How To Start A Mental Health Practice In Washington

When relocating your practice from another state, an additional step you must take is determining the process of tax payment in multiple states. This post provides the fundamental requirements for establishing and operating your therapy practice in the Evergreen State. To obtain guidance on budgeting, marketing, and billing your clients, refer to our comprehensive guide titled How to Start a Therapy Practice.

1. Local Zoning Laws and Regulations in Washington

Washington boasts 39 counties and 281 municipalities. Prior to finalizing the choice of your therapy practice location, including the possibility of operating from your own residence, it is essential to verify if the local zoning regulations permit such operations. In situations where conducting business is generally prohibited in a specific area, such as operating a home business in a residential zone, you have the option to seek a zoning variance. A variance essentially grants an exemption from zoning laws. To gain insights on whether you need to pursue a variance, the types of zoning recognized by your town or city, and the permissible business activities in the area, you can utilize the Business License Wizard.

2. Business Name Search in Washington

In Washington State, business names are known as “trade names,” and it is possible for your business to operate under multiple trade names.

Is it necessary to register a name at all? If your therapy practice is a sole proprietorship and you wish to operate under your own name, such as “Jane Smith,” you can do so without registering a business name.

However, if you prefer a name other than your own, like “Jane Smith Counseling,” or if you transition to a different business structure such as an LLC, you will need to register an assumed name.

To register a trade name for your business, you can complete a business license application using the Business License Wizard. The fee for registering trade names is $5 each.

3. Business Structure in Washington

Various business structures, also known as “entity types,” are acknowledged and registered differently in each state. The chosen business structure for your practice impacts the taxation of its income and determines the eligibility of individuals to hold shares in the practice.

In Washington, the business structures you can choose from are:

• Sole proprietorship
• General Partnership (GP)
• Limited Liability Company (LLC)
• Corporation
• Not-for-profit corporation
• Limited Partnership (LP)
• Limited Liability Partnership (LLP)

The provided list serves as a basic introduction. Prior to finalizing a business structure, it is advisable to consult with your accountant and, if needed, seek guidance from a lawyer to ensure the selection of the most suitable option.

Sole proprietorship
By venturing into business on your own, you automatically assume the role of a sole proprietor. As a sole proprietorship, your business and personal identity merge, meaning that any profits or losses directly affect you. Sole proprietorships are the most straightforward type of business structure, but they lack legal or financial safeguards.

General Partnership (GP)
Within a general partnership, all members hold the status of general partners, indicating that they bear an equal share of legal and financial responsibility.

Limited Liability Company (LLC)
The LLC business structure provides liability protection comparable to a corporation, while also allowing flexibility in terms of taxation. Your accountant might advise you to choose between being taxed as an S corporation or a partnership.

Professional Limited Liability Company (PLLC)
A PLLC, which stands for Professional Limited Liability Company, shares similarities with a regular LLC but offers additional safeguards. It is commonly preferred by professionals such as lawyers, accountants, and therapists who hold state licenses. The PLLC structure provides protection to each partner against the professional negligence of other partners. In other words, if a client sues one partner in a PLLC, the other partners are not held liable.

Corporation
A corporation is an independent entity separate from its owners, who possess shares in the corporation. There are two distinct types: C corporations and S corporations. C corporations have the option to become S corporations by submitting IRS Form 2553.

C corporations are subject to separate taxation on their income, separate from the income of shareholders. In contrast, S corporations distribute the tax liability to individual shareholders. (Due to various considerations, we advise our clients to establish S corporations at the federal level.)

Nonprofit Corporation
In Washington State, nonprofit corporations are often established for charitable objectives. Nonprofit corporations that intend to solicit funds from the public are generally obligated to undergo registration with the Charities Program administered by the Washington Secretary of State.

Limited Partnership (LP)
Within a limited partnership, certain members benefit from liability protection. To function as a limited partnership, there must be at least one individual serving as a general partner responsible for managing the company and making significant decisions, alongside at least one other individual acting as a limited partner without such responsibilities.

General partners assume unlimited liability, making them personally accountable for the partnership’s debts, legal actions, and related matters. On the other hand, limited partners are solely liable for the portion of the partnership they control.

Limited Liability Partnership (LLP)
An LLP, which stands for Limited Liability Partnership, bears resemblance to a limited partnership but offers additional safeguards. It is commonly preferred by professionals such as lawyers, accountants, and therapists, although any licensed professional in the state has the option to establish an LLP. The LLP structure provides protection to each partner against the consequences of professional negligence committed by other partners. For example, if one partner in an LLP faces a lawsuit from a client, the other partners are not held accountable.

4. Register Your Business in Washington

In order to complete the registration process for your business in Washington State, the following steps are required:

1. Register a trade name
2. Register your business with the Secretary of State if you are establishing a corporation, limited partnership, LLC, or LLP.
3. Apply for a business license from the State
4. Apply for a city endorsement corresponding to your municipality
5. Receive your business license, Unique Business Identifier (UBI), and information about tax filing frequency from the Department of Revenue.

Although Washington State does not impose income tax, it does enforce the collection of business and occupation (B&O) tax, which is based on the gross receipts of each operating business within the state. To ensure the collection of B&O tax, the State mandates that every business, including sole proprietorships, must obtain a business license.

Before initiating the business license application, it is necessary to register with the Secretary of State if you intend to establish a corporation, limited partnership, or register your practice as an LLC or LLP. This involves designating a registered agent, who must be at least 18 years old and have a permanent address to receive official correspondence from the State. You have the option to serve as the registered agent or choose another individual for this role.

Besides obtaining a business license, it is crucial to seek a city endorsement from the specific municipality where your therapy practice will operate. However, unlike certain businesses in other industries, therapy practices are not required to acquire a state endorsement.

Upon successfully registering your business with the Secretary of State (if applicable), obtaining a city endorsement, and securing a State business license, you will receive correspondence from the Department of Revenue. This communication will include your business license, which must be visibly displayed at your place of business, as well as your Unique Business Identifier (UBI), utilized for tax filing and making necessary business modifications. Additionally, you will receive a schedule outlining the timeline for filing your excise tax on a monthly, quarterly, or annual basis.

To simplify the entire process of establishing a business in Washington State, the Business License Wizard proves to be a valuable tool. Utilize this application to access comprehensive information about the licenses and endorsements required, as well as any relevant zoning laws or permits. Moreover, you can conveniently apply for all necessary licenses and endorsements online while completing any associated fees in a single transaction.

Below, you will find a step-by-step guide on utilizing the Wizard to set up various business structures.

1. Register a sole proprietorship in Washington State.
2. Register a trade name.
3. Launch the Business License Wizard and carefully follow the onscreen instructions. This will help you determine the specific requirements for your business license, city endorsement, and comply with any local zoning regulations or permits. Additionally, the Wizard will provide information on applicable fees.
4. Utilize the Wizard to submit your application for the business license and other relevant documents.

Once your application is approved, review the correspondence you receive from the Department of Revenue. This communication will include essential documents such as your business license, Unique Business Identifier (UBI), and a schedule for filing excise taxes.

Register a general partnership in Washington State

1. Complete the registration of your trade name.
2. Access the Business License Wizard and carefully follow the step-by-step instructions presented on the screen. This will enable you to identify the necessary requirements for obtaining your business license, city endorsement, and compliance with local zoning and permit regulations. Take note of any applicable fees during this process.
3. Utilize the Wizard to apply for your business license and other pertinent documents.
4. Once your application has been approved, thoroughly review the correspondence sent by the Department of Revenue. This correspondence will encompass essential items such as your business license, Unique Business Identifier (UBI), and the schedule for filing excise taxes.
5. Although not legally mandated, consider creating a partnership agreement. This document, while not required, serves to maintain organizational structure and facilitates the resolution of any potential conflicts between partners.

Register an LLC or PLLC in Washington State

1. Complete the registration of your trade name.
2. Generate and submit a Certificate of Formation to officially register your business with the Secretary of State. You can access the necessary Certificate of Formation forms and file them conveniently online through the Secretary of State’s Charities and Corporations website.
3. Access the Business License Wizard and meticulously follow the onscreen instructions. This will assist you in determining the specific requirements for obtaining your business license, city endorsement, and ensuring compliance with local zoning and permit regulations. Take note of any applicable fees throughout this process.
4. Utilize the Wizard to submit your application for the business license and other relevant documents.
5. Once your application has received approval, carefully review the correspondence you receive from the Department of Revenue. This correspondence will include crucial documents such as your business license, Unique Business Identifier (UBI), and a comprehensive schedule for filing excise taxes.

Incorporate in Washington State

1. Complete the registration of your desired trade name.
2. Prepare and submit the necessary Articles of Incorporation to officially register your business with the Secretary of State. You can access the appropriate Articles of Incorporation forms and conveniently file them online through the Secretary of State’s Charities and Corporations website.
3. Access the Business License Wizard and diligently follow the step-by-step instructions provided on the screen. This will guide you in determining the specific requirements for obtaining your business license, city endorsement, and complying with local zoning and permit regulations. Please be attentive to any applicable fees during this process.
4. Utilize the Wizard to submit your application for the business license and any other relevant documents.
5. Once your application has been approved, thoroughly review the correspondence received from the Department of Revenue. This correspondence will contain crucial documents such as your business license, Unique Business Identifier (UBI), and a comprehensive schedule for filing excise taxes.

Register a limited partnership in Washington State

1. Complete the registration of your chosen trade name.
2. Proceed to register your business with the Secretary of State. This can be accomplished through the dedicated Charities and Corporations website of the Secretary of State.
3. Access the Business License Wizard and meticulously follow the step-by-step instructions presented on the screen. This will enable you to ascertain the requirements for obtaining your business license, city endorsement, and compliance with local zoning and permit regulations. Take note of any applicable fees during this process.
4. Utilize the Wizard to apply for your business license and any other necessary documents.
5. Upon approval of your application, carefully review the correspondence you receive from the Department of Revenue. This correspondence will encompass significant documents such as your business license, Unique Business Identifier (UBI), and an inclusive schedule for filing excise taxes.
6. Although not mandated by law, consider drafting a partnership agreement. While optional, it can significantly contribute to organizational efficiency and assist in resolving potential disputes among partners.

Register an LLP in Washington State

1. Complete the registration of your desired trade name.
2. Officially register your business with the Secretary of State by utilizing the Secretary of State’s Charities and Corporations site for registration.
3. Access the Business License Wizard and diligently follow the onscreen instructions to determine the specific requirements for obtaining your business license, city endorsement, and complying with local zoning and permit regulations. Additionally, make note of any applicable fees during this process.
4. Utilize the Wizard to submit your application for the business license and any other relevant documents.
5. Once your application has been approved, thoroughly review the correspondence received from the Department of Revenue. This correspondence will include essential documents such as your business license, Unique Business Identifier (UBI), and a comprehensive schedule for filing excise taxes.
6. While not obligatory by law, it is highly recommended to draft a partnership agreement. This agreement, though optional, serves as a valuable tool for maintaining organization and facilitating the resolution of any potential disputes among partners.

5. Business Licenses & Permits in Washington

In order to conduct business in Washington State, it is imperative for your therapy practice to obtain a business license. Additionally, depending on the specific location of your practice, you may be required to obtain additional permits and licenses. To obtain a comprehensive list of all the essential permits and conveniently apply for them online, we recommend utilizing the Business License Wizard. This user-friendly tool will assist you in navigating the permit application process efficiently.

6. Business Insurance in Washington

The following types of business insurance are highly recommended for therapy practices operating in Washington State:

• General liability insurance
• Commercial property insurance
• Business income insurance
• Professional liability insurance
• Washington worker’s compensation insurance

When searching for insurance options, it is advisable to consider a business owner’s policy (BOP). A BOP typically encompasses three fundamental types of insurance coverage: general liability, commercial property, and business income protection.

General liability insurance for businesses provides coverage in the event of any damage caused to another individual’s property or person.

Commercial property insurance safeguards the property owned by your therapy practice, including items such as computers, business phones, and office furniture. It also extends coverage to the building in which your practice operates, whether it is owned or rented.

Business income insurance offers protection against income loss under specific circumstances, including natural disasters such as fire or storm damage, as well as man-made disasters like theft.

Professional liability insurance, also known as malpractice insurance, provides coverage in the event that you are faced with a lawsuit for issues such as libel or slander, mishandling patient records, providing inaccurate advice, or causing harm while practicing your profession.

If you employ individuals, it is a legal requirement to have Washington State worker’s compensation insurance. This insurance provides protection to your employees in case of workplace injuries or illnesses.

7. Business Taxes in Washington

Washington State does not impose individual income tax, but it does require the payment of B&O (Business and Occupation) tax based on your gross receipts. To estimate the amount of tax you owe, refer to the provided list of B&O tax rates categorized by business classification.

If you have established your therapy practice in another state and are planning to relocate to Washington, or if you currently operate in Washington and intend to move to a different state, it is important to understand how to fulfill your tax obligations in multiple states. The specific rules can vary based on the states in which you conduct business and the duration of your presence in each state. To gain insights on how such moves impact your tax responsibilities as a therapist, refer to the resource titled “How Moving to a Different State Impacts your Taxes as a Therapist.”

Please note that this post serves informational purposes only and should not be construed as legal, business, or tax advice. It is advisable for each individual to seek guidance from their own attorney, business advisor, or tax advisor concerning matters discussed in this post.