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

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

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.