To form a Washington DC limited liability company (LLC), you must understand the expenses involved. But figuring out all of your potential costs can be tricky.
We wrote this article to help people like you understand the cost of starting a Washington DC LLC.
By the end of this article, you will know:
- The cost of a Washington DC LLC formation
- Extra expenses that can help your business
- How to pick the best formation strategy
Keep reading to learn everything you need to know about Washington DC LLC formation expenses.
Total Washington DC LLC Cost – Starting at $198
According to the Washington DC Department of Consumer and Regulatory Affairs (DCRA)’s Corporations Division Fees, the absolute minimum cost to start an LLC in Washington DC is $198.
This includes two items:
- Washington DC Certificate of Organization filing fee: $99
- Washington DC Basic Business License: starting at $99
You will also need to register your LLC with the Office of Tax and Revenue, but this is free of cost.
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Washington DC LLCs – the Basic Costs
The total cost of starting a Washington DC LLC varies. But, the bare minimum is $198. We’ve explained your mandatory expenses in the sections below.
Certificate of Organization Filing Fee — $99
Your Certificate of Organization is the official legal document that creates an LLC. To start an LLC in Washington DC, you must file a certificate of organization with the Department of Consumer and Regulatory Affairs (DCRA). This process is easier than you might think. All you need to do is list some details about your business.
Basic Business License — Starting at $99
The fees vary greatly depending on your industry. However, the lowest rate is $99.
Tax Office Registration — Free
Washington DC requires all LLCs to register with the Office of Tax and Revenue to pay taxes. There is no fee to do so.
Washington DC LLCs – Optional Costs to Consider
On top of these required costs, we suggest you investigate some helpful optional expenses. You can still start an LLC without incurring these costs, but they will often benefit your company.
Expedited LLC Filing Fees — $50 to $100
Standard LLC processing time is about five business days.
But, you can purchase expedited three-day service for a $50 fee or one-day service for a $100 fee. You will automatically be charged the $100 fee for one-day service if you submit your filing in person.
Registered Agent Fee — about $100 per year
Washington DC law requires all LLCs to name a registered agent to receive legal documents for the company. You will include your registered agent details on the certificate of organization, and there is a $50 fee if you ever need to change your agent.
New LLC owners often want to be their own LLC’s registered agent. But many do not realize this means they must always be available to accept documents during normal business hours. Agents’ addresses are also listed publicly online, so you may receive a lot of junk mail or have your privacy breached in other ways.
However, you can avoid these issues by using a professional registered agent service. These services only charge around $100 per year, and they will manage all of the registered agent responsibilities for your LLC.
Check out our Best Registered Agent Services article for some of our recommendations.
Operating Agreement — Variable
An LLC operating agreement is a legal contract that lays out the rules for the business. These contracts explain essential things like the members’ rights and obligations and the process for exiting or joining the company.
Washington DC does not require LLCs to create operating agreements. But we strongly suggest that you have one. And even though you are allowed to write your own, it’s not recommended unless you have some previous experience.
A better option is to hire a lawyer to draft your LLC operating agreement. However, attorneys don’t come cheaply. If you want to keep your costs down, you can hire an LLC formation service to write your operating agreement for as little as $39.
DBA Fee — $55
LLC owners often run their companies under “doing business as” or “DBA” names. A DBA is any name that a business uses besides its official name. For instance, you might want to lose the “LLC” from your business’s name to make it seem less formal.
In Washington DC, DBAs are called “trade names.” If you want to use a DBA for your LLC, you must submit a Trade Name Registration to the DCRA. You can file online or submit a paper form. There is a $55 fee.
Name Reservation Fee — $50
If you have picked a name for your LLC but aren’t ready to file your formation documents, Washington DC lets you reserve a name for 120 days. This will keep others from being able to take the name during this time.
Domain Name — about $20 per year
These days, making a website for your business is crucial. In order to build your LLC’s website, you will first need to purchase a domain. Luckily, domain names are reasonably priced and simple to get.
It’s vital that you buy your domain name quickly. If you don’t, someone else can purchase it first. For instance, “domain squatters” will take domains for new LLCs and sell them for a profit.
You can buy a domain from GoDaddy.com or a similar service for about $20 to $50 per year. And these websites usually offer discounted rates, so you will probably be able to pay less than that.
Getting an Employer Identification Number (“EIN”) — Free
An EIN is a 9-digit tax ID number that is assigned to a company by the Internal Revenue Service. EINs are similar to social security numbers, but for businesses instead of people. While some LLCs must get EINs, others aren’t required to apply for one.
Still, we suggest that all LLCs have an EIN. For one thing, most banks require an EIN to open a business bank account. Plus, using your EIN allows you to keep your SSN private, which will help protect you against identity theft.
Foreign LLC Qualification Fees — about $100 per extra state
If you plan to expand into other states, you should budget for some additional costs. Even though you aren’t required to start more than one LLC, you must register as a foreign limited liability company in all the states where you want to do business.
Foreign LLC filing fees will vary between states, but they generally cost about $100.
Writing Formation Costs Off
You can typically deduct LLC formation costs from your federal income taxes as business startup expenses. The IRS provides expansive insight into this topic, so make sure you check out the IRS website for more info.
LLCs are usually considered to be “pass-through” tax entities. This status allows LLC owners to deduct up to $5,000 of startup costs from their federal taxes in their business’ first year.
Renee decides to start a single-member LLC and open a bakery in Washington DC. Her formation costs are as follows:
- Washington DC LLC Certificate of Organization: $99
- Washington DC Bakery License Fee: $517
- Operating Agreement: $40
- Washington DC Registered Agent Service Fees: $99
- DBA Fee: $55
- Name Reservation Fee: $50
- Web Domain Costs: $30
As a pass-through entity, the LLC itself won’t pay income taxes. But, Renee will be required to report her earnings from the LLC and any deductions on her personal income taxes.
Renee’s total formation costs were $890. Before applying deductions, her total taxable income was $38,000. By deducting her expenses, Renee lowers her taxable income to $37,110. This will reduce her 2022 federal income taxes from $4,361 to $4,254.
While this is not a significant drop, LLC owners who deduct costs will realize substantial savings over time.
Cheapest Way to Start an LLC in Washington DC
When deciding on an approach for starting your LLC, keep your business's particular needs in mind. We’ve explained some of the most common formation methods below.
Formation Service – $39 + state fees
LLC formation services are a popular option. Although a lawyer won’t handle the process, these companies specialize in starting LLCs and other business entities.
A formation service is a great choice for most LLCs. The advantages of this approach include:
- They’re easy. In most cases, a formation service will have helped hundreds of people through the exact process you are struggling with now. They have all the documents, information, and expertise you need right on hand.
- They don’t cost much. Because formation services have such a large volume of business, they don’t have to charge their clients that much money.
- They’re reliable. All of the formation services’ products and procedures have been tested hundreds of times over in the real world. That kind of experience should give you peace of mind and confidence going forward.
- They’re fast. Formation services have seen almost every business formation situation already. Chances are, they have many solutions for you that are ready right now before you even know you need them.
Just know that LLC formation services aren’t the right fit for everyone’s needs. The disadvantages of this method include:
- They’re not the best solution for complex LLCs. If you are forming a complicated company or one in a heavily regulated industry, you will have concerns that probably need more focused expertise in that area of business.
- Even if a formation service is a good fit, you can expect upselling. Formation services have to make money too, and some of them may pressure you to buy formation products or business services you don’t need. Even when you are using a formation service, you need to be a smart and informed consumer.
Using a professional LLC formation service can be a great way to set up a business. Check out our Best LLC formation services article for some of our suggestions.
You can also choose to have an attorney handle your LLC formation. This option allows you to entrust your business to a legal professional. Just remember that lawyers can be pricey. In fact, they often charge rates of several hundred dollars per hour.
Even with the expense, there are significant advantages to hiring a lawyer:
- Lawyers help you manage risk. If you are starting a business with complicated legal issues, hiring a lawyer would be the best choice.
- Lawyers offer more customization when you need it. Do you need specific things put in an operating agreement? Is your company going to have a unique ownership structure? You may need an attorney to make sure these issues are handled properly.
But, the drawbacks of this method typically outweigh the benefits:
- Lawyers cost more than any other option. The price tag alone should convince you that if you don’t need a lawyer, it’s not worth hiring one.
- Finding a lawyer takes a long time. Getting a lawyer who specializes in what you need, costs what you’re willing to pay, and can work with you well is a tall order.
- Lawyers also take longer to form a business than a formation service. Because lawyers are also very careful people, they will generally take much longer to form your company than non-lawyers would. Fortunately, most people don’t need a lawyer. In 90% of cases, a formation service will do just fine.
Do it Yourself
Another common approach is to just do it all yourself. But make sure to remember that your time is valuable. Any time you spend completing LLC formation documents can’t be spent on other parts of your business.
The strengths of the DIY formation approach include:
- Personal knowledge. A DIY business owner will learn a lot about the process while forming their own business, and they probably will retain that knowledge for years to come.
- It costs less upfront. If you don’t account for the value of your time, a DIY solution is the cheapest option.
Just remember that there are also disadvantages:
- You’re losing money when you consider how much time it takes to DIY. If you figure out that your time is worth $30 per hour, and you take 20 hours to complete your business formation, you have essentially spent $600 on business formation.
- There’s the risk of making a mistake. DIY business owners can easily make a mistake with all the paperwork that can cost them even more time and money.
- It’s a headache. State workers are very helpful, capable people. But they will also tell you that the laws and rules governing business formation are not easy, and they follow those rules for a living. It’s going to be even harder for you.
Annual Washington DC LLC Fees: How Much Will it Cost to Maintain your LLC?
Washington DC requires all LLCs to file biennial reports with the DCRA every other year. You can file online, and there is a $300 fee.
You will also be required to renew your LLC’s business license.
Some of your optional expenses will also be due periodically. For instance, you may need to pay the following:
- Registered agent service fee: approximately $100
- Domain name registration: $20 to $60
How Much are LLC Taxes in Washington DC
As “pass-through” entities, LLCs are not to pay income taxes. Instead, you will list the LLC’s earnings on your personal income taxes.
However, many LLCs will be subject to DC’s Unincorporated Business Franchise Tax. If your LLC’s gross receipts exceed $12,000 for the year and 20% or more of its gross income is not derived from personal services rendered by the members, you will likely have to pay this tax.
Washington DC LLC Formation Costs Quick Links
- Washington DC Online Filing
- Washington DC Business License Application
- Washington DC Corporations Division Fees
- Washington DC Department of Consumer and Regulatory Affairs
- Washington DC Office of Tax and Revenue
- IRS — apply for an EIN online
- IRS information regarding the federal tax treatment of LLCs
Washington DC LLC Formation Costs FAQs
How much does it cost to start an LLC in Washington DC?
The lowest possible cost is $198. But, it may cost more based on the industry of your LLC.
What is the cheapest way to start an LLC in Washington DC?
A do-it-yourself approach is the least expensive in terms of money spent. But if you account for the value of your time, the most cost-effective method is frequently an affordable LLC formation service.
Do I need to hire an attorney to form an LLC in Washington DC?
No. You don’t need an attorney. A DIY approach or an LLC formation service will be sufficient for most LLCs.
Can I pay to form an LLC more quickly in Washington DC?
Yes. You can pay for three-day service for a $50 fee and one-day service for a $100 fee.