Sole Proprietorships: A Tax Perspective


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IRS statistics help to paint a picture of sole proprietorships in the U.S. and makes for interesting reading. Following a review of these statistics, my take is that the state of sole proprietorship from a tax perspective reflects an improving economy.

Here are some key numbers (for the 2012 tax year) (yes, it takes the IRS quite a while to compile data):

  • There were about 23.6 million sole proprietors (exclusive of farmers), up 0.5% over 2011.
  • Profits were $304.9 billion, up 7.9% over 2011.
  • Profits as a percentage of business receipts were 23.4%, the highest level in 25 years.

The greatest number of returns was filed by those in professional, scientific, and technical services. In descending order, other significant sectors were construction, administrative services, retail, transportation and warehousing, and health care.

The biggest expense for sole proprietorships was car and truck expenses, followed by salaries and wages for staff (sole proprietors do not receive salary). Deductions for home office expenses exceeded $10 billion (0.3% more than in 2011).

Bottom line: The number of sole proprietorships, as well as their profits, is growing in contrast to the bleak years of the Great Recession. However, the increase could be attributable in part to the growing number of independent contractors who joined the ranks of sole proprietors after being laid off from corporate jobs.

Whether increases in the number of sole proprietorships, and their profits, has continued beyond 2012 will not be known for sure until new IRS statistics are released next year. Stay tuned!

Up next: Partnerships and LLCs: A Tax Perspective


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