Starting Your Own Law Firm: Financial Planning for BigLaw Attorneys Going Solo

Leaving BigLaw to start your own firm is a fundamentally different financial decision from leaving for in-house or government work. You're not replacing income — you're building a business. The revenue ramp is uncertain, the tax structure changes completely, and most of the departure mechanics that apply to any BigLaw exit layer on top of the startup planning. Here's what to model before you give notice.

Why this transition is uniquely complex

When a BigLaw attorney leaves for an in-house role, the financial complexity lives mostly in the departure mechanics: when your NQDC pays out, when the capital account returns, whether you capture the year-end bonus. Those questions have definite answers. Income resumes relatively quickly, often at 60–80% of BigLaw comp.

Going solo inverts the structure. The departure mechanics are the same — see our BigLaw departure planning guide for §409A NQDC rules, capital account return timelines, and bonus cutoff timing — but after those are handled, you're facing a revenue ramp with no guaranteed paycheck. Month 1 collections might be $25,000. Month 18 might be $120,000. You need a financial plan that can survive the variance.

Revenue modeling: the break-even math

Gross collections = billing rate × billable hours × collection rate. Collection rate for a new solo practice in year 1 is typically 85–92% — some clients slow-pay, some balances require write-offs. Budget 88% as a conservative starting point.

Example: a former BigLaw 6th-year billing at $550/hour, targeting 1,400 billable hours, 88% collection rate:

• $550 × 1,400 × 0.88 = $677,600 gross revenue
• Less estimated overhead (malpractice insurance, office/virtual office, legal research tools, bar dues, technology, staffing): $70,000–$130,000 depending on structure
• Net self-employment income before taxes: ~$550,000–$610,000

That looks comparable to the associate's BigLaw comp — until you account for the SE tax delta. As a W-2 associate, you paid half of FICA (7.65%). As a solo practitioner, you pay both halves of self-employment tax: 15.3% on the first $184,500 of net SE income, plus 2.9% Medicare on all SE income above that, plus 0.9% Additional Medicare Tax above $200,000 (single).¹

The 50% SE tax above-the-line deduction helps, but the net cost of self-employment adds real dollars. When building projections, model your combined effective tax rate 3–6 percentage points higher than your BigLaw effective rate — and then apply the deductions available to solo practitioners (see below) to work it back down.

Business structure: PLLC and the S-corp election

Licensed attorneys in most states are required to organize their practice as a Professional Limited Liability Company (PLLC) or Professional Corporation (PC) rather than a standard LLC. The PLLC gives you pass-through taxation — net income flows to your personal return as self-employment income — with limited liability protection. Note that malpractice liability for your own professional acts typically is not shielded by PLLC structure; that's what malpractice insurance is for.

The S-corp election: when it makes sense

A single-member PLLC can elect S-corporation tax treatment by filing IRS Form 2553. The mechanism: you pay yourself a "reasonable salary" as an employee of your own S-corp (subject to FICA taxes), and take remaining profit as distributions (not subject to self-employment tax). The savings come from the Medicare tax on distributions above your salary:

• Medicare tax rate on salary: 2.9% (both sides) + 0.9% AHC above $200K
• Medicare tax rate on S-corp distributions: 0%
• At $500K net income with $200K reasonable salary and $300K in distributions: savings ≈ 2.9% × $300K + 0.9% × max($300K, above-$200K-threshold) ≈ $10,000–$14,000/year

Those savings must exceed the additional compliance costs: S-corp payroll administration, a separate Form 1120-S, and state-level S-corp registration fees. Total additional annual cost is typically $3,000–$6,000 for an organized CPA arrangement. The math generally favors S-corp election above $250,000–$300,000 of net income; below that level, the compliance cost often exceeds the tax savings.

The S-corp election deadline is 2 months and 15 days from the start of the tax year you want it effective — March 15 for a calendar-year entity. If you start your firm in mid-year, you may be able to elect retroactively to the first day of the tax year if you file within 75 days of start. Have your CPA confirm the timing before you miss the window.

Solo 401(k): your primary retirement vehicle

As a sole proprietor or single-member S-corp owner with no full-time employees, you can establish a solo 401(k) (also called individual 401(k) or one-participant 401(k)). The 2026 limits are the same as a corporate 401(k) — but you fill both the employee and employer roles, which means you can contribute far more than a SEP-IRA at lower income levels.

At lower income levels, the solo 401(k) wins decisively. At $175,000 of net SE income after the SE deduction: solo 401(k) lets you contribute $24,500 (employee deferral) + ~$32,000 (25% employer) = ~$56,500. A SEP-IRA caps you at ~$32,000. The gap closes as income rises above ~$190,000, where 25% × net SE income approaches the combined cap on its own — but the employee deferral is still available and still valuable for Roth treatment, if you elect a Roth solo 401(k).

Roth solo 401(k): Unlike a SEP-IRA (always pre-tax), a solo 401(k) can accept Roth employee deferrals — no income limit. At the high marginal rates BigLaw alumni face in their peak years, traditional pre-tax contributions are usually better, but Roth makes sense during ramp-up years when income is lower.

Critical timing: A solo 401(k) must be established by December 31 of the first tax year you want to fund it. If you leave BigLaw in September 2026 and don't open the account by December 31, you lose the 2026 contribution window. Open the account immediately — Fidelity, Vanguard, and Schwab offer self-directed solo 401(k)s at no cost.³

Stacking with a cash balance plan: Solo practitioners over 45 in peak earning years should model adding a defined benefit cash balance plan alongside the solo 401(k). Combined, these can shelter $200,000–$400,000+ per year depending on age and income — the most powerful tax shelter available to a self-employed attorney in a high-income year.

Health insurance after BigLaw

Your group health coverage ends when you leave the firm (confirm the exact date — most firms end coverage at month-end, some cut it on your last day).

COBRA continuation lets you keep your current plan for up to 18 months. You pay 100% of the full premium — both your prior employee share and the employer's contribution — plus a 2% administrative fee. For individual coverage in 2026, expect $400–$700/month. Family coverage is typically $1,200–$2,000/month. Expensive, but zero disruption to coverage, providers, or in-progress deductible accumulation.

ACA marketplace: As of 2026, the enhanced premium tax credits that existed through 2025 have expired, and the pre-ARP subsidy cliff has returned.⁴ Above 400% of the federal poverty level — approximately $62,600 for a single filer in 2026 — you receive no marketplace subsidy. In your first full year of solo practice with meaningful collections, you will almost certainly exceed this threshold and pay full premiums: typically $600–$1,200/month for an individual HDHP-level plan in a major metropolitan market.

§162(l) self-employed health insurance deduction: As a self-employed attorney (sole proprietor or S-corp >2% shareholder), you can deduct 100% of health, dental, and vision insurance premiums for yourself, your spouse, and your dependents as an above-the-line deduction from gross income.⁵ At a 37% federal rate plus 5–9% state, the after-tax cost of a $1,200/month premium drops to roughly $620–$695/month after the deduction. This deduction is disallowed in any month you were eligible for employer-subsidized group health coverage — so it fully applies once you're solo.

An HDHP paired with an HSA continues to make sense for healthy solo practitioners. The 2026 HSA limits are $4,400 (individual) / $8,750 (family); see our HSA strategy guide for the triple-tax-advantage math at high marginal rates.⁶

Professional liability (malpractice) insurance

BigLaw's firm-wide malpractice policy covered you automatically. As a solo practitioner, you need your own claims-made policy on day one. Key decisions:

• Claims-made structure: Legal malpractice policies in the U.S. are almost universally claims-made — they cover claims reported while the policy is active, for acts occurring after the retroactive date. Cancel the policy and you lose coverage for future claims arising from past work, even work done while the policy was in place.
• Prior acts (retroactive date): The policy's retroactive date determines how far back your coverage reaches. For work done while at BigLaw, your former firm's policy should cover claims attributable to that work, as long as the firm remains in continuous coverage. Confirm this in writing before departure — get a written statement from firm management that the E&O policy will remain in force and covers matters you handled. If the firm ever cancels coverage (e.g., dissolution), you'd need your own extended reporting endorsement for prior acts.
• Coverage limits and premiums: A solo transactional or litigation attorney in a major metro market typically pays $3,000–$8,000/year for $1M/$3M limits. Rates vary significantly by practice area — securities litigation and M&A work command higher premiums; trust/estate and family law run lower. Start the application process 60 days before your first day of solo practice.

First-year tax planning as a solo practitioner

Estimated quarterly tax payments from day one. There's no withholding when you're self-employed. You're required to make payments April 15, June 16, September 15, and January 15, 2027 for the 2026 tax year.⁷ The 110% prior-year safe harbor (for those with prior-year AGI above $150,000) protects against underpayment penalties — pay at least 110% of your prior BigLaw tax bill, spread across four quarters, and you're covered regardless of what your solo income turns out to be. See our quarterly estimated tax guide for the mechanics.

Year-1 income stack: Your final BigLaw paycheck plus any trailing bonus, NQDC distributions triggered by departure (§409A allows the firm to begin paying on your elected schedule after separation from service), capital account installments, and new firm SE income all merge into one tax return. Expect departure year to be your highest-ever income year. Talk to your CPA before you give notice — not after.

Business deductions available to solo practitioners that W-2 associates can't use:

• Home office (§280A): exclusive, regular-use space. Simplified method: $5/sq ft × up to 300 sq ft = up to $1,500/year. Actual expense method is more powerful if you rent.
• §162 ordinary business expenses: bar dues, CLE, legal research subscriptions, malpractice premiums, technology, a portion of phone and internet.
• Business vehicle: $0.725/mile standard mileage rate for 2026 business use, or actual expenses plus depreciation.⁸
• SE tax deduction: 50% of self-employment tax is deductible above the line from gross income.
• §162(l) health insurance: 100% above-the-line (as discussed above).
• Solo 401(k) and cash balance plan contributions: employer profit-sharing portion deductible as a business expense; employee deferral reduces your W-2/SE income dollar-for-dollar.

Compare what's available at each career stage in our attorney tax deductions guide.

Pre-departure checklist

Revenue break-even calculator

Model how your solo collections compare to BigLaw comp at different billing volumes, rates, and overhead structures.

A fee-only financial advisor who works with BigLaw alumni can model the full after-tax comparison — incorporating your NQDC payout schedule, capital account return timeline, year-1 income stack, and the retirement plan structure for your specific practice setup.