Opening a private practice in Washington State requires more than finding clients and securing office space. The clinician’s license, supervision status, entity structure, ownership arrangement, and professional liability coverage all affect whether the practice is properly built from the start.
Washington’s tax system adds another layer. The state does not impose a general individual or corporate net income tax, but its Business and Occupation tax is generally based on gross income rather than profit. An S corporation election does not remove that tax, and ordinary operating expenses usually do not reduce the taxable amount.
This guide focuses on Licensed Mental Health Counselors and Licensed Mental Health Counselor Associates. It explains how licensure, professional entities, liability protection, B&O tax, local taxes, S corporation treatment, registration, telemedicine, hiring, and bookkeeping affect a private practice in Washington.
An Associate Credential Does Not Permit Independent Practice
A fully licensed Washington LMHC may practice independently within the legal scope of the credential. A Licensed Mental Health Counselor Associate may not provide independent mental health counseling for a fee and must work under an approved supervisor. Forming an entity, obtaining an NPI, or leasing an office does not expand the associate’s authority under the Washington associate licensing law.
Beginning October 1, 2025, an applicant may practice for up to 120 days after the Department of Health receives a completed associate-license application. The applicant must work under the direct supervision of an approved supervisor, and the temporary authority ends when the license is issued or denied. It does not create a temporary independent-practice license.
Associates must disclose their credential and supervision status during the first professional contact. A practice hiring an associate should verify license status, supervisor qualifications, disclosure documents, clinical duties, billing arrangements, and access to records before the first session. The Washington Department of Health’s mental health counselor guidance provides current licensing information.
Choose the Entity After Resolving Professional Ownership
Washington permits professional service corporations and professional limited liability companies. A PLLC may be formed by people legally authorized to provide the same professional services in Washington. Its members, managers, clinicians, and ownership transfers are subject to professional licensing laws.
Washington also allows certain listed healthcare professions to share a professional service corporation. That does not mean every combination of counselors, social workers, psychologists, physicians, or other professionals may share every entity. Each clinician must work within their own credential, and every proposed owner should be reviewed under the rules governing their profession.
A therapist should not assume that an ordinary LLC is appropriate because it is easy to form. A Washington healthcare attorney should confirm whether the practice should use a sole proprietorship, a professional corporation, a PLLC, an ordinary LLC, or another structure. Angelo & Associates explains why the legal entity and S corporation election require separate decisions.
A Washington PLLC Has an Unusual Liability Rule
A professional entity does not remove a clinician’s responsibility for their own negligent or wrongful conduct. Forming a PLLC also does not change professional standards, disciplinary rules, or scope-of-practice limits.
Washington’s PLLC statute creates a financial-responsibility issue that deserves attention before opening. To preserve the liability limitation addressed by the statute, a PLLC whose members must be professionally licensed should maintain at least $1 million in professional liability insurance, a bond, or another approved form of financial responsibility. A higher amount may apply to a profession or specialty.
If the PLLC does not maintain that protection, its members may become personally liable to the extent the missing coverage would have applied. The practice should confirm that its policy covers the entity, practicing members, employees, supervisors, telemedicine services, and every care location.
Washington Taxes Revenue Before Profit
Washington does not impose a general individual or corporate net income tax. It does impose B&O tax, retail sales and use taxes, and other activity-based charges. Therapy and similar professional services generally fall under the Service and Other Activities B&O classification unless another classification applies.
The Washington B&O tax is generally calculated from gross business income. Labor, rent, software, insurance, taxes, supplies, and other operating costs are not ordinarily deducted merely because they reduced profit.
Assuming all $200,000 is taxable Washington income under the Service and Other Activities classification, and before available deductions or credits, a 1.5% rate would produce $3,000 in B&O tax. A practice that spent $150,000 producing that revenue would not calculate the tax only on its remaining $50,000 profit.
The B&O Rate Depends on Prior-Year Taxable Service Income
Washington introduced three Service and Other Activities B&O rates effective October 1, 2025. The rate used in 2026 generally depends on the prior calendar year’s taxable income reported under that classification by the business or its affiliated group.
A business with less than $1 million in prior-year taxable service income generally uses the 1.5% rate. The rate is 1.75% from $1 million through $4,999,999.99 and 2.1% at $5 million or more. The current Washington rate guidance explains the tiers and affiliated-group rules.
A small practice may qualify for the Small Business B&O Tax Credit, which can reduce or eliminate the state B&O tax due. The credit depends on the total B&O liability and the reported classifications. It is not an automatic exemption for every new practice.
City Taxes Can Create a Second B&O Bill
Many Washington cities impose local B&O taxes in addition to the state tax. The Department of Revenue does not administer these city taxes, so rates, thresholds, exemptions, and apportionment rules must be checked with the municipality.
A practice may need endorsements from the city, county, or state on its business license. Registration is generally required when annual gross income reaches $12,000, the business plans to hire employees within 90 days, uses a trade name, collects sales tax, requires an endorsement, or owes taxes administered by the Department of Revenue. The Washington Business License Application guidance explains the triggers.
Registration provides a Unified Business Identifier. A PLLC or corporation must complete its Secretary of State filing before applying for the business license and must file annual reports to maintain active status. The Washington annual report is due by the last day of the entity’s formation or registration anniversary month.
An S Corporation Election Does Not Remove B&O Tax
A qualifying entity may elect federal S corporation taxation. It must pay a working shareholder reasonable W-2 wages and, when appropriate, may make eligible shareholder distributions. The IRS may reclassify distributions as wages when compensation is too low.
Washington’s lack of a general income tax simplifies one part of the calculation, but it does not remove B&O tax. The practice continues to report taxable gross receipts regardless of its federal classification.
The decision should compare potential federal employment tax savings against payroll costs, tax preparation, bookkeeping, entity fees, liability coverage, state B&O tax, and local business taxes. Angelo & Associates can assess whether S corporation taxation fits a therapy practice based on profit and total operating costs rather than revenue alone.
Telemedicine Requires Washington Authority and Training
A practitioner providing telemedicine to a client in Washington generally needs the professional authority required by Washington law. Limited statutory exceptions may apply to certain consultations, specialty assessments, or continuity-of-care situations. Remote care must meet the professional standards that apply to comparable in-person services.
An LMHC providing clinical services through telemedicine must complete Washington’s telemedicine training or a substantively similar alternative and retain a signed attestation. This requirement has applied since January 1, 2021. The Washington Department of Health telehealth resources provide access to the training.
Telemedicine does not reduce documentation, informed consent, confidentiality, privacy, or security duties. A mental health practice should also create emergency procedures suited to remote care. A Washington credential does not automatically authorize services when the client is physically located elsewhere.
Hiring Creates Duties From the First Covered Worker
Washington generally requires workers’ compensation coverage for employees and other covered workers unless a statutory exclusion applies. Employers usually obtain coverage through the Department of Labor & Industries unless they qualify as certified self-insured employers.
Issuing Form 1099 does not make a clinician an exempt contractor. The Washington independent-contractor tests require a worker to satisfy all applicable parts of the tests. A UBI number, contract, professional license, or contractor label does not determine coverage.
Covered employees generally accrue at least one hour of paid sick leave for every 40 hours worked. Employers must also address required notices, leave balances, carryover, payroll reporting, unemployment insurance, and workplace safety. Local laws may provide greater protections.
Build the Books Around Gross Receipts
Washington bookkeeping must show both profitability and taxable gross income. The practice should separately record private-pay revenue, insurance receipts, refunds, wages, contractor payments, owner compensation, state B&O tax, city taxes, and income supported by a specific deduction.
A sole proprietor generally takes owner draws. An S corporation pays a working shareholder through payroll and records eligible shareholder distributions separately. Neither method changes the need to reconcile taxable receipts with the state excise tax return.
Angelo & Associates provides accounting, tax, bookkeeping, and financial management services for therapy practices. Before forming or restructuring a Washington practice, contact Angelo & Associates to model B&O tax, payroll, owner compensation, and cash flow. A Washington healthcare attorney should review licensing, entity structure, ownership, liability coverage, supervision, and employment arrangements separately.