Numbers can paint a picture and recently released IRS statistics on sole proprietorships certainly do so. These stats are derived from Schedule C of Form 1040 for 2020 returns in contrast to the number of such filers and their revenue with 2019 returns. This is a subject we cover every year, as you can see in last year’s blog. As you review these statistics, keep in mind that 2020 was the start of the pandemic and many small businesses were hit hard.
Sole proprietorships are…
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.
The number of sole proprietors filing 2020 returns was 28.4 million individuals, a 1.9% increase. There were 2.8 million single-member LLC returns filed for 2020 (there were only 126,000 in 2001). One-member LLCs now account for 9.8% of all Schedule C filers (up from just 2.3% in 2001 and up a full percentage point from 2019).
Statistics…
Other key statistics for 2020 include:
- Total receipts reported by nonfarm sole proprietorships decreased 2.1%
- Total deductions decreased 1.1%
- Profits fell 5.1% to $337.2 billion.
The statistics covered the results across industries, including construction, retail and wholesale trade, finance, real estate, professional services, health care, and the arts.
The construction sector reported the largest percentage of total business receipts (18.3%) and total business deductions (19.5%).
The finance and insurance sector improved the most, reporting the largest percentage increase in business receipts (30.3%) and the largest dollar increase in business receipts, increasing by $26 billion.
Profits were a different story:
The professional, scientific, and technical services sector reported the largest percentage of total profits of all nonfarm sole proprietorships, with 24.9% ($83.9 billion), but the sector had a 4.8% decrease in profits for 2020 compared to the previous year.
The statistics show the breakdown of deductions claimed by sole proprietorships in various industries. On average (and not counting inventory purchases), the largest categories of business deductions for Schedule C filers were car and truck expenses, followed by salary and wages, and then contract labor.
The smallest expenditures were for interest expense, office expenses, and advertising. Of the 28.3 million sole proprietorships in 2020, over 11.1 million (nearly 40%) claimed a home office deduction.
Final thought
Larry Page, co-founder of Google, said “You don’t need to have a 100-person company to develop that idea.” You can go it alone, as the statistics demonstrate.
What these statistics from the era of COVID-19 say to me is that more and more people are starting businesses. Income certainly was adversely impacted at that time, but it didn’t dampen enthusiasm for entrepreneurship.
Find more information about sole proprietorships in earlier blogs here.
