Self Employment Statistics

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Number Of Sole Proprietors Filing US Taxes with Business Income and Payroll

The IRS is a great source of statistical information for who is paying taxes in the US and how we are paying them. The number of sole proprietors filing tax returns in the US is now over 23 million, which means there are a few more self employed sole proprietors than there are government employees at all levels (Federal, State and Local). The business receipts of these 23 million plus sole proprietors in 2007, the last full year reported, was $1,324,403,000,000, or put in words, one trillion, three hundred and twenty four billion, four hundred and three million dollars. Keep the change. The net income reported by these sole proprietors was $280,557,010,000, a little over two hundred and eighty billion, or not much above $12,000 each. Doing some some quick math, {(1,324,403,000,000 - 280,557,010,000) / 1,324,403,000,000} = 0.788, we learn that 78.8% of sole proprietor gross income is taken up by expenses, such as, rent, cost of goods sold, depreciation, payroll, etc.

But these numbers include sole proprietors who reported no income or loss on their business taxes, and it turns out there are millions of those. The exact number can be computed from the total number of returns (23,122,698) minus the number of returns reporting a profit (16,928,788), so we learn that over six million sole proprietors reported no business income, almost 27% of those filing! Of the 73.2% of sole proprietors who did report a profit, their total payroll was $97,674,116,000, just under a hundred billion dollars. Keeping in mind that the owner of a sole proprietorship, whether employing multiple employees or not, is not on the payroll, we can calculate that the average payroll at a profitable sole proprietorship in the US is $5,770. While there are, no doubt, a large number of sole proprietors who employ some part time help, the most likely conclusion is that of the roughly 17 million profit making sole proprietors, the vast majority are self employed individual working by themselves. Keep in mind that there are also sole proprietors employing tens or hundreds of employees, and that's where most of those payroll dollars likely go. I've created the table below with what I believe are the important statistics a self employed sole proprietor should be familiar with, include the average deduction amounts and how the profitable businesses stack up against the loss making efforts. The links in the left margin all relate to filing taxes as a sole proprietor.

For last available tax year All

Sole Proprietors

Average per

Sole Proprietor

Unprofitable

% of total

Profitable

Sole Proprietors

Profitable

% of total

Number Schedule C and C-EZ Filings 23.1 million 27% 16.9 million 73%
Gross Income (Business Receipts) $1.32 trillion $57,143 16% $1.11 trillion 84%
. . Sales and Operations Income $1.30 trillion $56,277 16% $1.10 trillion 84%
. . Other Business Income $20.4 billion $883 27% $15.0 billion 73%
Business Tax Deductions $1.04 trillion $45,022 26% $774 billion 74%
. . Cost of Sales and Operations $423 billion $18,310 24% $319 billion 76%
. . . . Inventory Year Start $44.5 billion $1,926 41% $26.0 billion 59%
. . . . Cost of labor (inventory) $34.5 billion $1,494 16% $28.7 billion 84%
. . . . Inventory Purchases $264 billion $11,429 25% $197 billion 75%
. . . . Materials and Supplies (inventory) $61.5 billion $2,662 20% $49.5 billion 80%
. . . . Other Costs (inventory) $65.0 billion $2,814 29% $45.9 billion 71%
. . . . Inventory Year End $47.0 billion $2,035 41% $27.8 billion 59%
. . Advertising Expenses $15.7 billion $680 26% $11.6 billion 74%
. . Car and Truck Expenses $82.0 billion $3,550 25% $61.2 billion 75%
. . Sales Commissions $14.6 billion $632 25% $11.0 billion 75%
. . Contract Labor (1099) $36.7 billion $1,589 18% $30.0 billion 82%
. . Depletion $1.02 billion $44 24% $772 million 76%
. . Depreciation $39.6 billion $1,714 34% $26.1 billion 66%
. . Employee Benefits $2.91 billion $126 21% $2.30 billion 79%
. . Insurance $19.3 billion $836 23% $14.9 billion 77%
. . Legal and accounting services $10.9 billion $472 29% $7.79 billion 71%
. . 50% of Meals and Entertainment $7.66 billion $331 21% $6.05 billion 79%
. . Mortgage Interest $6.65 billion $288 47% $3.49 billion 53%
. . Other Business Interest Payments $8.37 billion $362 41% $4.91 billion 59%
. . Office Expenses $13.3 billion $576 23% $10.3 billion 77%
. . Pension and Profit Sharing $1.28 billion $55 8% $1.18 billion 92%
. . Machinery, Equipment Rental $9.52 billion $412 24% $7.21 billion 76%
. . Business Rental (excluding above) $33.6 billion $1,455 25% $25.1 billion 75%
. . Repairs $16.2 billion $701 29% $11.5 billion 71%
. . Supplies $32.3 billion $1,398 25% $24.2 billion 75%
. . Salaries and Wages $79.4 billion $3,437 21% $63.0 billion 79%
. . Local Taxes and Fees Paid $18.2 billion $788 25% $13.7 billion 75%
. . Travel (Transportation and Lodging) $13.1 billion $567 26% $9.73 billion 74%
. . Utilities (electric, gas, etc) $24.9 billion $1,078 27% $18.1 billion 73%
. . Other Business Deductions $120 billion $5,174 35% $78.2 billion 65%
Business Home Office Deductions $11.2 billion $484 25% $8.39 billion 75%
. . Business Home Depreciation (8829) $1.44 billion $62 32% $974 million 68%
.. Casualty Loss (form 8829) $99.7 million $4 39% $60.9 million 61%
.. Excess Casualty Depreciation (8829) $1.24 billion $54 88% $142 million 12%
Net Income (pre-tax profit or loss) $281 billion $12,164 $335 billion
Net Income Profitable Business Only $14,502

So what do these mainly work alone, self employed sole proprietors spend their money on? The primary business deduction is purchases for inventory, which accounts or a little over a quarter of all expenditures at $197 billion dollars. Next on the list (ignoring the catch all "Other Business Deductions" at $78 billion), come car and truck expenses, at $61 billion dollars. Salaries and wages check in at just under $63 billion, inventory "other costs" at $46 billion, and material and supplies at $49 billion, and $26 billion of depreciation. Contract labor (1099) was a $30 billion dollar expense, rent came in at nearly $25 billion dollars, rental fees on equipment at $9.5 billion, and insurance at $15 billion.

On the low end of the expense scale, successful sole proprietors spent a mere $11 billion on advertising, $11 billion on on sales commissions, just $8 billion on legal and professional services, $6 billion on meals and entertainment and $10 billion on travel. Deductions for other taxes paid were $14 billion, utility bills ran $18 billion, repairs $11.5 billion, mortgage interest $3.5 billion

After payroll, the largest deduction reported by the IRS is for depreciation, at just over $26 billion for the profitable sole proprietors. The obvious implication is that, as a group, successful sole proprietors don't throw their money around just for the sake of tax deductions. Next comes rent paid on non-equipment business property at a little over $25 billion, interest deductions as $5 billion, and rent paid on machinery at $7.2 billion. In other words, our self employed sole proprietors primarily work at home, don't borrow money, and get by without equipment, and general office expenses $10 billion.

Planning A New Business | Estimating Business Taxes | Schedule C Deductions | Car Expenses | Freelancer and Contractor Payments | Section 179 Depreciation and Form 4562 | Employee Benefits and Pension Costs | Professional Services, Business Taxes and Fees | Hotel and Travel Expenses | Deducting Food and Entertainment | Inventory and Cost of Goods Sold | Sole Proprietor Statistics | Home Office Deductions | Self Employment Tax | The Self Employed Sole Proprietor