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 2019 returns in contrast to the number of such filers and their revenue with 2018 returns. This is a subject we cover every year, as you can see in last year’s blog.
What do 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, there were nearly 2.5 million single-member LLC returns filed for 2019 (there were only 126,000 in 2001). Such LLCs now account for 8.8% of all Schedule C filers (up from just 2.3% in 2001).
What are other key statistics?
Other key statistics include:
- There were about 27.8 million non-farm sole proprietors in 2019, compared with 27.1 million in 2018. This is a 2.6% increase.
- Profits in 2019 rose to $355.2 billion, a 1.9% increase over 2018. But total profits as a percentage of business receipts in 2019 were 21.7%, down slightly from 21.9% in 2018.
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 13.3% for Tax Year 2019 following a 10% rise in Tax Year 2018. Growth in ride-sharing businesses contributed to these large increases. But 88.5% of the returns in transportation and warehousing had business receipts of $100,000 or less.
As far as profits go, the professional, scientific, and technical services sector remained the sector with the largest share of profits at 24.8%, with profits increasing by 3.7% to $88.1 billion. This was followed by the construction sector, at $48.2 billion or 13.6% of total profits
The statistics show the breakdown of deductions claimed by sole proprietorships in various industries. On average, the largest categories of business deductions for Schedule C filers were car and truck expenses (13.8%), followed by salary and wages (12%). The smallest expenditures were for interest expense, office expenses, and advertising. Of the 27.8 million sole proprietorships in 2019, over 11.2 million (40%) claimed a home office deduction.
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. Now that the economy is recovering from the pandemic, will the number of sole proprietorships continue to grow? I’m betting it will as the Great Resignation continues and the opportunities for starting a business abound.