IRS research data has looked at tax statistics to compare different kinds of businesses to distinguish "small business" from other kinds of businesses.
Overview
Lots of business returns (about 20 million out of 44 million) involve trivial instances of self-employment or income from property that don't amount to a regular business establishment in the traditional sense.
Of the remaining 24,184,000 businesses, about 246,000 business entity returns (and the pass through income of their partners and shareholders) involve big businesses (defined at having income of $10,000,000 or more per year). Less than a third of big businesses by this definition are organized as C corporations. The vast majority of the rest are taxed as partnerships or S corporations (with 6,000 structured as sole proprietorships or individually owned rental income sources). S corporations are more common than C corporations or partnership taxed corporations including LLCs for these entities (although the biggest big businesses are almost exclusively organized as C corporations). The big businesses (other than C corporations) collectively had 1,240,000 owners (although many were owners with only passive business income).
In between are 23,942,000 small businesses. Of these, 4,942,000 have employees and 19,000,000 do not. Moreover, a significant number of 1,760,000 S corporations and 864,000 C corporations with employees (about half of the small businesses with employees) employ only the business owner or members of that business owner's family whose are claimed on the business owners' tax returns (although the exact number was not possible to discern from the data available in this study).
Of course, an entity that files its taxes on Schedule C, Schedule E or with a Form 1065 partnership return could actually be a limited liability companies or limited partnerships (and other data show that a very large portion in fact are limited liability companies or limited partnerships).
Thus, while there are 44,000,000 businesses in the U.S. that file tax returns each year, probably fewer than ten percent of them have non-owner employees.
The 24 million or so enterprises categorized as true businesses have about 20 million owners, of whom about 9.4 million of those owners receive 25% or more of their income from their small business (the "narrow" definition of small business owner).
There are 7,452,000 people who are shareholders or partners in entities taxed as partnerships or S corporations that constitute more than de minimus businesses (excluding spouses where both husband and wife are partners or shareholders in an entity). But, only 5,321,000 of them have active income or losses from a small business, and only 2,305,000 of them have active income or losses from a small business with employees (which in a signficant number of cases simply represents owner-employees of S corporations). The others are either owners of big businesses, rather than small ones, or have only passive income from the enterprise which is an investment rather than a vocation for them.
Most prior tax statistics, due to a lack of data, have greatly overstated the number of business returns that represent small businesses as we conventionally think of them. A great many businesses are vehicles for passive or occassional investors, and a great many small business owners are passive investors.
A significant number of typically closely held business forms typically associated with small businesses are actually "big businesses" with an alternate form of organization for tax purposes. The exclusion of big businesses from statistics related to "small business" based upon entity type, materially reduces the amount of business activity that is fairly characterized as coming from the small business sector and greatly diminishes the extent to which tax increases for high income taxpayers has an impact on small business. About 32% of a broad definition of "small business" income (and 29% of a narrow definition of "small business" income that includes only income from small businesses that makes up 25% or more of a small business owner's total income) is taxed at the 33% or 35% marginal tax rates; while about 86% of the business income of big businesses not structured a C corporations is taxed at those rates.
Big business income of about $220 billion in 2007 made up about a third of the taxable income attributable to non-C corporation businesses significant enough to be classified as businesses (the other two-thirds being "small business income").
The number of business owners who obtain active business income from small businesses signficiant enough to have employees other than the business owners themselves is quite modest, on the order of 3-4 million. In contrast, the typical business return represents self-employment but not a "firm" in the economics sense.
The Details
De Minimus Business Activity
Many business returns involve de minimus business activity or 1099 labor performed for another firm, or incidental rental activity of personal assets, that doesn't really amount to a full fledged business. In this category it found: 12,491,000 sole proprietorships, 5,043,000 Schedule E filers (e.g. rental income), 1,095,000 Schedule F filers (farm income), 797,000 partnerships, 2,000 S corporations and 1,000 C corporations.
Big Business
It also excluded "big businesses" with $10,000,000 or more of income at the enterprise level. This involved 5,000 sole proprietorships, 1,000 Schedule E filers, less than 500 Schedule F filers, 68,000 partnerships, 92,000 S corporations and 75,000 C corporations (about 246,000 big businesses in all).
This left as genuine "small businesses" 10,679,000 sole proprietorships, 4,592,000 Schedule E filers, 1,415,000 Schedule F filers, 2,232,000 partnerships (including entities taxes as partnerships like LLCs), 3,462,000 S corporations, and 1,563 C corporations.
Only a subset of these genuine small businesses had employers: 1,659,000 sole proprietorships, less than 500 Schedule E filers, 126,000 Schedule F filers, 553,000 partnerships, 1,760 S corporations and 864,000 C corporations. The number for S corporations and C corporations probably includes many employee-owners with no other employees who take wages rather than profits for tax reasons.
Partners and S Corporation Shareholders
Partnerships and S corporations partners or shareholders. There are 1,952,000 partners with active business income or losses from small business partnerships and 3,369,000 shareholders with active business income or losses from small businesss corprations. There are 1,855,000 partners with passive business income or losses from small business partnerships and 436,000 shareholders with passive small business income or losses from S coorporations.
There are 452,000 partners and 199,000 S corporation shareholders with active business income or losses from big business partnerships and S corporations. There are 508,000 partners and 66,000 S corporations shareholders with passive business income or losses from big business partnerships and S corporations.
In partnerships that are employers, there are 591,000 partners with active income in small businesses and another 193,000 partners with active income in big businesses. In S corporations that are employers, there are 1,714,000 shareholders with active income in small businesses and 170,000 shareholders with active income in big businesses.
In partnerships that are employers, there are 186,000 partners with passive income in small businesses and another 119,000 partners with passive income in big businesses. In S corporations that are employers, there are 226,000 shareholders with passive income in small businesses and 59,000 shareholders with passive income in big businesses.
No comments:
Post a Comment