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Tax Rates for a Sole Proprietorship Statistics of Sole Proprietorship

by Chris Bradford 
There are more sole proprietorships in the U.S. than any other form of business. Easy to form and free from many of the registration requirements of other business structures, the structure is appealing to individuals who are just starting out in business. Those who wish sole control of management decisions and income are also attracted to the freedom of being a sole owner. Statistics on sole proprietorships reveal interesting trends and insights.

Number of Proprietorships

The number of nonagricultural sole proprietors who filed tax returns in 1990 numbered just under 15 million. By 2008, that number had grown to over 22.5 million, a total that overshadowed the just over 3 million partnerships and about 5.8 million corporations.

Income Trends

Total 2008 net income of the 22.5 million sole proprietorships amounted to 265 billion dollars, which was about a 5 percent drop from the 2007 figure. Although the number of sole proprietors filing tax returns grew, the IRS statistics show that in 2008, the average annual net income of a sole proprietorship was only $12,000. The decrease in income is not just a result of the financial crisis. A review of available data suggests that a 22 percent decline of annual income for sole proprietorships began in the late 1980s. This leads to the conclusion that more sole proprietorships are being formed as secondary sources of income or part-time jobs.

Income Trends by Business Type

As would be expected, the financial crisis had a stronger effect on certain types of sole proprietorships than others. The real estate and rental and leasing sectors experienced the largest drop in profits, sustaining an 18.5 percent drop in 2006, 17.7 percent in 2007 and 36.1 percent in 2008. On the positive side, professional, scientific and technical services businesses accounted for 28.1 percent of total sole proprietorship profits. Another sector that did well was the health care and social assistance sectors with 18 percent of total 2008 net income reported.

Proprietorship and LLC

Single member LLCs are regarded by the IRS as "nonexistent entities" and are treated as sole proprietorships for income tax purposes. According to tax data, the number of proprietors registering as LLCs is on the increase. In 2001, 126,437 sole proprietorships registered as single member LLCs. In 2008, that number increased to 842,819. This growing number of LLC registrations reveals that more sole proprietors are taking steps to deal with liability issues and at the same time continue to function as sole proprietors for tax purposes.





