Washington Sole Proprietorship vs LLC:
Fees, Taxes, and Decision Guide (2026)
Washington has no state personal income tax but applies B&O tax to gross receipts, which both sole proprietors and LLCs pay. LLC filing is $200; annual report is $60.
Washington LLC Fees
$200
Certificate of Formation filing fee
$60 / yr
Annual report fee
$0 (no PIT)
State personal income tax
1.5%
B&O tax (services classification)
5-Year Cost Comparison for Washington Residents
| Structure | Year 1 | Years 2-5 (each) | 5-Year Total (state-level) |
|---|---|---|---|
| Sole Proprietorship | $90 Business Licence | $0 | $90 |
| Washington LLC | $350 | $60 | $590 |
LLC Year 1 includes $200 filing + $90 Business Licence Application + $60 first annual report. B&O tax applies under both structures and is not included above.
Washington-Specific Considerations
No state personal income tax
Washington is one of nine states (along with Florida, Texas, Nevada, Tennessee, New Hampshire dividends-only, South Dakota, Wyoming, and Alaska) with no state personal income tax. Both sole proprietors and LLC members pay zero state PIT on business profit. Federal income tax and federal SE tax still apply.
Business and Occupation (B&O) tax applies to gross receipts
Instead of an income tax, Washington levies the B&O tax on gross receipts. Rates by classification: 0.471% retailing, 0.484% manufacturing and wholesaling, 1.5% services and other business activities, 1.75% gambling/contests, others. There is no deduction for cost of goods sold or expenses - tax is on gross revenue. The Small Business B&O Tax Credit phases out for taxpayers with limited B&O liability; small operations may pay $0 or a small amount.
Annual report due last day of anniversary month
Washington LLCs file an annual report with the Secretary of State by the last day of the anniversary month each year. Fee is $60. Failure to file by the due date results in administrative dissolution after a grace period.
Business License Application required for both structures
All Washington businesses (sole props, LLCs, corporations) must file a Business Licence Application with the Department of Revenue and obtain a UBI (Unified Business Identifier) number. The application also handles B&O tax registration, sales tax permit (if applicable), employer registration, and city / local licence endorsements. Application fee is $90.
Specific Recommendations for Washington Residents
Stay sole prop if...
- Revenue under $40k and low-risk work
- $200 LLC filing fee is meaningful relative to net profit
- B&O applies under either structure; the LLC adds $260 in formation cost
Form a Washington LLC if...
- Revenue above $50k
- Physical services, contracting, or liability-heavy work
- Tech / SaaS work with no state PIT advantage either way
Sources: Washington Secretary of State - Corporations and Charities; Washington Department of Revenue - B&O Tax.
Not legal or tax advice. Consult a licensed CPA or business attorney admitted in Washington for specific guidance.