For a long time, Washington State has been known for something many high-earning professionals appreciate: no traditional state income tax.

That may be changing.

A new proposal moving through the Washington State Legislature would introduce an income tax aimed at the highest earners in the state. While the proposal is still working its way through the legislative process, it’s already creating a lot of discussion among business owners, investors, and professionals.

If you’re a practice owner — whether you run a dental practice, medical office, or another professional firm — this is something worth paying attention to.

Even if the tax wouldn’t apply to you today, it could impact major financial events in the future, particularly the sale of your practice.

Let’s walk through what’s happening and why it matters.

The Legislation Behind the Proposal

The proposal currently under consideration is SB 6346, which would establish a new state income tax on Washington’s highest earners.

Recently, the bill moved one step closer to becoming law. The Washington State House of Representatives approved the measure 51–46 after a marathon floor debate, advancing it further through the legislative process.

If enacted, the bill would create a 9.9% tax on annual income above $1 million.

The proposal is designed to apply only to the highest earners, but for successful practice owners and entrepreneurs, income levels can change quickly, especially during significant financial events.

Washington Already Has a Capital Gains Tax

It’s also important to remember that Washington’s tax structure has already started to evolve.

The state currently imposes a capital gains tax on certain investment profits, which may apply when individuals sell stocks or other investments above certain thresholds.

While there are important exemptions — including real estate and some business sales — the introduction of this tax signals a broader shift in how high-income individuals may be taxed in the future.

For practice owners who are building valuable businesses and investment portfolios, these changes make tax planning more important than ever.

What This Could Mean When You Sell Your Practice

For many professionals, the largest financial event of their career is the sale of their practice.

Whether you're a dentist, physician, or specialist, the value of your practice often represents years — sometimes decades — of hard work and growth.

Successful practices frequently sell for $1 million to $3 million or more, especially when goodwill and patient relationships are included in the valuation.

When a practice is sold, the transaction can create a large one-time income event.

Depending on how the deal is structured, the proceeds could be treated as:

• Capital gains from the sale of goodwill
• Ordinary income from certain assets
• Deferred payments through an installment sale
• Earnouts tied to future performance

If a significant amount of income is recognized in the same year, it could potentially push a practice owner into the $1M+ income range targeted by the proposed tax under SB 6346.

In that scenario, owners could potentially face:

• Federal capital gains taxes
• Washington’s capital gains tax (depending on the assets involved)
• And potentially the new high-earner income tax if the proposal becomes law

This doesn’t mean every practice sale would trigger these taxes — but it does highlight why planning the structure and timing of a sale is incredibly important.

Planning Ahead Can Make a Big Difference

The good news is that there are strategies that can help practice owners manage or reduce tax exposure when major financial events happen.

For a long time, Washington State has been known for something many business owners appreciate: no traditional state income tax.

That may be changing.

A new proposal moving through the Washington State Legislature would introduce an income tax aimed at the highest earners in the state. While the proposal is still working its way through the legislative process, it has already sparked discussion among business owners and professional practice owners across Washington.

If you own a dental, medical, or professional practice, this is something worth paying attention to.

Even if the tax wouldn’t apply to you today, it could impact major financial events in the future, particularly when your practice grows or when you eventually sell it.

Let’s walk through what’s happening and what it could mean for practice owners.

The Legislation Behind the Proposal

The proposal currently under consideration is SB 6346, which would establish a new state income tax on Washington’s highest earners.

Recently, the bill moved one step closer to becoming law. The Washington State House of Representatives approved the measure 51–46 after a marathon floor debate, advancing it further through the legislative process.

If enacted, the bill would create a 9.9% tax on annual income above $1 million.

The proposal is intended to affect a relatively small group of taxpayers. However, for successful business owners and practice owners, income can fluctuate significantly — especially during major financial events.

Washington’s Tax Landscape Is Already Changing

Although Washington has long been known for having no personal income tax, the state has already begun introducing taxes aimed at higher earners.

For example, Washington now has a capital gains tax on certain investment profits, which can apply when individuals sell stocks or other investments above certain thresholds.

While some assets are exempt — including real estate and certain business sales — these changes signal that Washington’s tax landscape is evolving.

For practice owners running profitable businesses, this makes year-round tax planning and financial oversight increasingly important.

Why Practice Owners Should Pay Attention

Even if your annual income is currently below the proposed $1 million threshold, practice owners often experience large spikes in income during certain events, including:

• Bringing on a partner
• Selling part of the practice
• A full practice sale
• Large profit distributions during a high-growth year

Unlike employees with predictable salaries, practice owners often have much more variability in their income, which can impact how taxes apply.

This is where strategic planning becomes critical.

What This Could Mean When You Sell Your Practice

For many professionals, the largest financial event of their career is the sale of their practice.

Successful dental and medical practices commonly sell for $1 million to $3 million or more, depending on patient base, profitability, and goodwill.

When a practice is sold, the transaction often creates a large one-time income event.

Depending on how the deal is structured, the proceeds could be treated as:

• Capital gains from the sale of goodwill
• Ordinary income from certain assets
• Deferred payments through an installment sale
• Earnouts tied to future performance

If a significant portion of income is recognized in the same year, it could potentially push a practice owner into the $1M+ income range targeted by the proposed tax under SB 6346.

In that scenario, owners could potentially face:

• Federal capital gains taxes
• Washington’s capital gains tax (depending on the assets involved)
• And potentially the new high-earner income tax if the proposal becomes law

This doesn’t mean every practice sale will trigger these taxes — but it does highlight why the structure and timing of a sale matter.

Planning Ahead Can Make a Big Difference

For practice owners, the best time to think about taxes is before major financial events happen, not after.

With proper planning, there are often ways to improve tax outcomes, such as:

• Structuring how a practice sale is allocated between assets
• Spreading income across multiple tax years
• Planning distributions from your business strategically
• Coordinating major financial decisions with tax strategy

These are the types of conversations that should happen years before a practice sale, not weeks before closing.

Why This Matters for Practice Owners

Even though SB 6346 has not yet become law, its progress through the Washington State House of Representatives shows that Washington’s tax environment may continue to evolve.

For practice owners, staying ahead of these changes isn’t just about compliance — it’s about running a financially healthy business and avoiding surprises.

Having clear financial reporting, proactive tax planning, and a strategic view of your practice finances can make a significant difference when new tax laws are introduced.

Final Thoughts

Your practice is more than just a job. It’s a business you’ve spent years building.

Changes in tax law can impact how much of that hard work you ultimately keep, especially when major financial events occur.

At Balanced CFO Services, we work with practice owners to provide proactive financial leadership, tax strategy, and business planning support, so you can make informed decisions and stay ahead of changes that affect your practice.

If you’re a practice owner and want to better understand how potential tax changes could affect your business, it may be time to start the conversation.