Each year the IRS releases statistics on various types of business entities, and looking at the numbers tells an interesting story. Recently released IRS statistics for 2015 show that there are a growing number of sole proprietorships in the U.S.
Sole proprietorships are taxpayers who file Schedule C or C-EZ. They may be independent contractors, freelancers, or other self-employed individuals who are not required to file any other type of income tax return to report their business income expenses. They also include limited liability companies (LLCs) owned by one individual who does not choose to file a corporate return. And they make up 41% of all businesses in the U.S.
From my review of the numbers—comparing 2014 to 2015—it seems that more people have sole proprietorships.
Last year I reviewed the statistics, but this year they’re even better. Here are some that jump out:
- There were about 25.2 million sole proprietors (exclusive of farmers) in 2014, compared with 24.6 million in 2014. This is a 2.4% increase! The transportation and warehousing sector had the largest percentage increase in number of returns among all sectors for 2015. No sector has experienced such a large percentage increase or decrease since at least 1988. Growth in ride-sharing businesses, such as Uber and Lyft, could have contributed to this large increase in the number of returns in this sector.
- Profits were $331.8 billion, up 4.7% over 2014.
- Profits as a percentage of business receipts were 23%, the second highest level since 1988.
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, and health care. Profits increased for all of these sectors, as well as others.
The largest percentage increase in profits was reported by the real estate sector, which increased 15.1% or $3.7 billion. The professional, scientific, and technical services sector accounted for 25.1% of total profits, the largest of any sector.
LLCs owned by just one individual that do not opt to be taxed as corporations are treated as disregarded entities that file Schedule C. Tax Year 2001 was the first year for which data on these LLC filings became available. For 2001, there were 126,437 sole proprietorship returns that indicated status as an LLC or just 0.7% of total sole proprietorship returns. For 2015, there were 1,715,430 such sole proprietorships, which accounted for 6.8% of Schedule C filers, a 13-fold increase since 2001.
How will tax changes impact sole proprietorships in the future? Who knows? My guess is that as the economy continues to improve and more people start businesses, the number of sole proprietorships—often the first business entity used by startups—will continue to rise and sole proprietorships old and new will see profits grow. You can compare prior-year results in last year’s blog on the subject.