Washington taxes your gross revenue, not your profit. If you gross $1.1 million in electrical work this year and net $90,000 after crews and materials, you still owe Business and Occupation tax on the $1.1 million. When the property owner hires you directly, that income falls under the Retailing classification at 0.471 percent, so the state B&O comes to $5,181, and you also collect retail sales tax from the customer on the full contract price. Do the same work as a subcontractor for a general contractor and it moves to Wholesaling at 0.484 percent, or $5,324, with a reseller permit from the general contractor in place of sales tax. Supplying labor only does not change either classification. A bad margin year does not reduce the tax.

Most accountants know this in principle. Fewer know how it interacts with your L&I quarterly filings, or that retainage held on a November project is sitting as accounts receivable while your December bank balance says something different. These gaps tend to surface in the worst months, usually when cash is already tight from a slow stretch between project payments.

Here is what to look for when hiring an accountant as a contractor or trades business in Federal Way.

Does the accountant know WA B&O well enough to advise, not just file?

Filing B&O quarterly is a baseline skill. The higher bar is an accountant who thinks ahead about it.

Start with classification. If an accountant quotes you the 1.5 percent service rate, ask which classification they think your work falls under. That rate belongs to Service and Other Activities, which covers service businesses rather than construction, and it has been tiered since October 1, 2025, based on the prior year's income in that classification for your business together with any affiliated businesses: 1.5 percent below $1 million, 1.75 percent from $1 million up to $5 million, and 2.1 percent at $5 million and up. Construction for a property owner is Retailing, and subcontract work is Wholesaling. Getting this wrong in either direction means amended returns.

Federal Way does not charge a separate city B&O, which keeps things simpler if your work stays local. But if you regularly send crews to Seattle, Tacoma, or Renton, those cities each have their own B&O layer with different thresholds. Seattle raised its threshold to $2 million in annual Seattle gross receipts starting January 2026 and raised its rates above that level. An accountant who is not tracking this can have you filing correctly at the state level while missing a city obligation entirely.

The conversation you want is the one that happens before you bid a large project in a new city, not when a notice arrives.

Ask any accountant you interview: have they handled B&O planning for a contracting business with multi-city exposure, not just state filing? The distinction matters.

Can they review L&I classifications without looking things up?

L&I workers' compensation rates in Washington are assigned by job classification, and the spread between a high-risk trade classification and an office role can be significant. A roofer and an office coordinator at the same company can differ by a factor of ten or more in their L&I rate. If you have been running payroll for several years without anyone checking those classifications against what your workers actually do, there is a reasonable chance something has drifted.

L&I audits look back. A misclassification caught in an audit means back premiums plus interest, sometimes on several years of payroll.

A related issue: PFML, Washington's Paid Family and Medical Leave program. Employees pay the employee premium share regardless of company size. Employers with 50 or more workers also pay an employer share. If you have grown past that threshold recently and the bookkeeping has not caught up, you may be underpaying. An accountant who works with contractors checks these obligations as a standard part of your quarterly calendar, not an afterthought at year-end.

One concrete question to put in front of any accountant: what do they do when you add a new job classification to your crew?

What does retainage do to your financials?

A contractor who finishes $500,000 of commercial framing in November might not collect the final $50,000 of retainage until March. On the November financial statements, that $500,000 shows as revenue earned. The $50,000 sits in accounts receivable. Your income looks strong. Your bank balance in December and January may not reflect that.

This is the normal payment pattern for contracting work, not a bookkeeping problem. But a generalist accountant who reconciles your accounts accurately can still miss the forward-looking question: you have $90,000 in outstanding retainage from three projects, those payments come due in January through March, and here is what that does to your Q4 estimated tax payment.

That is the advisory layer on top of the bookkeeping. It is the difference between an accurate record of what happened and an understanding of what the numbers mean for the next 90 days. For contractors whose cash flow runs in the swings that project-based work creates, that layer is what makes monthly accounting worth the cost versus an annual tax return.

What does the fee structure tell you?

Hourly billing means every call, every question, and every review has a price attached to it. That works fine for sporadic help or a one-time cleanup. It is a harder model if you want someone actively looking at your numbers every month and available when something comes up mid-project.

A fixed monthly fee signals that the accountant has priced a defined scope and is confident in what it covers. Before signing, ask specifically what is included: monthly bank reconciliation, monthly financial statements, payroll processing, B&O filing, quarterly estimated taxes, year-end tax prep, 1099s for subcontractors? What triggers an add-on charge?

At Caro & Associates, the monthly package starts at $750 and combines bookkeeping, payroll, and tax planning in one arrangement. The full scope is on the pricing page. Onboarding is typically two times the monthly fee, applied once at the start, because getting books current takes more work than keeping them current. After that, the fee is stable.

If you want to compare what other WA service businesses pay for bookkeeping across different cost ranges, the Federal Way small business bookkeeping cost article covers that in detail.

Who Caro & Associates is not the right fit for

If your annual revenue is under $500,000, the monthly accounting fee may not be proportionate to the value you are getting. There are good local bookkeepers and tax preparers who serve smaller contractors well at lower price points.

If you only need an annual tax return with no ongoing payroll or monthly accounting, that is a different kind of service. Tax preparation runs a few hundred to a few thousand dollars depending on complexity. The monthly accounting package is not a cheaper version of a tax-only arrangement.

If you are running 20 or more simultaneous projects and need job costing tracked at the line-item level across all of them, talk to us first. Some contractors at that scale need specialized project accounting software and more monthly hours than a flat package covers well. We would rather say that now than discover it after month two.

The situations where the fit tends to be strong: contractors with $500,000 to $5 million in annual revenue, typically 3 to 10 active projects at a time, who want bookkeeping, payroll, B&O, and tax planning handled together without managing three separate service providers.

Questions worth asking any accountant you interview

The right accountant will give specific answers, not sales pitch answers. These questions work on anyone, including Caro & Associates:

  • Have you done B&O planning for a contracting business with work in multiple cities?
  • How do you handle L&I classification reviews when a client adds a new job type?
  • What is included in the monthly fee, and what costs extra?
  • Do you track retainage outstanding as part of your monthly review?
  • How many contractors or trades businesses do you currently work with?

That last question matters because contractor accounting is genuinely different from restaurant, retail, or consulting work. Fluency comes from exposure. You can see how the accounting service is structured at the accounting services page.

If you are a contractor or trades business in Federal Way and this seems like it might fit your situation, a 30-minute strategy call is the right next step. No cost, no commitment. We either find that the fit is solid, or we point you toward something that suits your situation better.

Book a 30-minute strategy call

Questions owners ask about this

Does a contractor in Federal Way need to file WA B&O tax separately from income tax?

Yes. Washington has no state income tax, but it does have Business and Occupation tax applied to gross receipts. A contractor hired by the property owner reports under the Retailing classification at 0.471 percent and collects retail sales tax from the customer. A subcontractor working for a general contractor reports under Wholesaling at 0.484 percent. Both apply whether or not you supply materials. Either way, a contractor with thin margins still owes B&O on the full top line, not on profit. Federal Way does not charge a separate city B&O. If you regularly send crews to Seattle or Tacoma, those cities have their own B&O on top of the state rate, each with different thresholds and rates.

What is retainage and how does it affect a contractor's financial statements?

Retainage is the portion of payment a property owner or general contractor holds back until project completion, typically 5 to 10 percent. On a $400,000 job, that is $20,000 to $40,000 sitting as accounts receivable on your books for months after the work is finished. Your income statement shows the revenue, but the cash has not arrived. Contractors who do not understand this pattern in their own financials tend to misread their cash position, especially heading into slow months.

How do L&I worker classifications affect my accounting in Washington?

L&I assigns workers' compensation premiums by job classification, and the difference between a high-risk trade classification and a low-risk office classification can be significant. Misclassifying workers, even unintentionally, can trigger back premiums plus interest when L&I audits. A good accountant builds L&I quarterly deadline tracking into your compliance calendar and asks what each new hire actually does, not just the job title you assigned. This is different from what most generalist accountants do by default.

Is Caro & Associates the right fit for a Federal Way contractor?

If your annual revenue is between $500,000 and $5 million, you run payroll, and you want bookkeeping, B&O, and tax planning handled together in one monthly arrangement, the fit is likely good. If you are under $500,000 in revenue, need only an annual tax return, or need detailed job costing tracked at the line-item level across 20-plus simultaneous projects, we are probably not the right fit. We would rather say that upfront than set up an engagement where expectations do not match the scope.

When is a generalist accountant sufficient for a Federal Way contractor?

If you are under $500,000 in annual revenue with straightforward books, a generalist at a lower price point is often the right call. If you only need an annual tax return with no monthly accounting or payroll, a tax preparer handles that for a few hundred to a few thousand dollars. Monthly accounting earns its cost when your revenue and complexity are large enough that the cash flow clarity, quarterly compliance calendar, and proactive tax planning matter more than the savings on the monthly fee.