To start a sole proprietorship in Washington, you register with the Washington State Department of Revenue, pay a $50 processing fee, and receive a business license along with a Unified Business Identifier (UBI) number. The application runs through the Department of Revenue’s Business Licensing Wizard online, or by mail through the Business Licensing Service in Olympia.1Washington Department of Revenue. Apply for a Business License2Washington Department of Revenue. Variable Business License Processing Fees That’s the mechanical part. The rest of getting started is understanding what you’ve taken on: personal liability for the business, federal self-employment tax on top of income tax, and Washington’s Business and Occupation tax, which is charged on gross revenue rather than profit.
Understand What You’re Agreeing To
A sole proprietorship is not a separate legal entity. You and the business are the same thing in the eyes of the law. Every dollar the business earns is your personal income, and every debt it takes on is your personal debt. There is no legal wall between the business bank account and the rest of your financial life. If the business gets sued or can’t pay a vendor, creditors can go after your personal savings, your car, or your home.
That unlimited personal liability is the trade-off for simplicity. You don’t file formation documents with the Secretary of State the way an LLC or corporation does. You just register with the state and start doing business. If your work involves meaningful risk of lawsuits or debt, weigh that exposure honestly before choosing this structure over an LLC.
Register With the Department of Revenue
Every sole proprietorship operating in Washington needs a business license from the Department of Revenue. The application assigns you a UBI, a nine-digit number that functions as your account number across the Department of Revenue, the Department of Labor and Industries, and the Employment Security Department.3Washington Department of Revenue. Business Licensing and Renewals FAQs You’ll use it every time you file taxes or update your business information.
The processing fee for a new business is $50.2Washington Department of Revenue. Variable Business License Processing Fees Most state and city endorsements attached to the license must be renewed annually.4Washington Department of Revenue. Get or Renew Your Business License
Register a Trade Name if You Need One
If you plan to operate under any name other than your own legal name, register a trade name (sometimes called a “Doing Business As” or DBA). In Washington, trade name registration is handled through the same Business Licensing Service application where you get your license and UBI, so you don’t file with a separate agency.5Washington Department of Revenue. Register Trade Names If you operate under your own full legal name, no trade name registration is required.
Check Local and Industry Requirements
The state license alone may not be enough. Many cities and counties in Washington require their own endorsements before you can legally operate within their boundaries. Most of these can be applied for through the same state Business Licensing Service system, so you don’t have to track down each jurisdiction separately.1Washington Department of Revenue. Apply for a Business License Some cities handle their own licensing directly. If yours isn’t in the state system, check with the city finance department.
Home-Based Businesses and Zoning
Running the business from home doesn’t exempt you from licensing, and it adds a layer: local zoning. Most Washington cities allow home-based businesses but place restrictions on signage, customer traffic, noise, and the number of non-resident employees who can work on-site. Check your city’s zoning ordinance before you commit to operating from home. A zoning violation can result in fines and an order to cease operations even if you have a valid state business license.
Federally Regulated Industries
Some industries require federal licenses or permits on top of everything at the state level. If your business involves alcohol sales, firearms, aviation, commercial fishing, radio or television broadcasting, or the transport of goods by sea, you’ll need permits from the relevant federal agency.6U.S. Small Business Administration. Apply for Licenses and Permits Agriculture businesses that import animals or move them across state lines also fall into this category. These permits are separate from your Washington license and follow their own timelines.
Get an EIN (Even if You Don’t Have To)
A sole proprietor can use a Social Security Number for federal tax purposes unless they have employees, file excise or pension tax returns, or operate a Keogh plan. If any of those apply, you need an Employer Identification Number from the IRS, which is free and available online.7Internal Revenue Service. Sole Proprietorships Even when it isn’t required, getting one is worth doing. Banks typically want an EIN to open a business checking account, and it keeps you from handing your Social Security Number to every vendor and client.
Plan for Federal Taxes
Schedule C and Income Tax
Business income and expenses flow through Schedule C, filed as part of your personal Form 1040.8Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship) Your net profit from Schedule C becomes part of your adjusted gross income and is taxed at your regular individual rate. Washington has no state income tax on individuals, so business profits face federal income tax only.9Washington Department of Revenue. Business and Occupation Tax
Self-Employment Tax
On top of income tax, you owe self-employment tax. When you work for someone else, you and the employer each pay half of Social Security and Medicare taxes. As a sole proprietor, you pay both halves. The rate is 15.3%, split into 12.4% for Social Security and 2.9% for Medicare.10Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) The Social Security portion applies to the first $184,500 of net earnings in 2026.11Social Security Administration. Contribution and Benefit Base The Medicare portion has no cap, and an additional 0.9% Medicare surcharge kicks in if earnings exceed $200,000 (or $250,000 if married filing jointly).
You can deduct half of your self-employment tax when calculating adjusted gross income, which softens the hit. Even so, for a sole proprietor clearing $80,000 in profit, self-employment tax alone runs over $11,000 before income tax enters the picture. Budget for it.
Quarterly Estimated Payments
Because no employer withholds taxes from your earnings, you’re expected to pay estimated taxes four times a year. If you expect to owe $1,000 or more in federal tax at filing, quarterly estimated payments are required.12Internal Revenue Service. Estimated Taxes Missing or underpaying them triggers a penalty even if you end up getting a refund. Use IRS Form 1040-ES to calculate and submit each payment.
Qualified Business Income Deduction
Sole proprietors may qualify for the Section 199A deduction, which allows you to deduct up to 20% of your qualified business income from taxable income. The deduction was made permanent by the One Big Beautiful Bill Act signed in 2025. The calculation compares 20% of business income against limits tied to W-2 wages paid and the value of business property. For specified service businesses like law, accounting, consulting, and medicine, the deduction begins to phase out at higher income levels, roughly above $272,300 for single filers and $544,600 for married couples filing jointly in 2026. Confirm eligibility with a tax professional.
Plan for Washington State Taxes
Washington’s tax structure is unusual. There is no state income tax, but the state imposes a Business and Occupation (B&O) tax on gross receipts. This catches new owners off guard: B&O is based on total revenue, not profit. You owe it even if the business loses money for the year.9Washington Department of Revenue. Business and Occupation Tax
B&O Classifications and the Small Business Credit
The B&O rate depends on what your business does. Washington groups activities into classifications like retailing, wholesaling, manufacturing, and service. Each has its own rate, and if your business spans multiple activities, you may owe under more than one classification. The individual rates are relatively low, but because they apply to gross income with no deductions for labor or materials, the effective burden can be significant on thin margins.
Washington offers a credit that can partially or fully offset B&O tax for small businesses. If your total B&O liability falls below certain thresholds, the credit reduces or eliminates what you owe. For businesses that earn at least half their income from service activities, the annual threshold is $3,840 in total B&O liability. For businesses primarily in retail, wholesale, or manufacturing, the threshold is $1,320.13Washington Department of Revenue. Credits Many new sole proprietorships fall below these numbers in the early years, effectively zeroing out B&O.
Sales Tax
If you sell tangible goods or certain services, you’re responsible for collecting retail sales tax from customers and remitting it to the Department of Revenue. Washington’s state sales tax rate is 6.5%. Local rates stack on top, and the combined rate varies by location. You act as a collection agent for the state. The sales tax is not your money, and failing to remit it is taken seriously.
How Often You File
Filing frequency for B&O and sales tax depends on your gross income. For most business types, annual filing applies if your Washington gross income is under $60,000. Quarterly filing kicks in between $60,000 and $100,000, and monthly filing is required above that. Some industries, like construction and restaurants, start at quarterly regardless of income.14Washington Department of Revenue. Filing Frequencies and Due Dates The Department of Revenue assigns your frequency when you register, and you can request a change if income shifts significantly.
If You Plan to Hire
Bringing on employees changes your tax and insurance picture substantially. Expect a meaningful jump in administrative work and cost.
Workers’ Compensation
Washington requires workers’ compensation coverage (called industrial insurance) for nearly all employees. It is not optional, and there is no small-business exemption. You register through the Department of Labor and Industries, and premiums are paid quarterly based on hours worked and the risk classification of the job.15Washington State Department of Labor and Industries. Insurance Higher-risk work like construction carries significantly higher premium rates than office work.
Unemployment Insurance
If you employ even one person, register for unemployment insurance through the Employment Security Department.16Washington Department of Revenue. Unemployment Insurance At the federal level, you’ll also owe Federal Unemployment Tax (FUTA) on the first $7,000 of each employee’s wages. The FUTA rate is 6.0%, but paying Washington state unemployment taxes on time earns a credit of up to 5.4%, reducing the effective federal rate to 0.6%.17Internal Revenue Service. Form 940, Employers Annual Federal Unemployment (FUTA) Tax Return – Filing and Deposit Requirements
Paid Family and Medical Leaveh3>
Washington’s Paid Family and Medical Leave program is funded through a payroll tax that both employers and employees contribute to. Starting January 1, 2026, the premium rate is 1.13% of each employee’s gross wages. Employers pay 28.57% of the premium and employees pay the remaining 71.43%.18Washington State Paid Family and Medical Leave. Updates Premiums are calculated and remitted quarterly.
WA Cares Fund
Washington runs the WA Cares Fund, a long-term care insurance program funded by a 0.58% payroll tax on employee wages. An important wrinkle for sole proprietors: self-employed individuals are not automatically enrolled. You contribute to and earn benefits from WA Cares only if you affirmatively opt in.19WA Cares Fund. How the Fund Works If you have employees, though, the 0.58% premium applies to their wages regardless of your own enrollment status.
New Hire Reporting
Washington requires employers to report every new hire to the Division of Child Support within 20 days of the hire date. This applies regardless of the employee’s age or how many hours they’ll work.20Washington State Department of Social and Health Services. New Hire Reporting You’ll need the employee’s name, address, Social Security Number, and hire date, along with your business name, address, and EIN.