A confusion with setting timers
If you want to output a signal at the same speed as the system clock, I would not recommend using a timer.  You can output the system clock to Port B Pin 0 by programming the CKOUT fuse on the 328P.

The reason I suggest not using a timer to output a signal at the same frequency of the system clock is that the compare of TCNT1 you have as well as the toggle of the output will take clock cycles so the output will never quite be the clock speed.

If you use a timer for outputting a signal, I suggest using CTC mode of Timer 1 using the output compare to set the top.  You can then either poll the appropriate Output Compare Match flag or handle the related interrupt.