Recently released IRS statistics for 2014 show that there is a growing number of sole proprietorships in the U.S. Sole proprietorships are taxpayers who file Schedule C. 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 and expenses.
From my review of the numbers — comparing 2013 to 2014 — it seems that more people have sole proprietorships. The last time I did this type of comparison was 2011 to 2012. The increase in the number of sole proprietorships may be due to the sharing, or “gig,” economy where individuals usually work on a part-time basis, or simply that there are more people starting businesses.
Here are some key numbers:
- There were about 24.6 million sole proprietors (exclusive of farmers) in 2014, compared with 24 million in 2013. This is a 2.3% increase!
- Profits were $317.1 billion, up 4.9% over 2013.
- Profits as a percentage of business receipts were 22.7%, 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. For example, transportation and warehousing saw the greatest increase, a 17.7% increase in profits.
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 were $9.5 billion (1.3% less than in 2013). The biggest increase for any deduction category was contract labor (12.4%).
The number of sole proprietors filing Schedule C-EZ increased by 3.7% to about 5 million such filers in 2014. These returns can only be filed for profitable businesses claiming expenses up to $5,000, use the cash method of accounting, have no inventory, no employees, and no home office. So it’s no surprise that the total amount of deductions on these returns remained about the same for 2014 compared with 2013 ($4.6 billion each year, which is about $4,600 on average per return).
What will the impact of tax and regulatory reform and changes in health care mean for sole proprietors in the future? It’s an exciting time but it will be a while before the results are in.
Coming soon …What the Latest IRS Statistics on Partnerships and LLCs Say about Business Growth
