Washington, DC Local Taxes & Fees: Business Tax Classification (2026)
Key Facts
- Minimum tax
- $250 ($1,000 if receipts over $1M)
- Personal-services exemption
- over 80% of gross income
- Standard exemption
- $5,000 of taxable income
- LLC default classification
- treated as a partnership
Summary
The District taxes unincorporated businesses separately from corporations, but exempts firms earning over 80% of income from personal services with capital not a material factor.
The term “unincorporated business” does not include: ... (3) A trade or business in which more than 80% of the gross income is derived from the personal services actually rendered by the individuals or the members of the partnership or other entity in the conducting or the carrying on of a trade or a business and in which capital is not a material income-producing factor;
Full Breakdown
D.C. Code § 47-1808.01 defines an "unincorporated business" as any trade or business run by an individual, trust, estate, partnership, or similar entity rather than a corporation. That classification triggers the separate unincorporated business franchise tax under § 47-1808.03, with a $250 minimum ($1,000 if District gross receipts exceed $1 million) after a $5,000 exemption under § 47-1808.04. The Code carves out businesses drawing more than 80% of gross income from personal services where capital isn't a material income-producing factor: those file as individual income instead. LLCs are classified as partnerships for District tax purposes under § 47-1808.06a unless classified otherwise for federal tax purposes.
Violations & Fines
Misclassifying a business or underpaying the unincorporated business franchise tax exposes the filer to Office of Tax and Revenue deficiency assessment, interest, and penalties under D.C. Code § 47-4312.
Frequently Asked Questions
Is a DC LLC automatically an unincorporated business for tax purposes?
What businesses are exempt from the unincorporated business tax?
Sources & Official References
Other rules in Washington
Compare Washington to another location·View the District of Columbia local taxes & fees overview
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