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Breaking Down Seattle’s Unincorporated Business Tax

Home » Blog » Breaking Down Seattle’s Unincorporated Business Tax

March 22, 2024 By john

As a business owner in Seattle, one tax you need to be aware of is the city’s Unincorporated Business Tax (UBT). This tax applies to any unincorporated business operating within Seattle city limits, including sole proprietorships, partnerships, limited liability companies (LLCs), and certain other pass-through entities.

What is the UBT Rate?

The current UBT rate in Seattle is 1.75% of the business’s net income. Net income is calculated by subtracting all allowable business expenses from the total gross revenue.

Which Businesses Are Subject to UBT?

Any unincorporated business deriving income from activities within Seattle city limits is subject to the UBT. This includes businesses:

  • With their primary office or operations in Seattle
  • Conducting services within Seattle
  • Renting out real estate located in Seattle
  • Selling products that are delivered into Seattle

The UBT applies regardless of where the business owner(s) reside. As long as the business activities take place in Seattle, the income is subject to UBT.

Are Any Businesses Exempt?

There are a few exemptions to the Seattle UBT, including:

  • Nonprofit organizations
  • Government entities
  • Businesses whose annual gross income is less than $100,000
  • Certain types of rental income from investment properties

However, these exemptions have very specific qualifications, so it’s wise to review the rules carefully with a tax professional.

How is UBT Calculated and Paid?

To calculate the UBT, Seattle businesses must file an annual tax return reporting their total gross revenue, allowable deductions, and resulting net income amount from the prior year. The UBT of 1.75% is then applied to this net income number.

Returns are due April 15th each year, covering the previous calendar year period. Estimated quarterly payments may also be required for some businesses with high income levels.

Keeping Thorough Records is Key

Since allowable expense deductions reduce the UBT bill, it’s crucial for Seattle business owners to diligently track all costs of operating throughout the year. This includes expenditures on equipment, supplies, rent, utilities, marketing, employment costs, professional services, and other ordinary business expenses.

Maintain a robust bookkeeping system with organized receipts, invoices, and documentation to maximize deductions and withstand any audits down the road. Sloppy records can lead to overpaying on the UBT.

Plan Ahead Each Year

UBT is calculated based on the prior year’s net income. So if your business has a high-earning year, plan for the resulting spike in your UBT liability for the following calendar year by setting aside reserves.

Conversely, a lower income year may allow you to reduce your estimated quarterly UBT payments to avoid overpaying the city and then having to wait for a refund.

While the 1.75% UBT rate may seem small, it can add up quickly for profitable unincorporated businesses operating in Seattle. Consulting with a qualified tax professional can help ensure you remain compliant while minimizing your UBT burden through smart expense tracking, income forecasting and entity structuring.

Image by aymane jdidi from Pixabay

Filed Under: Small Business

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