Washington Tax ID (EIN) Number & Business Registration
The state of Washington is seeing an incredible rate of economic growth. In the past few years, Washington has been one of the best states in the country in terms of economic growth, and consistently outpaces the national average. There are more than 590,000 small businesses in the state, which means you’ll find yourself right at home within a community of like-minded entrepreneurs, and more than 1.3 million Washington employees work for small businesses, which gives the state an impressive talent pool for entrepreneurs just starting out.
Steps to Obtain your Washington Tax ID & Business Registration:
- Business Formation in Washington
- Obtain your Federal Tax ID (EIN) Number
- Washington State Tax ID Number
- Washington Local Licenses and Permits
Before you get too far, you’ll need to decide how you’re going to structure the business. Here are your options of different business entity types:
- Sole proprietorships and partnerships. Sole proprietorships are probably the simplest type of business, but they offer the least amount of protection. Here, you’ll make income as an individual, and pay taxes on that income as you would any other kind of personal income. Partnerships work much the same way, but allow two or more people to take part in a single business. The downside here is that all the liability in these businesses will fall on the individual, which means you could be held accountable for anything and everything that goes wrong in the business.
- LLCs. LLCs are the next step up, and like their name (limited liability company) suggests, they offer a limited type of liability protection. LLCs are treated as a legally distinct entity, so you’ll be protected from some types of legal action, and are pass-through entities, so you’ll be taxed like an individual only when you withdraw profits or a salary from the business.
- C-corporations and S-corporations. Corporations offer even more liability protection, and the ability to raise funds through shareholders, but are subject to their own system of taxes—which means you could be responsible for paying double taxes on income made with these businesses. They’re also notorious for requiring copious amounts of paperwork. The main difference between C-corporations and S-corporations is the number of shareholders allowed; S-corporations are limited to 100 members.
Washington is a unique state because it’s one of only a few where there is no personal state tax or corporate income tax. In other words, you won’t have to pay state taxes on any income you make in your business, regardless of how it’s structured. Instead, you’ll need to pay the Business and Occupation (B&O) tax. You may also need to pay sales and use taxes, property taxes, and industry-specific taxes, such as taxes on fuel or liquor.
Before you get much further, you’ll need to register your business with an employer identification number (EIN). The best way to think of your EIN is to compare it to your personal social security number (SSN). This is a signature identifier, and you’re going to use it for a variety of business functions, such as applying for a bank account or building credit. You’ll also need it when hiring an employee, or establishing a partnership with another company.
Most of all, your EIN is important for filing year-end taxes. It’s how you’ll identify your company and pay the federal taxes due at the end of the year.
While EINs aren’t terribly complicated, they can be difficult and confusing for new entrepreneurs. If you’d like some help with the process, you can apply online – obtain your EIN using the Tax ID Number Obtainment Service, which can get you set up with an EIN in less than an hour.
Even though you won’t pay the same types of state taxes in Washington that you would in other states, you still need to register your business with the state. You’ll get a unique state tax ID number, which you can use for a variety of applications, and you’ll register for sales taxes and other taxes you may be responsible for paying (such as excise taxes on special products). Be sure to comply with the state Business & Occupation tax as well, which is unique to the state of Washington.
You may need a license or permit to operate your small business in Washington. While there isn’t a one-size-fits-all license that will cover your business in all situations, there are a variety of specialty licenses or permits you’ll need for specific applications. For example, you may need special licensing to serve alcohol or sell certain types of products.
Because this phase of the process can get a little messy, Washington offers an interactive app that will help you determine whether your business requires any special licensure or permits. Be sure you also check with your city and county before opening the business.
With your business registered with both federal and state governments and your licenses and permits acquired, you should be ready to start making money. Entrepreneurship is oftentimes a long and challenging journey, so take your time, and make sure you’re doing everything correctly – make sure your business gets started with the right first steps.