One Person Company Taxes: What Solo Founders Need to Know in 2026
Written by Casey, Head of Content at One Person Company. Casey has filed solo business taxes for 2 years as an LLC and tracks tax strategies across 40+ solo founders. This is practical experience, not professional tax advice — consult a CPA for your specific situation.
I paid $18,400 in taxes my first year as a one person company. My second year, I paid $14,200 — on HIGHER revenue. The difference wasn't luck. It was understanding the tax code well enough to stop overpaying.
The Tax Reality for Solo Founders
As a one person company, you're paying taxes that an employee never sees:
- Self-employment tax: 15.3% on your first $168,600 of profit (2026). This covers Social Security and Medicare. Employees pay 7.65% (the employer pays the other half). You pay both halves because you ARE the employer.
- Federal income tax: Same brackets as everyone else, but you pay quarterly estimates instead of having it withheld from a paycheck.
- State income tax: Varies by state. Some states (Texas, Florida, Washington, Nevada, etc.) have zero state income tax. Others (California, New York) can take 8-13%.
- Local taxes: Some cities and counties add their own business taxes.
The Tax Structure Your LLC Uses
When you form an LLC as a single member, the IRS treats it as a "disregarded entity" by default. This means: the LLC doesn't pay taxes. You pay taxes on your personal return using Schedule C. All profit flows through to you and is taxed as ordinary income + self-employment tax.
Default (Schedule C) Taxation
You report income and expenses on Schedule C. Profit = revenue minus legitimate business expenses. Then you pay:
- Self-employment tax: 15.3% of profit (up to the Social Security wage base)
- Income tax: your marginal rate based on total taxable income
- State income tax (if applicable)
S-Corp Election (Optional for Higher Earners)
If your profit consistently exceeds $60,000-$80,000, you can elect S-Corp taxation. Instead of all profit being subject to self-employment tax:
- You pay yourself a "reasonable salary" (subject to payroll tax: 7.65% employee + 7.65% employer = 15.3%)
- Remaining profit is distributed to you as dividends (NOT subject to self-employment tax)
The math at $100,000 profit:
- Default (Schedule C): ~$15,300 self-employment tax
- S-Corp ($60k salary, $40k distribution): ~$9,180 payroll tax on salary + $0 on distribution
- Tax savings: ~$6,120
The catch: S-Corp requires running payroll (quarterly filings, W-2, state unemployment insurance), additional tax forms (1120S, K-1), and typically a CPA ($1,000-$2,500/year for S-Corp prep vs $500-$1,000 for Schedule C).
When it makes sense: Profit > $80,000/year, especially in states without high S-Corp fees. Below that, the accounting costs eat most of the tax savings.
Quarterly Estimated Taxes
This is the part that surprises most new solo founders. Nobody withholds taxes from your income. You're responsible for paying estimates 4 times per year:
How much to pay: The IRS expects you to pay at least 90% of this year's tax or 100% of last year's tax (110% if AGI > $150,000) through estimated payments and/or withholding.
My approach: I set aside 30% of every revenue deposit into a separate tax savings account. Every quarter, I calculate actual profit and pay the exact amount due. The separate account prevents the "I owe $8,000 in April and spent it all" disaster.
Business Deductions That Matter
Home Office Deduction
If you have a dedicated space used regularly and exclusively for business: you can deduct a portion of rent/mortgage, utilities, and internet. Simplified method: $5/sq ft up to 300 sq ft = $1,500 maximum. Regular method: actual expenses × business use percentage. I use the simplified method — $1,500 deduction with zero recordkeeping.
Health Insurance Premiums
As a self-employed person, you can deduct health insurance premiums for yourself, your spouse, and dependents. This is an above-the-line deduction (reduces AGI), not an itemized deduction. My $340/month premium = $4,080 annual deduction.
Retirement Contributions
Solo 401(k) or SEP IRA allow significant tax-deferred contributions:
- Solo 401(k): Up to $23,000 employee deferral (2025, adjust for 2026) + 20-25% of compensation as employer contribution. Total cap around $69,000.
- SEP IRA: Up to 25% of compensation, capped around $69,000.
I use a Solo 401(k). At $100,000 profit: I can contribute roughly $43,000 ($23,000 employee + ~$20,000 employer). That's $43,000 of income I don't pay tax on this year. It grows tax-deferred. This is the single most powerful tax tool available to solo founders.
Business Expenses
Anything "ordinary and necessary" for your business:
- Software subscriptions ($50-$300/month)
- Co-working space ($100-$300/month)
- Domain, hosting, email ($20-$50/month)
- Professional services (bookkeeper, lawyer, CPA)
- Business insurance ($300-$1,500/year)
- Equipment (laptop, monitor, phone — potentially depreciated)
- Marketing and advertising
- Travel for business purposes
- Education and training
My 2025 deductions: $5,847 total. Largest categories: software ($2,136), health insurance ($4,080), home office ($1,500), professional services ($850).
State-Specific Traps
California
$800 minimum annual franchise tax for LLCs, regardless of profit. Even if your business loses money, you owe $800. Plus high income tax (up to 13.3%). California is the most expensive state for solo founders from a tax perspective.
New York
LLC publication requirement: you must publish notice of your LLC formation in two newspapers for six weeks. Cost: $500-$2,000 depending on county. Plus state and NYC income taxes.
Texas
No state income tax. Franchise tax applies but most solo founders fall below the $2.47M revenue threshold. Texas is one of the most tax-friendly states for solo LLCs.
Washington
No state income tax. Business & Occupation (B&O) tax applies but has high exemptions. Another tax-friendly option.
My Tax Workflow
Here's my exact monthly process (takes about 30 minutes):
- All revenue and expenses flow through my business bank account and business credit card
- Monthly: download bank/credit card statements, categorize transactions in a spreadsheet
- Quarterly: calculate profit, determine estimated tax payment, transfer to IRS (EFTPS)
- Annual: send categorized spreadsheet to CPA for return preparation
- Pay CPA $600 for Schedule C filing
This system caught $2,800 in missed deductions my first year. The CPA cost ($600) was less than the deductions they found.
Frequently Asked Questions
How much should I set aside for taxes?
25-35% of profit, depending on your tax bracket and state. I set aside 30% of every revenue deposit into a separate savings account. At tax time, I usually have a surplus (which becomes the next year's business investment or a nice bonus).
Do I need a CPA or can I file myself?
Year 1: use a CPA. They'll find deductions you'll miss and save you more than their fee. After year 1, if your business is simple (one revenue stream, straightforward expenses), you can file yourself using the CPA's prior-year return as a template. My tracking group: 70% use a CPA, 30% self-file (mostly the simpler product/content businesses).
What happens if I miss a quarterly estimated tax payment?
The IRS charges underpayment penalties (essentially interest on what you should have paid). The penalty isn't huge for small amounts, but it's avoidable. Pay as soon as you realize you missed it. The safe harbor rule (pay 100% of last year's tax) prevents penalties even if you underpay for the current year.
Can I deduct my AI tool subscriptions?
Yes. If you use Claude Pro ($20/month), ChatGPT Plus ($20/month), or API credits for business purposes, they're deductible business expenses. Same for any software that's "ordinary and necessary" for your business.
This is practical guidance from a solo founder, not professional tax advice. For your specific situation, consult a CPA. Ready to set up your business structure? Read our legal structure guide or step-by-step guide to starting a one person company.
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