Each year the IRS releases statistics on various types of business entities, and looking at the numbers tells an interesting story.
The last time the IRS released statistics on sole proprietorships was at the end of 2017 and they addressed Schedule C and Schedule C-EZ filing for 2015. Now we have statistics for 2016 and they 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, other gig economy workers, 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. Sole proprietorships are estimated to account for 73% of all businesses in the U.S.
From my review of the numbers—comparing 2015 to 2016—it seems that more people have sole proprietorships. When I reviewed the statistics in December 2017, they were better than they had previously been, but now they’re even better.
Here are some statistics that jump out:
- There were about 25.5 million sole proprietors (exclusive of farmers) in 2016, compared with 25.2 million in 2015. This is a 1.2% increase.
- Profits as a percentage of business receipts were 23.1%, even though total profits fell 1.1% to $328.2 billion in 2016.
Much of the statistics reflect the number of returns and the amount of profits (or losses) for various sectors, such as construction; arts, entertainment, and recreation; healthcare; real estate; and professional, scientific, and technical services.
The transportation and warehousing sector had the largest percentage increase in the number of returns among all sectors, increasing 22.6% for the year, after increasing by 25% in 2015, the latter being the largest percentage increase by a sector since at least 1988. This is no surprise, given the growth in ride-sharing platforms, such as Lyft and Uber, and all the independent contractors driving for them.
The subsector of the transportation and warehousing sector specific to “Taxis, limousines, and other ride-sharing services” accounted for much of the total increase in the number of business returns in the sector, making up 87.5% of the increase in Tax Year 2014.
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 2016, there were 1.9 million such sole proprietorships, which accounted for 7.3% of Schedule C filers, a nearly 15-fold increase since 2001.
Final thought
Will the number of sole proprietorships continue to grow? As the economy continues to expand, especially in the gig sector, there is a likelihood of more independent contractors—full-time or part-time.
