WA State Taxes 101 ~ Info and FAQs

Licenses and taxes are like bookends. Whenever you get a business license, wheels are set in motion ... which result in having a duty to make reports and possibly send in taxes.  

The Basics

Who you're working with: Washington State Department of Revenue, or DOR for short
How Often: Either......annually, quarterly, or monthly
Types of Tax: Sales Tax, Use Tax, Business and Occupation Tax (B&O)
Websitedor.wa.gov

Who has to pay~
B&O Tax: Everybody, but small businesses get a credit
Sales Tax: Some of you, if your work is categorized as Retail
Use Tax: Some of you, if you purchase business tools/supplies from out of state

What you're being taxed on~
B&O Tax: Gross Sales
Sales Tax: Percentage of Retail Sales
Use Tax: Percentage of items purchased out of state

The Process:
You log onto the DOR website, go to a portal, make a "report" by filling in some numbers. This report will show you if you owe taxes, and how much. If you are doing Service work only, it's fairly simple. If you do Retail work, it's a little more complicated.

To Get Help:
Call the DOR! Their job is to help you understand + to make reports. So far, in my experience, they've been knowledgeable and friendly. 1.800.647.7706


The Story ~ how it works in Washington state, in a nutshell.

You decide to start a business—Woohoo! At some point, you find your way to the Business Licensing Service (BLS) and get a state license—too legit! Now ... since you're a business, the state says: you gotta pay some taxes for the privilege of doing business. Also, if you're doing any retail work (making products, or improving physical things), then we need you to collect Sales Tax. So ... they send your info over the Department of Revenue, the DOR.

The DOR creates an account for you, and decides how often they want you to pay taxes + submit any sales tax you've collected. They create a letter and mail it to you. It's got some important info. It's one to read and keep! It will tell you how often to make reports and submit taxes: annually, quarterly, monthly. Also, it has a code that you'll need—the PAC Code which is required for setting up online payments.


Here are some FAQs + Answers

How often do I have to make reports and send in payments?

Either annually, quarterly, or monthly. The letter will tell you how often you need to report and send in taxes. If you lost the letter, or you're not sure, you can find out by calling the WA state DOR: 1-800-647-7706. It's common for small businesses to be annually or quarterly.

What's the Due Date for Annual reporting?

January 31

What are the Due Dates ... if I report Quarterly to the state?

January 31
April 30
July 31
October 31

I got a paper form in the mail. Do I have to use it?

My recommendation is to file online, and NOT use the paper form. Why? The paper form is very confusing, and it's easy to make mistakes. Once you file online, they will stop sending you the paper form. To set up your online account, you'll likely need a PAC code. This is listed at the top of the paper form, so find that code before you recycle that crazy thing!

I was assigned Quarterly payments. Ugh. Why is that? Can I change it?

Basically, the state wants to collect tax money on a regular basis. If you have a Retail business (meaning you'll be collecting sales tax) and/or if it looks like your income will be high, they will assign you to making reports quarterly. 

♥ Please don't worry too much though! Once you know how to make reports to the state, it only takes a few minutes!

If you want to change it to reporting annually, in the past, the only way was to call the state in January. If your income is low enough, they'll make the change. That number is: 1-800-647-7706. It's possible that there are new rules, so you might try calling soon if you want to check.

You talk about Making Reports, Paying Taxes, Submitting Taxes, are these all the same thing?

Great question. They're slightly different. I like to think about things at the most basic level first. Once you have a business, you are required to Make Reports to the state. Sometimes, if you're very small, and/or do service work, then you won't owe any money. Yay! BUT, you still have to make the reports so the state knows this. This is step one of the process.

Paying taxes are when your business is actually being taxed. That's the B&O tax, and Use Tax. This is based off a percentage of your Gross Sales, and any purchases out of state. The money comes out of your pocket.

Submitting taxes is different. This is Sales Tax that you've collected from your buyers. It is tax based on their purchase. It comes from their pocket. You're simply the carrier of that money.

I heard that I have to send in Estimated Quarterly Tax Payments? Is this the same or different?

This is a super common question. This different. When you have a business, you must report to all levels of government: city, county, state, and the IRS. It's easy and reasonable to get them mixed up!

"Estimated quarterly tax payments" are part of paying your federal taxes to the IRS. These are estimated based off the profit your business is likely to make. They are due four times a year: Jan 15, Apr 15, Jun 15, Sep 15. Click here to read more.

If the state says that you must report quarterly, that is for state taxes, which include: B&O, sales tax, use tax. These are calculated from your actual sales. 

How can I get more info + help with this?

Lots of ways! 

♥ Coming soon: Walkthrough Blog Post, with screenshots. (The DOR has a new portal that I've still gotta learn.) To see screenshots of the OLD system, click here for Service Providers.  Or here, for Retailers. This will at least give you the general idea.

♥ Tax Help Pop-up Shop. Or any other Pop-up Shop. Get 1-on-1 help with Yours Truly for an affordable rate. Click here to see the current series, or email me at: jennygirlfriday@gmail.com.

♥ Get help from the state DOR. They offer workshops, online tutorials, and even consulting! Click here to see more info at DOR.wa.gov. 

♥ If you currently work with an accountant or bookkeeper, check with them.


Have any more questions? 

Please email me at jennygirlfriday@gmail.com. I would love to get an answer to you, and to add more to this post!

♥ Jenny Girl Friday

 

P.S.  Did this help?  I hope so!  Pretty please share with any friends, or post on Facebook.  I think self-employed folks are keeping the soul in Seattle.  I want to make the chores of business easier, so you can all keep being awesome and shining your light.  

P.S. 2   Are you signed up for Sidekick Services via email?  Get reminders and links to how-tos delivered right to your email inbox.  :)

Service Businesses....vs.....RETAIL Service Businesses

Did you know ~ some service businesses are considered retail...and have to collect sales tax?

Generally speaking, retail services include any service work that improves a physical thing—such as:  painting a house, repairing jewelry, washing cars.  This can also apply to people.  For example, the following businesses are considered retail:  tattooing, sight seeing, personal training.

In some cases, the line between service vs. retail service is a little fuzzy, or perhaps arbitrary.  

For example, if you teach yoga in a gym, with the goal of improving one's physical health, it's considered retail.  If you teach yoga as a spiritual practice, it is NOT considered retail.

Sometimes, businesses might offer a combo of NON-retail services and retail services.  

For example, Meghan is a color consultant.  She helps home-owners choose paint colors for their homes, both exteriors and interiors.  This is a NON-retail service, because she's providing ideas, and isn't physically interacting with the house.  Sometimes, Meghan helps with decorating too...by hanging up paintings + curtains, repainting bookshelves.  In these cases, she's offering a retail service.

To learn more, call the WA state DOR* 800.647.7706 or read here

 

Cheers!

Jenny Girl Friday

 

*Department of Revenue

Sole Proprietor or LLC: Which is best for me?

When you work for yourself, you fill two roles in one.  The employee and the employer.  In order to do this, you have to create a business entity that essentially hires you.  It feels a little like make-believe play – All I want to do is my work! – but it is necessary.  The two most common options are sole proprietor and limited liability company, or LLC.

It is the first decision that you need to make, because it determines your legal status and name options.  And, you’ll be asked about it right away when registering your license.

Sole Proprietor

Advantages:  simplest and cheapest
Legal Name:  must be your name
Disadvantage:  liability – if someone sues your business, they are suing you

In this case, you and the business are considered one in the same.  There’s no real structure to set up or maintain.  You simply are required to have licenses and pay taxes.  It is free.  There are no additional obligations, and no special benefits.  Except that the paperwork is the most streamlined. 

There is a risk, though.  If someone sues your business, they are suing you too.  Meaning, if they win and you owe them money, it comes out of your personal accounts.  In a worst case scenario, you’d have to sell your house or drain accounts to pay them.

You can do business under a different name, called your trade name, or DBA, Doing Business As.  For example, Jane Doe’s legal business name would be Jane Doe.  She could do business as, Polka Dot Consulting.  She just has to register this name, so her business activity is traceable to her legal name.  These only cost $5 each.  When you apply for your license, you can choose 1 or more. 

LLC

Advantages:  protection from lawsuits, looks official
Legal Name:  must include a version of LLC*
Disadvantage:  it costs some money each year 

In this case, the business is a company that is separate from you.  It offers a layer of protection.  If someone sues your company and wins, then they can take company assets (not your personal ones).  In my case, this includes a small business savings account, my computer, printer, and lots of great books.  The idea is that your home and personal monies are protected.  Having said that, it is possible to get around that protection – depending on the case and the lawyer.  If you want to know more on the subject, I suggest meeting with a small business lawyer to share more about your specific situation. 

You must apply with the Secretary of State to be granted this entity.  It costs about $200.  And, you must renew each year on the anniversary month, for about $80. 

The LLC also looks serious and cool.  For people that don’t know, it helps you to look official.  This can be a boon for certain types of business.  You can also use DBAs.  (But they may not include variations of LLC.)

Concerning the IRS – Good news!

A cool thing is that you don’t have to do anything different for the IRS!  That is, if you are a single-member LLC.  Because you are still a one-person business, and there’s no dividing of profit, the IRS lumps you in with Sole Proprietors.  In fact, they refer to you as a “disregarded entity”.  You are not regarded!  You are ignored.  This is great because it keeps your paperwork simple. 


In the end, both serve different purposes.  Often - people who are tight on cash, or starting before they're totally ready, or intimidated by the LLC – choose sole proprietor.  For others who have the money, and/or are really committed to their vision, tend to go for the LLC!  You even get a certificate with borders and a golden seal to frame.

If you have questions, please, get in touch  Click here to read a post on how to get licensed in Seattle.

Happy Working,
Jenny Girl Friday

Girl Friday LLC
DBAs:  
Jenny Girl Friday
Jenny MacLeod
Girl Friday
girlFriday

*Limited Liability Company, Limited Liability Co., LLC, or L.L.C.