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 2018 returns in contrast to the number of such filers and their revenue with 2017 returns.
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 28.9% of all Schedule C filers (up from just 2.3% in 2001). Results from 2017 returns were discussed in an earlier blog.
Key statistics include:
- There were about 27.1 million non-farm sole proprietors in 2018, compared with 26.4 million in 2017. This is a 2.6% increase.
- Profits in 2017 rose to $348.5 billion, a 0.8% increase over 2017. But total profits as a percentage of business receipts were 21.9%, down slightly from 22.6% in 2017.
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 $85 billion (24.4% of total sole proprietorship profits), followed by the health care and social assistance sector, at $45.9 billion. Overall sole proprietorship business receipts increased 3.8% while deductions increased by 4.7%. The largest industrial sector, based on business receipts, was the construction sector, accounting for 17% of total business receipts and 18.2% of total deductions.
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 (13.2%), followed by salary and wages (12.2%). Of the 26.4 million sole proprietorships, nearly 10.6 million claimed a home office deduction.
Now that the economy is recovering from the pandemic, it’s unclear how this will impact sole proprietorships. Will more individuals start businesses, beginning as sole proprietorships? Will “second jobs” via gig work as independent contractors continue to be needed or desired? Will gross receipts pick up for all of these businesses? No one knows for sure.