7 Things to Know Before You Start a Solo Attorney Practice
Learn the 7 critical tax and business steps for starting a solo law practice, including entity choice, deductions, quarterly taxes, and more.
Starting a solo attorney practice is exciting, but the business side can trip you up, especially taxes. Before you hang your shingle, here are 7 things you must know to avoid costly mistakes and keep more of what you earn.
1. Choose the Right Business Structure for Tax Purposes
Your entity choice affects your taxes, liability, and paperwork. Most solo attorneys choose one of these:
- Sole Proprietorship: Easiest, no separate tax return, but you pay self-employment tax on all net income (15.3% in 2026) and have unlimited personal liability.
- Single-Member LLC: Gives liability protection, but for taxes it’s a disregarded entity by default. You still pay self-employment tax, but you can deduct some business expenses.
- S-Corp: You pay yourself a reasonable salary (subject to payroll taxes) and take the rest as distributions, which are not subject to self-employment tax. This can save you thousands, but requires payroll setup and more compliance.
Practical step: Consult a CPA to model your expected income. If you expect to net over $50,000, an S-Corp election might save you $3,000-$6,000 annually, but it costs $1,000-$2,000 in payroll and filing fees.
2. Track Every Deductible Expense from Day One
You can deduct ordinary and necessary business expenses. Common ones for solo attorneys:
- Home office: If you use a space exclusively and regularly for business, you can deduct $5 per square foot (up to 300 sq ft) or use actual expenses. For a 200 sq ft office, that’s $1,000/year.
- Bar dues and CLE: Deductible, including travel to CLEs.
- Malpractice insurance: Typically $2,000-$5,000/year, fully deductible.
- Office supplies, software, and legal research: Deductible.
- Marketing and website costs: Deductible.
Practical step: Open a separate business credit card and use it for all business purchases. Set up a spreadsheet or use accounting software like QuickBooks to categorize expenses weekly.
3. Pay Quarterly Estimated Taxes to Avoid Penalties
As a solo attorney, no one withholds taxes from your income. You must pay estimated taxes quarterly (April 15, June 15, Sept 15, Jan 15) if you expect to owe more than $1,000. The IRS charges penalties for underpayment, which can be 3%-5% of the shortfall.
How to calculate: Estimate your annual income, subtract deductions and credits, then compute your tax. Pay 25% of that each quarter. In 2026, the federal tax brackets for single filers range from 10% to 37%, plus self-employment tax of 15.3%.
Practical step: Set aside 30%-40% of every client payment into a separate savings account. Use IRS Form 1040-ES to calculate and pay online.
4. Understand the Self-Employment Tax
Self-employment tax covers Social Security and Medicare. In 2026, the rate is 15.3% on net earnings up to $168,600 (Social Security wage base), plus 2.9% Medicare on all earnings. This is in addition to income tax.
Example: If you net $80,000, you’ll owe about $12,240 in self-employment tax alone.
Practical step: Deduct the employer-equivalent portion (half) of self-employment tax on your Form 1040. Also, consider making retirement contributions to lower your taxable income.
5. Don’t Forget State and Local Taxes
You’ll likely owe state income tax, and possibly local taxes, depending on where you practice. Some states have no income tax (e.g., Texas, Florida), but others have rates up to 13.3% (California). Also, you may owe sales tax on certain services, though legal services are often exempt.
Practical step: Check your state’s department of revenue website for tax rates and registration requirements. You may need to register for a sales tax permit if you sell products (e.g., books).
6. Set Up Retirement Plans to Reduce Taxes
Retirement plans allow you to deduct contributions now and grow tax-deferred. Options for solo attorneys:
- SEP IRA: Contribute up to 25% of net earnings, max $69,000 in 2026. Easy to set up.
- Solo 401(k): Contribute up to $23,000 as employee (plus $7,500 catch-up if over 50) and up to 25% as employer, total max $69,000. More paperwork but higher limits.
- SIMPLE IRA: Lower limits but simpler.
Example: If you contribute $20,000 to a SEP IRA, you save $4,400-$7,400 in federal and state taxes, depending on your bracket.
Practical step: Open a SEP IRA with a low-cost provider like Fidelity or Vanguard. Set up automatic contributions after each big client payment.
7. Keep Personal and Business Finances Completely Separate
Mixing funds creates accounting headaches and can jeopardize your liability protection. It also makes tax filing harder and increases audit risk.
Practical step: Open a business checking account and a business credit card. Pay yourself a regular salary or draw, and transfer money between accounts only for clear business purposes. Use accounting software to track everything.
FAQ
Q: When should I start paying quarterly taxes? A: If you expect to owe more than $1,000 in taxes for the year, you must pay quarterly. Start in your first year, even if you have no income yet, to avoid penalties later.
Q: Can I deduct the cost of my law school loans? A: No, student loan interest is not a business deduction, but you may be able to deduct up to $2,500 of interest on your personal return, subject to income limits.
Q: What if I don’t make a profit in the first year? A: You can still deduct business expenses, but if you show a loss for three out of five years, the IRS may classify your practice as a hobby, disallowing deductions. Keep records to show you’re trying to make a profit.
Q: Should I hire a CPA or use tax software? A: For the first year, a CPA can save you thousands by identifying deductions and setting up proper structures. Expect to pay $500-$1,500 for a basic business tax return.
The Bottom Line
Starting a solo practice requires planning beyond legal work. Choose your entity wisely, track expenses, pay estimated taxes, and set up retirement accounts. These 7 steps will keep you compliant and maximize your take-home pay. Take action this week: consult a CPA, open a separate bank account, and set up a bookkeeping system. Your future self will thank you.