Sole proprietorship or company in United States: tax comparison

Taxes and contributions for a sole proprietor under each available system and for your own company, for a resident of the chosen country with the same profit.

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Form

Sole proprietor / single-member LLC

Sole proprietorSole proprietorship / single-member LLC

Profit goes on Schedule C of your Form 1040. You pay federal income tax at 10–37%, self-employment tax of 15.3% on 92.35% of profit (the 12.4% part only up to $184,500), Michigan tax at 4.25% and Detroit tax at 2.4%. Half of the SE tax is deductible; the QBI deduction is up to 20% of profit, but consulting is a specified service business, so it phases out between $201,750 and $276,750 of taxable income.

Conditions

The US has no VAT; state and local sales taxes are not included.
Minimum QBI deduction of $400 if QBI from the active business (after the consulting phase-out) is at least $1,000; above $276,750 of taxable income consulting gets no QBI deduction.
Additional Medicare Tax of 0.9% applies to self-employment income above $200,000.

IRS, Rev. Proc. 2025-32 (2026: tax table for unmarried individuals, standard deduction $16,100, maximum zero / 15% rate amounts $49,450 / $545,500, §199A threshold $201,750 and phase-in to $276,750, §199A(i) minimum deduction $400) · IRS, Topic no. 554, Self-employment tax (92.35% of net earnings; $400 minimum) · IRS, Self-employment tax (Social Security and Medicare taxes): 15.3% = 12.4% + 2.9%; for 2026 the first $184,500 is subject to the social security part · IRS, Topic no. 560, Additional Medicare tax (0.9% above $200,000) · 26 U.S.C. §199A as amended by Pub. L. 119-21 (OBBBA) §70105: (b)(3)(B), (d)(2)–(3) specified service trade or business, (i) minimum deduction · IRS, Instructions for Form 8995-A (QBI includes the deductible part of self-employment tax; consulting is a specified service trade or business) · Michigan Department of Treasury, State individual income tax rate for 2026 tax year (4.25%) · Michigan Department of Treasury, Calendar year tax information (2026 personal exemption $5,900) · City of Detroit, Income Tax Information (residents 2.4%, corporations 2.00%, personal exemption $600)

C corporation

CompanyC corporation

The corporation pays 21% federal corporate income tax, Michigan Corporate Income Tax of 6% (only with gross receipts of $350,000 or more; with the small business alternative credit effectively 1.8% while profit is up to $160,000) and 2% Detroit corporate tax. Dividends to you are qualified: 0 / 15 / 20% federal, plus 3.8% NIIT above $200,000, 4.25% Michigan and 2.4% Detroit tax.

Conditions

The US has no VAT; state and local sales taxes are not included.
Michigan's small business alternative credit (1.8%) applies only with gross receipts up to $20 million and a shareholder's share of business income up to $180,000; between $160,000 and $180,000 the credit is cut by 20–80%.
A single-member LLC can elect to be taxed as a corporation (Form 8832). An S corporation is not shown because it requires a reasonable salary for the owner.

IRS, Instructions for Form 1120 (Schedule J line 1a: taxable income × 21%; line 17: state and local taxes deductible) · Michigan Department of Treasury, Corporate Income Tax (6%; no filing if apportioned gross receipts under $350,000; small business alternative credit 1.8%) · MCL 206.671 (Income Tax Act of 1967), small business alternative credit: $180,000 shareholder test and reductions from $160,000 · Michigan Revenue Administrative Bulletin 2020-26, Small business alternative credit · MCL 206.623(2): taxes on or measured by net income added back to the CIT base · City of Detroit, Income Tax Information (residents 2.4%, corporations 2.00%, personal exemption $600) · IRS, Rev. Proc. 2025-32 (2026: tax table for unmarried individuals, standard deduction $16,100, maximum zero / 15% rate amounts $49,450 / $545,500, §199A threshold $201,750 and phase-in to $276,750, §199A(i) minimum deduction $400) · IRS, Topic no. 559, Net investment income tax (3.8%; $200,000 single) · Michigan Department of Treasury, State individual income tax rate for 2026 tax year (4.25%) · Michigan Department of Treasury, Calendar year tax information (2026 personal exemption $5,900)

Assumptions

Business activity: IT / consulting services for business clients

One owner, tax resident of this country, no employees, no children, no other income; the business runs for the whole year.
Lives in Detroit, Michigan; single filer with the $16,100 standard deduction; state and city taxes are not itemized.
Consulting is treated as a specified service trade or business for §199A. Corporation: tax year is calendar 2026, all receipts are apportioned to Michigan and Detroit, dividends are qualified.
Company: the owner is the sole shareholder and director and takes no salary; profit after corporate tax is either paid out in full as dividends in the same year or kept in the company.
Expenses are documented business costs fully deductible in the year they are incurred; depreciation rules, prior-year losses and voluntary pension contributions are not modelled.
VAT (or GST/HST) and sales taxes are not included: they are passed on to clients and do not reduce profit.

Sources: IRS, Rev. Proc. 2025-32 (2026: tax table for unmarried individuals, standard deduction $16,100, maximum zero / 15% rate amounts $49,450 / $545,500, §199A threshold $201,750 and phase-in to $276,750, §199A(i) minimum deduction $400) · IRS, Topic no. 554, Self-employment tax (92.35% of net earnings; $400 minimum) · IRS, Self-employment tax (Social Security and Medicare taxes): 15.3% = 12.4% + 2.9%; for 2026 the first $184,500 is subject to the social security part · IRS, Topic no. 560, Additional Medicare tax (0.9% above $200,000) · IRS, Topic no. 559, Net investment income tax (3.8%; $200,000 single) · 26 U.S.C. §199A as amended by Pub. L. 119-21 (OBBBA) §70105: (b)(3)(B), (d)(2)–(3) specified service trade or business, (i) minimum deduction · IRS, Instructions for Form 8995-A (QBI includes the deductible part of self-employment tax; consulting is a specified service trade or business) · IRS, Instructions for Form 1120 (Schedule J line 1a: taxable income × 21%; line 17: state and local taxes deductible) · Michigan Department of Treasury, State individual income tax rate for 2026 tax year (4.25%) · Michigan Department of Treasury, Calendar year tax information (2026 personal exemption $5,900) · Michigan Department of Treasury, Corporate Income Tax (6%; no filing if apportioned gross receipts under $350,000; small business alternative credit 1.8%) · MCL 206.671 (Income Tax Act of 1967), small business alternative credit: $180,000 shareholder test and reductions from $160,000 · Michigan Revenue Administrative Bulletin 2020-26, Small business alternative credit · MCL 206.623(2): taxes on or measured by net income added back to the CIT base · City of Detroit, Income Tax Information (residents 2.4%, corporations 2.00%, personal exemption $600)

Checked: 4 November 2026

An estimate for a typical case: VAT, start-up reliefs, other income and family reliefs are not included. Not tax advice.