- Washington
What Do Therapists Need to Know About Taxes in Washington?
Washington doesn’t have a personal income tax, but don’t be fooled — therapists still have to deal with the state’s business taxes, including the B&O tax, licensing, and annual renewals. This guide breaks down what therapists in Washington need to know to keep their practice compliant and profitable.
Who this guide is for
This guide is for:
- Licensed Washington therapists (LMHCs, LMFTs, LICSWs, psychologists, etc.)
- Solo or group private practice owners
- Therapists offering in-person, telehealth, or hybrid services
- Anyone looking to avoid B&O tax surprises and structure their business right
Step 1: Pick the right structure for your practice
Choosing the right business structure impacts your liability, taxes, and paperwork.
Sole Proprietorship
- No registration required unless using a business name
- No personal liability protection
- All income subject to federal self-employment tax and B&O tax
- Easy to start, but high risk long-term
PLLC (Professional Limited Liability Company)
- Washington allows licensed professionals to form PLLCs
- Provides liability protection
- Pass-through taxation unless you elect S Corp
- Register with the Washington Secretary of State and your licensing board
S Corporation
- Lets you split income into salary and distributions
- Reduces self-employment tax
- Still subject to B&O tax on gross receipts — no deductions allowed
- Worth it once net income reaches ~$75K+
Professional Corporation (PC)
- Allowed but typically more rigid
- Can elect S Corp treatment
- Higher administrative burden, more common for group practices
Step 2: Know your state tax obligations
No personal income tax
- Washington does not tax individual income
- But you’re still on the hook for federal income tax and Business & Occupation (B&O) tax
B&O tax
- Applies to gross receipts, not net income
- Most therapists fall under “Service & Other Activities” classification
- Tax rate: ~1.5% of gross revenue
- No deductions allowed — you’re taxed on every dollar earned
- File quarterly or annually through the Washington Department of Revenue
Business license
- You must register for a Washington State Business License
- Most cities (e.g., Seattle, Spokane) also require local business licenses and may charge local B&O taxes
Annual report
- PLLCs and PCs must file an annual report with the Secretary of State
- Current filing fee: $60
Step 3: Pay taxes throughout the year — not just in April
Estimated taxes
- No state-level personal income tax to estimate
- Still need to make federal estimated payments if you expect to owe $1,000+
- Due: April 15, June 15, Sept 15, Jan 15
- Use EFTPS (IRS) to pay quarterly
Self-employment tax
- 15.3% applies to net income from sole props and default PLLCs
- S Corp reduces this by allowing salary/distribution split
- Still owe B&O on gross revenue regardless of structure
Filing requirements
- Sole prop: Schedule C (federal) + WA B&O returns + business license renewal
- PLLC: Annual report + federal personal return + WA filings
- S Corp: 1120-S + W-2s + WA B&O tax + business renewals
Step 4: Track and claim your deductions
While B&O tax is based on gross receipts, you still want to track deductions for federal purposes.
Deductible expenses for therapists
- Rent or home office (federal only)
- HIPAA-compliant software
- Insurance (malpractice, liability)
- CEUs, license renewals, supervision
- Phone, internet, business software
- Marketing and directories
- Retirement contributions (Solo 401k, SEP IRA)
- Self-employed health insurance
Step 5: When it’s time to consider an S Corp
The S Corp setup can help reduce your federal tax bill.
- Pay yourself a reasonable W-2 salary
- Take additional profits as distributions (not subject to self-employment tax)
- Still pay B&O tax on full gross income
- More admin, but worthwhile if netting $75K+
Step 6: Common mistakes therapists make
- Forgetting about the B&O tax — and not registering with the DOR
- Assuming “no income tax” means no business tax
- Not paying quarterly federal estimates
- Forming a standard LLC instead of PLLC
- Not renewing their business license or annual report
- Mixing personal and business finances
Step 7: Our recommendations by income level
Net Income Range Suggested Action
Under $50K Sole prop or PLLC is fine; register and pay B&O; track federal deductions
$50K–$100K Consider S Corp for federal savings; still pay B&O; run payroll
Over $100K Full S Corp setup; max out deductions; work with a CPA quarterly
Disclaimer: This guide is for informational purposes only and does not constitute legal, tax, or financial advice. While we make every effort to keep the content accurate and up to date, state laws and regulations can change without notice. You should consult a licensed professional in your state before making any decisions based on this information. Leichter Accounting Services is not liable for any errors or omissions, or for any actions taken based on the contents of this guide.
Need help figuring this out?
We help Washington therapists manage their B&O tax, federal filings, S Corp setup, and local compliance — so they can keep their practices running without the tax mess.
Book a consult or email us at david@leichtercpa.com