Seattle Freelancer Tax Guide: No Income Tax but Watch the B&O Tax

Seattle freelancers enjoy Washington State\'s zero income tax, but the city\'s Business and Occupation (B&O) tax is a surprise for many self-employed professionals. Unlike income tax, B&O tax is levied on gross revenue — not profit — meaning you pay even if your business loses money. Understanding this unique tax landscape is essential for Seattle freelancers.

Seattle B&O Tax for Freelancers

Seattle imposes a B&O tax on businesses with gross revenue exceeding $100,000 annually. The rate varies by business type: 0.415% for services, 0.215% for retail, and 0.415% for most professional services. On $150,000 of freelance revenue, you would owe approximately $623 in B&O tax. File quarterly with the City of Seattle.

Washington State B&O Tax

In addition to Seattle\'s city B&O tax, Washington State levies its own B&O tax. The service rate is 1.5% of gross income. However, a Small Business B&O Tax Credit effectively exempts the first $125,000 of income. For freelancers earning under this threshold, your state B&O liability may be zero.

Capital Gains Tax Planning

Washington\'s 7% capital gains tax on gains exceeding $250,000 affects freelancers who sell business assets or investments. If you sell a freelance business, intellectual property, or significant stock holdings, plan the timing carefully to minimize this relatively new tax.

No Income Tax Means Bigger Federal Focus

Without state income tax to worry about, Seattle freelancers should focus entirely on federal tax optimization. Maximize Solo 401(k) contributions, take every available deduction, and consider the S-Corp election once income exceeds $80,000. Your federal tax strategy is your entire tax strategy in Washington.