The IRS's Statistics of Income Bulletin, Spring 2015 reports tax information for 2013. Overall it shows that the economy improved between 2012 and 2013; the number of tax returns filed increased by 1.9% to 144.9 million returns and taxable income also increased (by 0.8%).
The report shows some interesting things about individuals who are sole proprietors or owners in S corporations, partnerships, and limited liability companies. In general, things seem to be looking up for these business owners.
Income. The number of Schedule C filers reporting business or professional income (or loss) rose by 2.7% to nearly 23,600,000 returns. Of these, only 5.6 million returns showed a net loss. Total profits (net of returns showing losses) amounted to $285.7 billion.
There were 2.3% more partners and S corporation shareholders reporting partnership and S corporation net income less loss, or 7.5 million returns. Total profits (net of returns showing losses) amounted to $482 billion (which is 1.4% less than total profits in 2012).
Deductions. Most business-related deductions are taken into account on business returns to offset income; IRS statistics here do not reveal further information about business deductions. However, number of deductions that result from being in business are actually claimed as personal deductions, which are subtracted from gross income (i.e., not taken as itemized deductions).
These deductions include:
- The deduction for the self-employment tax increased 1.9% from $25.6 billion to $26.0 billion. This deduction, which is one half of the self-employment tax paid on net earnings from self-employment, shows that there was a sizable increase in profits by self-employed business owners.
- The self-employment health insurance deduction grew by 6% to $24.4 billion.
- Deductible contributions to self-employed retirement plans (e.g., 401(k)s, profit-sharing plans, defined benefit plans) rose 4.9% to $20.2 billion.
Final thought. Business owners today probably don’t need to look at IRS statistics to know that the economy has improved somewhat. However, it’s interesting to note how the improvement translates into more returns filed, more income reported, and more deductions claimed.