?
Yes, LLCs in Washington have limited liability protection for individual members.
Do S Corps have limited liability protection in Washington?
Yes, S Corps in Washington also have limited liability protection for individual shareholders.
Are there restrictions on who can form an LLC in Washington?
No, anyone can form an LLC in Washington if they meet the state’s legal requirements.
Are there restrictions on who can form an S Corp in Washington?
Yes, only US citizens or residents can form an S Corp in Washington.
How long does it take to form an LLC in Washington?
The processing time to form an LLC in Washington is usually between 1-2 business days.
How long does it take to form an S Corp in Washington?
The processing time to form an S Corp in Washington is usually between 5-7 business days.

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Conclusion

Navigating the world of business structures and filings may seem daunting, but with the right information and guidance, you can confidently make the best decision for your unique entrepreneurial journey. Remember, the path to success is paved with well-informed choices and a clear understanding of your business goals. So, take the time to research, consult with professionals, and weigh the pros and cons of LLCs and S-Corporations in Washington.

As you embark on this exciting adventure, remember that a strong foundation built on sound legal and financial principles will be the backbone of your thriving enterprise. Embrace the challenge, stay curious, and always remember your passion and vision. Visit LLCBase today to access valuable resources, expert guidance, and personalized support tailored to your needs. Don’t wait any longer – let us help you realize your entrepreneurial dreams. 

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