IRS Notes Drop In Sole Proprietors' Income

by Leroy Baker, Tax-News.com, New York

27 August 2009

The US Internal Revenue Service has revealed that the number of individual income tax returns reporting sole proprietorship income rose by 4.7% in 2007 compared with 2006, although there was a fall in reported profits from these returns.

According to the IRS’s summer statistics bulletin, about 23.1 million individual income tax returns reported nonfarm sole proprietorship activity in 2007, although reported profits fell by 1.8% compared to 2006, to USD280.6bn. Profits also decreased, 0.4%, between tax years 2005 and 2006 - the first time that profits have decreased for 2 consecutive years since before 1988.

Professional, scientific, and technical services had the largest profits of any sector in 2007, at USD71.6bn, representing 25.5% of total sole proprietorship profits.

The largest sole proprietorship industrial sector, based on business receipts, was construction, which accounted for 17.4% of receipts and reported a 2.4% decrease in 2007.

Finance and insurance showed the largest percentage increase in both receipts and deductions, reporting a 14.1% increase in receipts and a 17.3% increase in deductions. Real estate and rental and leasing, which reported the largest decline in profits in 2006, at 18.5%, reported a 17.7% decline in profits in 2007.

The Statistics of Income (SOI) Division produces the SOI Bulletin on a quarterly basis. The publication provides the most recent data available from various tax and information returns filed by US taxpayers. The latest Bulletin, released on August 25, includes data on the following tax and information returns:

• Individual Noncash Contributions: For tax year 2006, 24.7 million individual income taxpayers itemized USD52.6bn in deductions for noncash charitable contributions. Of these taxpayers, 6.2 million reported USD46.8bn in deductions for charitable contributions in excess of USD500, as shown on Form 8283, Noncash Charitable Contributions. Though filers of this form declined by 5.9% between tax years 2005 and 2006, the amount of charitable contributions increased 14.1%, from USD41.1bn in tax year 2005.
• S Corporations: The number of S corporations increased 5.1% to 3.9 million for tax year 2006, so that S corporations represent nearly two-thirds of all US corporations. The number of shareholders in S corporations also increased 5.1% to 6.7 million. Total net income (less deficit) increased 7.0% to USD386.2bn.
• Foreign-Controlled Domestic Corporations: The number of US income tax returns filed by foreign-controlled domestic corporations (FCDCs) increased by 3.4% for tax year 2006, to about 63,950. FCDCs accounted for 1.1% of all corporation income returns filed. FCDC assets totaled USD9.7 trillion, a 5.7% increase from the previous year, while assets for all corporations totaled USD73.1 trillion, a 10.0% increase.
• Corporate Foreign Tax Credit: For tax year 2005, about 5,840 US corporations claimed more than USD84bn in foreign tax credits, reducing their US tax on worldwide income by 30.3%, from USD278.2bn to USD194bn.
• Sales of Capital Assets: Data from a five-year study of individual income tax returns (tax years 1999-2003) show that taxpayers realized the highest net capital gains in 2000. Net gains less losses peaked at USD574.1bn in that year, with capital gains of USD929.8bn and losses of USD355.7bn. The lowest amount of net capital gains reported for the 5 tax years examined was USD131.9bn, reported in 2002.

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