Each year the IRS releases statistics on various types of business entities, and most recently it released the latest statistics on sole proprietorships. These stats are derived from Schedule C of Form 1040 for 2017 returns in contrast to the number of such filers and their revenue with 2016 returns. The data also reflect entries on Schedule C-EZ, which is a type of return for sole proprietors that is no longer in use.
Sole proprietorships include:
Sole proprietorships include 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. In fact, such LLCs now account for 29.3% of all Schedule C filers (up from just 2.3% in 2001). Results from 2015 returns were discussed in an earlier blog.
Key statistics include:
- There were about 26.4 million non-farm sole proprietors in 2017, compared with 25.5 million in 2016. This is a 3.5% increase.
- Profits in 2017 rose to $346.2 billion, a 3.5% increase over 2017. But total profits as a percentage of business receipts were 22.6%, down slightly from 23.1% in 2016.
The statistics examine results across industries, including construction, retail and wholesale trade, finance, real estate, professional services, health care, and the arts. The transportation and warehousing sector had the largest percentage increase in the number of returns among all sectors, increasing 18.6% for 2017. This follows an increase of 22.6% in 2016. The growth in ride-sharing businesses contributed to these large increases.
As far as profits go, the professional, scientific, and technical services sector had the largest profits of any sector, at $82.8 billion (23.9% of total sole proprietorship profits), followed by the health care and social assistance sector, at $47.3 billion (13.7% of total profits. Overall sole proprietorship business receipts increased 7.7% The largest industrial sector, based on business receipts, was the construction sector, accounting for 17.3% of total business receipts.
The statistics show the breakdown of deductions claimed by sole proprietorships in various industries. On average, the largest categories of business deductions were salary and wages (12.9%) and car and truck expenses (12.8%). Of the 26.4 million sole proprietorships, nearly 10.7 million claimed a home office deduction.
Will the aftermath of the pandemic see an increase or decrease in sole proprietorships? No one knows for sure. Sadly, many sole proprietors have likely shut their doors despite some opportunities for government help and others that struggle for a while may ultimately be forced to close. But because sole proprietorships are the easiest type of business entity to get started in, I suspect there will be a surge in new sole proprietors in the months to come. Individuals who are out of a job as well as those seeking to create supplemental income with a sideline activity may represent the new wave of sole proprietorships. Let’s hope for a quick recovery!