A TALE OF TWO TAXES

The Washington C-Corp's Guide to Navigating Federal & State Tax Systems

You Operate in Two Different Tax Worlds

As a C-Corporation in Washington, your tax strategy must fight on two fronts. The federal government taxes your profit, while Washington State taxes your total revenue. Understanding this core difference is the key to your financial success.

THE FEDERAL WORLD

The IRS cares about what you keep.

Tax Base

NET PROFIT

Tax Rate

21%

THE WASHINGTON WORLD

The state cares about what you make.

Tax Base

GROSS REVENUE

B&O Rate

~0.5-1.75%

The Truth About "Double Taxation"

Double taxation sounds scary, but it's manageable. It means profits are taxed once at the corporate level, and again if distributed to shareholders as dividends. The key is to pay owner-employees a reasonable salary, which is a deductible expense for the corporation, avoiding the first layer of tax.

This chart shows how $100,000 in corporate profit is taxed if it's all distributed as dividends. A salary would change this picture dramatically.

Your Most Important State Decision: B&O Classification

Your Washington B&O tax rate depends entirely on your business classification. Choosing the wrong one can more than triple your tax bill. The "Service" category is the default and most expensive; see if your business qualifies for a more favorable rate.

The Employer's Critical Compliance Flow

1. State UI Tax

Pay Unemployment Insurance taxes to the Employment Security Dept. (ESD) quarterly.

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2. State Workers' Comp

Pay mandatory Workers' Comp premiums to the Dept. of Labor & Industries (L&I).

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CRITICAL WARNING: The Insurance Gap

Washington's mandatory L&I policy DOES NOT include Employer's Liability Insurance. This leaves you exposed to lawsuits from injured employees. You MUST purchase separate "Stop-Gap Coverage" from a private insurer to be fully protected.

Your Year-Round Compliance Roadmap

January 31

Provide W-2s to employees
File Form 1099s

April 15

File Corp. Tax Return (Form 1120) or extension
Pay any federal tax due
Pay 1st quarter estimated federal tax

June 15 & Sept 15

Pay 2nd & 3rd quarter estimated federal tax

Oct 15 & Dec 15

File final corp. return if extended (Oct 15)
Pay 4th quarter estimated federal tax (Dec 15)

Note: State filing deadlines (B&O, UI, L&I) are typically quarterly and vary. This roadmap focuses on key federal dates.