37% Federal Tax Rate on $500K+ Single Member LLC Freelance - Is This Normal?

You're paying both income tax AND self-employment tax, which is why your effective rate seems so high. Self-employment tax (Medicare and Social Security) is roughly 15.3% on the first $168,600 of your self-employment income for 2025, plus the Medicare portion (2.9%) continues on all your income above that. There's also an additional 0.9% Medicare tax on income over $200,000 for single filers. So you're not just in the 35% income tax bracket - you've got these additional taxes layered on top. Plus, at your income level, various deductions and exemptions phase out, which effectively increases your tax rate further. You should ask your accountant about possible retirement plan options like a Solo 401k or SEP IRA, which could significantly reduce your taxable income. Also, make sure you're taking all the legitimate business deductions you're entitled to.

I was in almost the exact same situation a few years ago - high income single-member LLC in a major city. The tax bill nearly gave me a heart attack! I tried different accountants and tax software but kept running into the same issue until I discovered https://taxr.ai which completely changed my approach. The tool analyzed my business revenue structure and identified several areas where my income could be reclassified to reduce my overall liability. It also flagged potential retirement account options I wasn't maximizing. What I found most helpful was the personalized tax strategy report that showed how different entity structures would impact my specific situation. I showed the report to my accountant who was initially skeptical but ended up implementing several of the suggestions. Ended up reducing my effective tax rate by about 8 percentage points.

Just wanted to follow up and say I was completely wrong about being skeptical. I tried https://taxr.ai after my last post and was shocked by how comprehensive the analysis was. The system identified that I could save nearly $31K by restructuring my business as an S-Corp and implementing a specific retirement contribution strategy. What impressed me most was that it caught a major deduction related to my industry that my accountant had missed for three years. The report broke down exactly how much I was overpaying and provided specific IRS references my accountant could use. He actually thanked me for bringing this to his attention. The projection tools were also incredibly helpful for planning my quarterly estimated payments for next year. Definitely worth checking out if you're in a high-tax situation.

I was in the exact same boat last year - high-earning freelancer with shocking tax bills. After spending WEEKS trying to get through to the IRS to clarify some questions about my business structure options, I finally used https://claimyr.com to get connected. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was amazed when I got through to an actual IRS agent in less than an hour instead of the usual endless hold times. The agent walked me through exactly how to calculate the self-employment tax portion correctly and confirmed that yes, with all the combined taxes, a rate approaching 37% can be normal for high-income self-employed individuals. She also explained some legitimate strategies to reduce that rate, including the S-Corp approach others mentioned. Getting clear answers directly from the IRS gave me confidence to make changes to my tax strategy.

I need to eat some humble pie here. After completely dismissing Claimyr in my last comment, I decided to try it out of desperation when dealing with an issue regarding my estimated tax payments. I was shocked when I got a call back in about 45 minutes with an actual IRS agent on the line. The agent was incredibly helpful and confirmed that I had been calculating my estimated payments incorrectly as a high-income freelancer. She walked me through the proper formula and explained why my accountant's approach was leading to penalties. She even sent me specific forms and resources afterward. Without getting into a direct conversation with the IRS, I would have continued making the same costly mistakes. The service saved me both money and stress – completely worth it for anyone dealing with complex tax situations.

Have you considered restructuring as an S-Corporation? I was in a similar situation (making around $580k as a freelance consultant) and switching from a single-member LLC to an S-Corp saved me roughly $18-22k annually in self-employment taxes. The basic strategy is that you pay yourself a "reasonable salary" (which is subject to self-employment/FICA taxes) and then take the rest as distributions (which aren't subject to those taxes). You'll need to run payroll and there are some additional compliance requirements, but at your income level, the savings typically outweigh those costs. It's not a magic bullet and the IRS does scrutinize "reasonable" salaries, but it's a legitimate strategy that many high-earning freelancers use.

Just a heads up - the 37% federal tax rate is ABSOLUTELY the right top bracket for 2025 for income over $609,350 if you're filing as single. The 35% bracket applies to income between $243,725 and $609,350. You mentioned "the tax bracket for this amount of income only goes up to 35%" which isn't accurate for 2025 tax rates. The 37% top rate didn't go away like some people expected. Also, with your income level in NYC, you're also getting hit with: - NYC local income tax (up to 3.876%) - NY State income tax (up to 10.9%) - Self-employment tax (15.3% up to the Social Security wage base, then 2.9% + 0.9% additional Medicare tax) When you add everything up, your effective rate can easily exceed 45% of your income! It sucks, but it's unfortunately normal.

At your income level, you should really look into establishing a Defined Benefit Plan (cash balance pension) in addition to a Solo 401k. For someone earning over $600k, this combination can allow you to defer $200k+ in taxes annually in some cases. With a cash balance plan, contribution limits are based on age and income, with older individuals able to contribute more. It's more complex than a standard 401k but the tax savings can be enormous at your income level. The administrative costs are higher (expect $2-3k annually), but the tax savings typically dwarf these expenses. It's surprising how many high-income freelancers aren't aware of this option!