7 Things to Know Before You Start a New Architecture Firm

2026-08-21

Starting an architecture firm? Learn the 7 tax essentials every new principal must know, from entity choice to deductions, in this practical guide.

Starting your own architecture firm is an exciting step, but it comes with a steep learning curve on the business side, especially taxes. Before you hang your shingle, here are seven things you need to know to avoid costly mistakes and keep more of your hard-earned revenue.

1. Your Entity Choice Affects Your Tax Bill

One of the first decisions you’ll make is how to structure your firm. This choice directly impacts your taxes, liability, and administrative burden. The most common options for architects are:

Sole Proprietorship: Simplest and cheapest, but you’re personally liable and pay self-employment tax on all profits.
Partnership: Similar to sole proprietorship but with multiple owners. Requires a partnership agreement and annual tax filing (Form 1065).
Limited Liability Company (LLC): Offers liability protection with pass-through taxation. You can choose to be taxed as a sole proprietor, partnership, or S-Corp.
S-Corporation: A corporation that avoids double taxation. You must pay yourself a reasonable salary, and profits are distributed as dividends, which are not subject to self-employment tax.

For most new architecture firms, an LLC taxed as an S-Corp is a popular choice because it can save on self-employment taxes once your income exceeds $50,000 to $70,000. However, it adds payroll and compliance costs. Consult a CPA to model your specific situation.

2. You Must Pay Estimated Taxes Quarterly

As a business owner, no one withholds taxes from your paychecks. You are responsible for paying estimated taxes to the IRS and your state each quarter. The deadlines are typically April 15, June 15, September 15, and January 15. If you miss a payment, you may face penalties and interest.

What to do this week: Calculate your expected annual income and expenses, then use IRS Form 1040-ES to estimate your quarterly payments. Set aside 25% to 35% of your net income in a separate savings account to cover taxes.

3. You Can Deduct Business Expenses, But Keep Receipts

Architecture firms have many deductible expenses, which can significantly reduce your taxable income. Common deductions include:

Home office: If you have a dedicated space used exclusively for business, you can deduct a portion of rent, utilities, and internet.
Software and hardware: CAD software, computers, printers, and other equipment.
Professional fees: Licenses, continuing education, and professional association dues.
Marketing: Website hosting, business cards, and advertising.
Travel: Mileage and expenses for client meetings or site visits.

Important: The IRS requires you to keep receipts and records. Use a dedicated business credit card and accounting software like QuickBooks or Xero to track everything. You’ll thank yourself at tax time.

4. You Can Write Off Startup Costs

Starting a firm involves initial expenses like legal fees, office setup, and marketing. The IRS allows you to deduct up to $5,000 in startup costs in your first year, with the remainder amortized over 180 months. This deduction is phased out if your startup costs exceed $50,000.

What to do this week: Compile all your startup receipts and categorize them. Keep a separate ledger for these costs so you can claim the deduction accurately.

5. Self-Employment Tax Is a Double Whammy

As a self-employed individual, you pay both the employee and employer portions of Social Security and Medicare taxes. This is called self-employment tax and is currently 15.3% on your net earnings. That’s on top of your income tax. For many new firm owners, this comes as a shock.

How to mitigate: If you’re an S-Corp, you can reduce self-employment tax by paying yourself a reasonable salary (which is subject to payroll taxes) and taking the rest as distributions (which are not). But be careful: the IRS requires your salary to be reasonable for your profession and region.

6. Sales Tax on Services Varies by State

Some states require you to collect sales tax on architectural services. As of 2026, about 20 states tax professional services, including architecture. The rates range from 4% to 8% depending on your state and locality. Check with your state’s department of revenue to see if you need to register for a sales tax permit and collect tax from clients.

What to do this week: Search your state’s revenue website for “sales tax on professional services” to determine your obligations. If you’re unsure, call their helpline.

7. Hiring Employees Brings Payroll Taxes

When you hire your first employee, you become responsible for payroll taxes, including federal income tax withholding, Social Security, Medicare, and federal and state unemployment taxes. You’ll need to register for an Employer Identification Number (EIN) and set up payroll processing.

Cost range: Payroll processing services like Gusto or ADP charge $40 to $100 per month, plus a per-employee fee of $5 to $10. This is a worthwhile investment to avoid penalties for missed filings.

What to do this week: If you plan to hire soon, set up your payroll system and register with your state’s labor department. Also, consider workers’ compensation insurance, which is required in most states.

FAQ

1. Do I need to register my architecture firm with the IRS?

Yes, you need an Employer Identification Number (EIN) from the IRS, even if you’re a sole proprietor. It’s free and can be done online in minutes. You’ll need it to open a business bank account and file taxes.

2. Can I deduct my health insurance premiums?

Yes, if you’re self-employed and not eligible for an employer-sponsored plan, you can deduct health insurance premiums for yourself, your spouse, and dependents. This deduction is taken on your personal tax return and reduces your adjusted gross income.

3. What is the difference between a business expense and a capital expense?

A business expense is an ordinary cost of running your firm, like rent or software subscriptions, and is fully deductible in the year incurred. A capital expense is a long-term asset, like a building or major equipment, which must be depreciated over several years. For example, buying a $3,000 computer is a capital expense, but you can use Section 179 to deduct the full cost in the year of purchase.

4. Should I hire a CPA or use tax software?

For a new firm, using tax software like TurboTax Self-Employed or H&R Block can work if your finances are simple. However, a CPA who specializes in small businesses can save you money by identifying deductions you might miss and helping you plan for tax season. Expect to pay $300 to $800 for a professional tax preparation, which is often worth it.

The bottom line

Starting an architecture firm is a rewarding venture, but tax compliance is non-negotiable. By understanding your entity choice, quarterly payments, deductions, and payroll obligations, you can avoid common pitfalls. Take action this week: set up a separate business bank account, track every expense, and schedule a consultation with a CPA. A little preparation now will save you thousands later.