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1981 Sole ProprietorshipStatistics
of Income
11L_ILJI4
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Department of the Treasury Internal Revenue service Publication 1131 11-83
Statistics Otherof Income
Publications
And RelatedIRS RESEARCH DIVISION
COMPLIANCE ANALYSIS GROUP
forrnat on
SOl Bulletin Published Regular Reports Selected Reports in Preparation
quarterly publication Individual Income Tax Returns Corporation Income Tax Returns
$14.00 annual subscription 1981 216 pp 1981
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Selected Statistical Series 1970-1983
1981 Sole Proprietorship
tatistics of Income Returns
Publication 1131 11.83
epartment of the Treasury This report contains statistics on sole proprietorships pnncipally
temal Revenue Service for Income Year 1981 and also contains selected statistics for Income Years
1957 through 1980 Included are receipts cost of sales and operations
DSCO Egger Jr deductions and net income or deficit Classifications are by industry for
mmissioner businesses with or without net income and State
Eddie Heironimus Unpublished Statistics of Income tabulations from sole proprietorship
ssociate Commissioner returns are available on reimbursable basis upon request These
ata Processingtabulations include frequencies and amounts for all items present in
the statistical files classified by industry and State In addition
.anley Goldbergfor the first time public-use microdata computer tape file is
5sistant Commissioner available Information about these services which are on reimbursable
eturns and Information Processing basis may be obtained by writing to the Director Statistics of Income
Division Internal Revenue Service Washington D.C 20224
itz Scheuren
rector Statistics of Income Division
ymond Plowden
ting Chief Individual Statistics Branch
See the user survey form inside back cover Those who complete
the survey form including mailing address will receive
complimentary copy of the latest edition of the quarterly SO Bulletin
Suggested Citation
Internal Revenue Service
Statistics of Income 1981
Sole Proprietorship Returns
U.S Government Printing Office
Washington D.C 1982
For sale by the Superintendent of Documents U.S Government Printing Office Washington D.C 20402
BOX 2_SOLE PROP RTN-1 981_04999
COMMISSIONER OF INTERNAL REVENUE
Washington DC 20224
November 28 1983
The Honorable Donald Regan
Secretary of the Treasury
Washington DC 20220
Dear Mr Secretary
am transmitting the report Statistics of Income--1981 Sole
Prqprietorship Returns This report has been produced in accordance with
the mandate of section 6108 of the Internal Revenue Code which requiresthe publication of statistics reasonably available with respect to the
operation of the internal revenue laws
This the last report in the current sole proprietorship series
presents income and financial data based on samples of individual income
tax returns with attached business schedules filed by sole proprietors
principally for Income Year 1981 Some historical data are included also
Classification of the data by industry as well as separate
statistics for businesses with net income have been regular features of
th report series Beg nn ng with Inc ome Year 082 sole propr etorshi
data will be presented annually in the quarterly SOl Bulletin and will he
available periodically on public use microdata computer fili
With kind regards
Sincerely
Department of the Treasury Internal Revenue Service iii
Contents
GUIDE TO TABLES AND FIGURES BY SUBJECT vii
SOI BULLETIN INFORMATION AND ORDER FORM
SECTION
INTRODUCTION AND CHANGES IN LAW
Overall SumaryReturn Coverage
Changes in Law
SECTION
DESCRIPTION OF THE SAMPLE AND LIMITATIONS OF THE DATA
Sample SelectionMethod of Estimation
Sampling Variability and Interval EstimatesSole Proprietorship IdentificationIndustrial Classification
Processing Changes
Management of the Sample
SECTION
TABLES 11
SECTION
EXPLANATION OF TERMS 43
SECTION
INDUSTRIAL CLASSIFICATION 47
SECTION
FACSIMILES OF FORMS AND INSTRUCTIONS 53
USER SURVEY FORM 59
Iv
Statistics of income
SOl BULLETINThe SOl Bulletin provides the earliest published annual The SOl Bulletin is published quarterly and available from the
financial statistics from the various types of tax and information Superintendent of Documents U.S Government Printing Office
returns filed with the Internal Revenue Service The Bulletin during the following months
also includes information from periodic or special analytical
studies of particular interest to tax administrators In addition Summer issue July
historical data from 1970 to the present are provided forFall issue October
selected types of taxpayers as well as on tax rates for
Winter issue Januaryindtviduals and gross internal revenue collections
Spring Issue April
See Order Blank Below
The following topics are among those described and analyzed in the SOi Bulletin
Controlled foreign corporations Private foundations
Corporation income tax returns Projections of return filings
Domestic international sales corporations Residential energy credit
Employee benefit plans Safe harbor leasing
Estate tax returns Sales of capital assets
Foreign source income of U.S taxpayers Sole proprietorship returns
Individual income by ZIP code area Superfund for environmental taxes
individual income tax returns Taxpayers age 65 or over
Investment tax credit The underground economy
Marginal and average tax rates Trends in personal wealth
Occupation data Trends in selected industries
Partnership returns Windfall profit tax
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BOX 2_SOLE PROP RTN-1 981_05003
Guide to Tables
and Figures
by Subject
BUSINESSES WITH NET INCOME
Receipts selected deductions and net income by
maximum industry detail table 15
Income statement for selected industries table 25
COEFFICIENTS OF VARIATION
For selected income and deduction items by industry
table 2CV 20
COST OF SALES AND OPERATIONS
By selected industry table 25
DEPRECIATION
By detailed industry table 15
By selected iniustry table 95
By State table 41
Historical summary table 12
FARM DATA
Historical stiniary of selected income and deduction items
for the Agriculture forestry and fishing industrial
division table 12
HISTORICAL DATA
Historical summary of selected income and deduction items
for farm and nonfarm proprietorships tabTe 12
INCOME STATEMENT
For selected industries table 25
INDUSTRY MEASUREMENTS
Income statement for selected industries table 25
Number of businesses and number of returns by industrial
division figure
Receipts selected deductions and net income by
maximum industry detail table 15
PAYROLL
By maximum industry detail table 15
Historical summary table 12
STATE DATA
Receipts depreciation and net iiiconie table 41
VII
BOX 2_SOLE PROP RTN-1 981_05005
Section Introduction and
Changes in Law
The statistics in this report are estimates Increased about percent to $427 billion in 1981 fromderived primarily from stratified probability sample $411 billion in 1980 Figure focuses on theof the over 12 million individual income tax returns changes in business receipts for the four industrialfiled with farm and nonfarm sole proprietorship busi- divisions reporting the largest amounts of receiptsness schedules attached for income year 1981 The for income years 1980 and 1981 and the ratioseconomic activities reported herein encompass virtually expressed as percentages of receipts reported by thethe entire range of unincorporated one-owner huisi- divisions to receipts reported by all nonfarm businesses and professional practices from large enter- nesses Wholesale and Retail Trade receipts decreasedprises with many employees and hired managers to em 49.2 percentage share in 1980 to 46.0 percentpart-time operations in which the owner was the only age share in 1981.t4 Receipts for Service industriesperson involved For example the owner of fleet of increased from 21.4 percent to 24.1 percent of thetaxicabs who conducted business with the help of total The share of receipts reported by proprietorslarge staff and the person who owned and drove cab in the Construction and Finance Insurance and Realduring his or her spare time to supplement the family Estate industrial divisions varied less than oneincome were both included in the statistics
percentage point from 1980 to 1981Similarly the barber who owned shop and the barber
Despite the increase in the number of businesseswho was the lessee of one of the chairs in the same and in the total amount of business receipts reportedshop were each included in the statistics Unlike in profits net income less deficit continued to
past years reports detailed income year 1981 data decrease for all nonfarm industries to $53.1 billionare not available from farm returns in this report from $54.9 billion for 1980 which was down from $56.5
Suninary farm estimates for income years 1957-1980 are billion for l979 Figure highlights theavailable in Section and for income year 1981 in the changes in these and in other selected items fortext income years 1979 1980 and 1981
This report is the last in the Statistics ofIncome sole proprietorship annual series which began Figure LNonfarm industrial Divisions with Largest Amountwith income year 1957 when sole proprietorship
of Business Receipts as Percent of Business Receipts for
statistics were published in the Statistics of Income au industriai Divisions 1980 and 1981
Business Income Tax Returns report.1li To highlight Money amounts are in thousands of dollars
the history of this statlitical series historical NoFanBualnesaPmmetof Tots
summary table appears in Section The table containsReceiPts
1980 1981selected income statement items classified by industrial division for each income year 19571980 411206 427.063 100.0 100.0
Beginning with income year 1Q82 anncal sole proprie-and Retail Trade 202284 198281 49.2 46.0
torship statistics will be published in the Internal ....Revenue Service quarterly SOl Bulletin see page wJeanrluaenotfor details Periodic supplementary reports may also
ocabte 5815 5383 1.4 1.3
appear hut only at infrequent intervals.12 SeMces 87965 102.964 21.4 24.1
Conatniction 47835 47708 11.6 11.2Thi report is dlvi dei into six sections Section
Finance insurance and real estate... 21531 22154 5.2 52
provides an lntroiluctinn and discisses changes in
law which affect in part the comparability of the
statistics from year to year Section describes the
sample gives some of the limitations of the data and
outlines processing changes which also affect the Figure B.Seiected Items for Nonfarm Soie Proprietorships
comparability of the income year 1981 statistics with 1979 1980 and 1981
those for prior income years Section contains the Number of businesses are in thousands money amounts in billions of dollars
tables Section provides an explanation of thePercentagechange
terms used in the tables Section compares the isis igso teal 1979 1980
Standard Industrial Classification SIC and_________________ ______ ______ ______ 1980 1981
Statistics of Income SOl industry codes Section 1l 15
contains facsimiles of return forms and instructions Number of businesses 9343 9730 10.545 4.0 8.4
to the taxpayer from which the statistical data were si receipts 395.7 411.2 427.1 3.9 3.9
derived Notes and references appear at the end of Business deduCtiOns 339.1 356.2 374.0 5.0 5.0
each section of the report Cost of goods sold 202.4 209.9 209.7 3.7 -0.1
Depreciation 12.9 13.9 15.9 7.8 14.4
OVERALL SUMMARYPayroll 38.3 37.4 39.7 -2.3 6.1
Net Income Less Deficit 56.5 54.9 53.1 -2.8 -3.3
The number of nonfarm sole proprietorship busi-Net lme 67.1 68.0 68.5 1.4 0.8
nesses increased about percent to 10.5 million inDeficit 10.5 13.1 15.4 24.8 17.6
1981 from 9.7 million in 1980 and business receipts
This report was prepared by Raymond Wolfe and Toni JonesLyles under the direction of Noreen
Hoffmeier of the Individual Returns Analysis Section
Sole ProprIetorshIp Retums/1981 Introduction
The number of farn proprietorships in income year RETURN COVERAGE
1981 was approximately 2.6 mIllion down from the
almost 3.0 millIon in Income year 1980 Receipts were The principal criterion which determined whether an
approximately $96 billion compared with $94.7 for Individual had to file return was the size of grossincome year 1980 Profits continued their long term Income all income received in the form of moneydecline For income year 1980 they amounted to $0.5 property and services that was not by lawbillion but for income year 1981 they amounted to expressly exempt from taxation For 1981 as for
negative $4.5 billion 1980 return had to be filed byFor the twenty-four year period ending with Income single person other than surviving
year 1980 the number of sole proprietorship busi- spouse under age 65 with gross income of at least
nesses including farms increased by approximately $3300four million an average annual Increase of about single person other than surviving
165000 businesses Historically the number of spouse age 65 or over with gross income of at least
nonfarm proprietorships tends to be less stable than $4300the number of farm proprietorships The number of surviving spouse under age 65 with grossnonfarm businesses has increased steadily over the income of at least $4400period while the number of farm businesses has fluc- surviving spouse age 65 or over with grosstuated erratically from year-toyear As evidenced by income of at least $5400the table below not only has the actual number of married couple filing joint return withnonfarm businesses increased hut the percentage share both spouses under age 65 and with combined grossof all sole proprietorships engaged in nonfarm income of at least $5400activities has increased married couple filing joint return with
one spoUse age 65 or over and with combined grossPercentage of All Proprietorships Income of at least $6400
Income Year Nonfarm Farm married couple filing joint return with
both spouses age 65 or over and with combined gross1957 62% 38% income of at least $74001960 63 37 married person regardless of age whose1965 66 34
spouse was filing separate return if that married1970 69 31 person had gross income of at least $10001975 71 29 Notwithstanding these provisions any individual1980 76 24 claimed as dependent on another persons return had
198l 80 20 to file if he or she had unearned income such as
dividends interest or capital gains of $1000 orSince 1957 business receipts In current dollars more Sole proprietors not meeting the gross income
have more than tripled for all sole proprietorships requirements were still required to file if they had
and overall profits have more than doubled as can be self-employment net income of $40O or more Anyseen in the table below person who received any advance earned Income credit
payments from an employer in 1981 was also required toNet Income file In addition even if income was less than the
Business Receipts Less Deficit above amounts an individual had to file for taxesIncome Year billions billions owed for social security on tips not reported to
employer minimum tax tax on an individual retirement1957 162.7 20.2
arrangement or tax from recomputing prior-year invest-1960 171.3 21.1 ment credit1q65 199.4 27.9 For inclusion in the basic tabulations for income1970 237.7 33.2
year 1981 an individual must have filed Form 10401975 339.2 44.6 which included sole proprietorship business sche1980 505.9 dule Some sole proprietors filed returns even1981r6 5.3.0 48.9
though not otherwise required because they elected to
pay voluntarily self-employment tax on gross profitsThe ratio of profits to receipts expressed as
rather than net income or because they werepercentage increased during the middle of the period
receiving refund of income taxes previously paidand has dropped off sharply for recent Income years Data from these returns are also included in the
statistics1957 12.4%
Most taxpayers were required to file tax returns1960 12.3
within 3-1/2 months after the close of their1965 13.9
accounting periods Since the accounting period used1970 13.9
by nearly all individuals for income year 1981 was the1975 13.1
calendar year this meant that returns were due by1980 11.0
April 15 1982 However any taxpayer who wanted tol98l 9.2delay his or her filing date would be granted one
automatic 2-month extension by filing Form 4868 bytheBelow comparing the ratio for farm and nonfarmfiling date In addition U.S citizens residing or
businesses it is evident that the lower profits totraveling outside the United States and Puerto Rico
receipts ratio in recent income years is due for thewere automatically granted without requesting the
most part to the decline in farm profits2-month extension
Income Year Farms Nonfarm
1957 14.7% 12.1% CHANGES IN LAW
1960 10.5 12.6
1965 11.4 14.5The following law changes affect thecomparÆbility
1970 6.9 15.4of statistics in this report with those for prior
1975 7.7 14.5 years Further discussion of the law chan9es
1980 0.5 13.4 affecting individual taxpayers appears in Statistics
1981 -4.3 12.5of Income-l981 Individual Income Tax Returns
Sole Proprietorship Retums/1981 IntroductIon
Business Start-Up Costs.-For income years endIng years or more The applicable percentage for most
after July 29 1980 taxpayers could choose to property acquired and placed into service or construc
amortize certain start-up costs incurred if they ted during the period January 22 1975 through
gathered information about set up or acquired December 31 1976 was 10 percent The Tax Reform Act
business These start-up costs could be amortized of 1976 extended this 10 percent rate through 1980
over period of time not less than 60 months The rate for income year 1981 remained principally at
beginning with the month the business started 10 percent although the credit was calculated using
other percentages for specific types of investmentDepreciation.--For Income year 1981 new Accelerated Businesses which acquired or constructed and putCost Recovery System ACRS replaced the Asset
into service qualified energy investment property
Depreciation Range ADR system Under Internalafter September 30 1978 could also claim business
Revenue Code section 168 ACRS could be applied toenergy investment credit This credit could be
most depreciable real and personal property placed inclaimed in addition to the regular investment credit
service after December 31 1980 Businesses withif the property qualified for both credits For
qualifying property were allowed to deduct part ofincome year 1981 the business energy investment
the cost of the property each year The ACRS applied credit was 10 percent 11 percent or 15 percent of theaccelerated methods of cost recovery over statutory qualified investment in energy hydroelectric or solar
periods for both new and used property Thisand wind property respectively
allowance was for the exhaustion wear and tear and
obsolescence of property used in trade or businessSelf-employment tax.--The limit on the amount of net
or property held for the production of incomeearnings subject to self-employment tax was $25900
Property that was amortized or depreciated by otherfor 1980 and $29700 for 1981 The rate of tax
than tern of years provided under the ACRS system Increased from 8.10 percent in 1980 to 9.30 percent in
was generally excluded ACRS property was termed 1981recovery property and was placed in one of four
classes 3year property 5-year property 10-year
property or 15-year property Taxpayers could elect NOTES AND REFERENCES FOR SECTION
to take the accelerated recovery deduction for
property based on tables provided In section 168 or
could elect to use the straight line method over Prior to income year 1957 limited sole
either the prescribed period or one of two longer proprietorship data were Included In the Statistics of
covery perIods contained in the Code Public Income--Individual Income Tax Returns reports which
utility property was not covered unless normaliza have been published annually since income year 1916tion method of accounting was used For income years 1957 through 1976 data for both
Composite depreciation for components of building forms of unincorporated businesses sole proprietor-
was generally required unless the building was quall- ships and partnerships were published In the
fled for the substantial improvementsr exception Statistics of Income--Business Income Tax Returns
Recovery property located outside the United States annual reports Beginning with income year 1977 sole
qualified for recovery deduction based either on proprietorship data have been published separately
tables issued by the Secretary of Treasury or by
election of the straight line method over the Development of sole proprietorship data base by
prescribed period or one of two longer periods industrial sector and geographical location for
provided by the statute Also section l68f8 macroeconomic analysis is underway Also being
provided rules that permitted lessor to obtain the developed is an historical source book which will
ACRS recovery deduction through the use of safe contain selected data by industrial division available
harbor lease election.E7 since income year 1916
Business Use of the Home.--There were certain condi 13 change in the way sole proprietorship business
tions that had to be met before the taxpayer was able schedules were processed for income year 1981 compli
to deduct expenses attributable to the business use of cates the comparison of frequencies in the basic 1981
his or her home Under the previous law the home had tables in this report with frequencies in the basic
to be the principal place of business Under the new tables published in reports for prior years For
law the taxpayer was permitted to have principal 1981 when there were multiple proprietorship
place of business for each trade or business in which schedules filed with given return the data on the
he or she was engaged However the taxpayer was schedules were combined and classified for the basic
required to meet speci-fic tests and the deduction was tables in the industry of the schedule with the
limited based on the amount of expenses that were largest amount of gross receipts Therefore frequen
directly or indIrectly accrued from the büSiflCSS use cies in the incoir year 1981 basic tables are more
of the home proprietor-specific than proprietorship-specific and
are expressed as number of returns rather than
Investment Credit.--For income year 1980 the number of businesses The 10.5 million estimate of
fnvestment credit for purchases of machinery and number of businesses here was obtained from Figure
equipment was limited to the tax liability shown on in Section and not the basic tables See also
the return or $.5000 plus 70 percent of tax liability Industrial Classification and Processing Changes In
in excess of $25000 whichever was less For income Section for more details
year 1981 the tax liability in excess of $25000 that
could be credited increased to 80 percent For both See in Section the discussion of processing
income years amounts in excess of these limitations changes which especially affected the previously
could be carried back three years or forward to the published preliminary estimates for this industrial
succeeding seven years and applied against tax division
liability in those income yearsThis tax credit was based on percentage of the One contributing factor to this was the almost 27
qualified investment which in turn was based on percent jump in business interest paid by nonfarm sole
the cost of certain new and used depreciable assets proprietors from $7.2 billion in income year 1980 to
chiefly machinery and equipment with useful life of $9.1 billion in income year 1981
Sole Proprietorship Returns/1981 introduction
1980 ReceIpts were estimated by projecting the same For example qualified rehabilitation expendirate of grnwth for five income years ending with tures for 30-year old buildings 40-year old buildings
1980 Losses were estimated by combining net farm and investment in certified historic structures
profit net farm loss and net farm rental income qualified for 15 percent 20 percent and 25 percent
reported on 1981 individual income tax returns See credits respectivelyalso Wilson Robert Unincorporated Business Activity
for 1981 Internal Revenue Service SOl Bulletin See also Maiden Jon Investment Tax Credit for
Volume Number Suniner 1983 Individual Taxpayers 1981 article In preparation
for Internal Revenue Service SO Bulletin Volume
See also Riley Margaret Safe Harbor Leasing Number Winter 19831984 and Statistics of Income--
1981 and 1982 Internal Revenue Service SOl Bulletin 1981 IndivIdual Income Tax ReturnsVol.3 Number Fall 1983
Section Description of
the Sample and
Limitations of
the Data
This section describes the sample criteria the The specific income and loss items used for stratifiselection of returns method of estimation sampling cation were salaries and wages interest incomevariability of estimated frequencies and methodolov dividend Income business profit or loss farm profitneeded to compute confidence interval estimates Also or loss Schedule income or loss net capital gaindescribed are some of the limitations of the data or loss and other income or loss When the absoThe estimated number of returns discussed are for lute magnitude of the largest Income or loss item
Income years 1980 and 1981 The 1980 Income year sufficiently exceeded the amount of adjusted grossestimates were made from returns filed and sampled in income or deficit that Item and the sum of businessthe Internal Revenue Service Centers during calendar plus farm receipts were used as the basis for strati-year 1981 the 1981 income year data were estimated fication For example interest income and farmfrom returns sampled at the IRS National Computer receipts were used In stratifying return withCenter during calendar year 1982 The sampling rates
adjusted gross Income or deficit of $45000were reduced for the 1981 sample Otherwise the Interest Income largest specific income item of
sample designs were the same for both years $100000 and farm receipts of $18000
SAMPLE SELECTION
The data presented in this report are estimatesMETHOD OF ESTIMATION
based on stratified probability sample of unaudited
Forms 1040 U.S Individual Income Tax Returns Weighting factors were obtained by dividing the
Amended and tentative returns were excluded from computer population count of returns in sample
sampling since the original and final returns stratum by the number of sample returns for that
respectively were subjected to sampling stratum The weighting factors were then converted to
Individual income tax returns were stratified by integer weighting factors which were applied to each
computer into sample strata based on presence or return For example if weight of 44.24 was
absence of Schedule State in which filed size.of computed for stratum 24 percent of the sample
adjusted gross income or deficit or largest specific returns in that stratum would receive an integerincome or loss Item and size of business plus farm weight of 45 and 76 percent weight of 44receipts Returns were then selected by sample strata
using the ending digits of social security numbers at
rates ranging from 0.05 percent to 100 percent InSAMPLING VARIABILITY AND INTERVAL ESTIMATES
Figure for both income years the population and
sample counts of the basic sample design are shown inEstimates of frequencies and money amounts consi
columns and Columns and nonbusinessdered unreliable due to the small sample size on which
and farm strata only contain estimated farmthey were based are noted by an asterisk to the
populations derived from their respective farm sampleleft of the data item in the tables Double
counts in columns and There wereasterisks in place of an estimate indicate that
approximately 2.5 million returns with Schedule onlythe information has been suppressed in order to avoid
for Income Year 1980 and about 2.1 million for Incomedisclosure of information for any specific taxpayer
Year 1981 There were approximately 9.5 milliondash in place of frequency estimate indicates
returns with Schedule for Income Year 1980 and 9.9that no sample return had that characteristic
million for Income Year 1981 Of the latter returnsThe particular sample of returns used for given
for both years an estimated 500000 returns alsoyear is one of number of possible samples that could
included Schedulehave been selected using the same sample design
The States were divided into five groups based on cS1mates aerivea rrom tne airrerent sampies woulathe population of Forms 1040 and lO4OA Returns were differ from each other The deviation of sampleselected from each State according to the assigned estimate fom the average of all possible samples Isgroups sampling rates The sample was designed to
called the sampling error The standard error of anselect minimum of 1700 Forms 1040 and lO4OA returns estimate is measure of the sampling error among thefor each State for income year 1980 and 800 Forms 1040 estimates from the possible samples The coefficientand 1O4OA for income year 1981 In addition within of variation CV is the standard error of theeach State group the sample was allocated to strata so estimate expressed as percent of the estimatethat the estimates in the higher income classes would Table 2CV in Section shows computed CVs for somebe more reliable return fell into particular estimated frequencies and amounts by industry The
sample stratum when the larger of adjusted gross table below can be used to obtain estimates of the CVincome or largest of specific income items and size of when computed values are not provided The CVs in
business plus farm receipts both fit within the bound- the table below can only be applied to estimated
aries of that sample stratum frequencies and are meant as general guide
The sample was designed and monitored by Raymond Shadid of the Statistics of Income Individual
Operations Section
Sole Proprietorship Returns/1981 Sample Design and Limitations
Figure C.Number of Form 1040 and Form 1040A Returns in the Population and Sample 1980 and 1981
1980 1981
Description of sample strata mitts At returns Business and farm At returns 8usiness and ann
___________________________ Poputa Sample Pom4atjon Population Sample Population Sample
Grand total 941549.44 171683 12.012.672 82.021 95520285 144392 12090590 62190
Nonbusiness and farm Schedule only total 84677.139 97522 2.534867 7860 85.571237 88743 2141562 6541
Form 1040A returns with adjusted gross income under $10000 24842801 12355 23598031 11779
Adjusted gross income $200000 or more with no tax after credits no minimum tax and
no altematire minimum tax 87 84 12 12 183 163 13 13
Larger of adjusted gross
Income or largest specific
Income Item and Farm receipts
Under $10000 Under $20000 10.246857 6553 471224 337 9257539 5364 342709 221
$10000 under $15000..... Und $5000013068050 8750 479304 377 12917788 7872 331.230 236
028000 .. Under $1000009936513 7734 392814 346 9846685 6772 341749 282
SOur 500014209.026 11243 551627 503 14510646 10361 498716 400
$0$50.O00 orjsoo.- 9803181 10299 445046 507 11915054 8682 409245 343
$50000 Under $1000002i07275 9360 144268 783 2953941 7543 162278 503
$100000 under 8200.000 ...... 362536 8166 36316 1061 447341 6325 38636 701
0thd0$5O0 d0S5.05000 87021 9288 12080 1773 106753 6586 14315 1171
13792 13690 2176 2161 17296 17296 2671 2671
Business Schedules and or only total 947805 74161 9477805 74161 99.49028 55649 9949028 55649
Adjusted gross income $200000 or more with no tax after credits no minimum tax and
no attamative minimum tax 56 49 56 49 68 68 68 68
Larger of adjusted gross
Income or largest specific
Income Item end Business plus farm receipts
Under $10000 Under $20000 1715017 5866 1715017 5866 1681120 3779 1681120 3779
e0$50 1436869 5666 1436869 5666 1407853 3538 1407853 3538
$200001406283 5674 1406283 5674 1385462 3771 1385462 3771
..... Under $250000 2193308 9137 2193308 9137 2256804 6457 2256804 6457
0850000 ... 1768884 8979 1768864 8979 2085187 6929 2085187 6929
713481 9351 713481 9351 856044 6.388 856044 6388
... 167611 8962 167611 8962 187507 5684 187507 5684
.000 Under $5000000.. ... 65768 10130 65768 10130 75777 5684 75777 5829
$500000 and over 0and 10.548 10347 10548 10347 13206 13206 13206 13206
The population of farm returns was estimated by appfmlng appropoate weights to counts of returns In the sample which had farm data
ApproximatedSEX CVX
Number of Returns Coefficient of Variation
$362696 0.0463
1242100 .02
198700 .05 SEX $16793 thousands
49700 .10
12400 .20 The value obtained for SEX is subtracted from and
5500 .30 added to the estimate to construct 68 percent
2000 .50 confidence interval estimate The interval computed is
SEX SEX
with 68 percent confidence where is the population
The sample estimate and an estimate of its standard value estimated by For this estimated amount the
error permit the construction of interval estimates interval estimate is from $345903 to $379489with prescribed confidence that the interval includes
conclusion that the verageamount of Taxes Paid
the population value The needed standard deviation Deduction for Mining lies within an interval computed
error of the estimate SEX is the product of the in this manner would be correct for approximately two-
estimate and its coefficient of variation cvx thirds of all possible similarly selected samples To
For example in tables and 2CV of this report the obtain an interval estimate with 95 percent confidence1981 amount estimate in thousands and the multiply the SEX value by The resulting interval
computed coefficient of variation CVX for returns for this example is from $329110 to $396282classified in Mining and with taxes paid deduction Using the table above if sample estimate of
are $362696 and 4.63 percent respectively The 198700 returns is known to have coefficient ofstandard error of the estimate SEX is variation of .05 then the following arithmetic
Sole Proprietorship Returns/1981 Sample Design and Limitations
procedure would be followed to construct 68% the sources of the taxpayers income and the nature
confidence interval estimate of the reported expenses The industry classifications
used were based on the 1972 Standard Industrial Classi
198700 sample estimate fication Manual SIC developed by the Office of
.05 coefficent of variation Information and Regulatory Affairs in the Office of
9935 standard error of estimate Management and BudgetThe SIC industry classifications were sometimes
198700 sample estimate consolidated or modified because the Information
9935 standard error available from tax returns for determining business
188765 -208635 68% confidence interval activity was limited or because every industry was not
well represented in the statistical sample MoreoverBased on these data the interval estimate is from some industries are typically better represented by
188765 to 208635 returns conclusion that the one legal form than another for example sole
average estimate of the number of returns lies within proprietorships and partnerships are more heavily
an interval computed in this way would be correct for involved than corporations In the trade and service
approximately twothirds of all possible similarly industries In contrast the manufacturing Industries
selected samples To obtain this interval estimate are more heavily represented by the corporate form
with 95 percent confidence multiply the standard Most industry groups used In this report are
error by two before adding to and subtracting from the equivalent to the two- three- or four-digit Industry
sample estimate In this particular case the levels in the SIC system However few groups
resultininterval would be from 178830 to 218570 represent more detailed classification than the
returns four-digit level for example the SIC group HotelsFurther details concerning confidence intervals motels and tourist courts is divided into two groups
including the approximation of CVs for combined in this report Hotels and Motels motor hotels
sample estimates may be obtained on request byand tourist courts Section provides comparison
writing to the Statistics of Income Division DRS of the SIC groupings and the Statistics of Income
Internal Revenue Service Washington D.C 20224 industriesFor 1981 when there was more than one business
SOLE PROPRIETORSHIP IDENTIFICATION schedule associated with return data from the
schedules were combined in order to simplify
The identification of sole proprietorship from tax statistical processing Because of this processing
returns was not always precise The taxpayer some- change the frequencies for income year 1981 in tables
times used Schedule to report employee businessand are described as representing the number
expenses partnership or other nonproprietorshipof returns whereas for previous years I.e In table
activity and conversely sometimes used other parts they are described as representing the number of
of the return to report sole proprietorship activity businesses For 1980 each business was indepen
Generally the taxpayers Schedule must have dently represented in the industry statistics For
indicated economic activity undertaken for profit 1981 the multiple businesses reported on return
whether or not profit was actually reported For this were all classified into the one industrial activity
reason returns with schedules filed by ministers and that predominated Industry statistics for 1981 were
public officers were rejected during statistical affected to the extent that multiple businesses
processing for purposes of this report Also rejected associated with given return may have reflected
were returns with schedules reporting only trustee different business activities The extent of these
fees directors fees or royalties On joint multiple schedule filings for income years 1980 and
return if income and expenses from one business were 1981 is shown In Figure
divided between husband and wife on two schedules the
schedules were combined and processed as one These
adjustiients were made during statistical processingFigure D.Number of Businesses and Number of Returns byindustrial Division 1980 and 1981
whenever possible however not all cases were
identifiable This resulted in the incorrect______ ______ 1981
inclusion of small amount of nonproprietorshipNonlwrnlstndDlulsion
Businesses Returns Busrnesae$ Returns
activity and the exclusion of some legitimate soleNoninon Industries Total 9730.019 8931712 10545337 9584 790
proprietorship activity One area that should beAgriCufturalSeMstryat1dfist1ir 307722 219532 281869 256.496
especially noted because of the extent of misreporting Mitung 119763 112469 160080 123786
Construction 1073301 1069424 1145714 1097804was door-to-door selling and the selling of merchan-
MaCtUnng 296216 293138 277611 257490
di se at parties in private homes Generally such Transportation and utilities 438795 435070 464505 433.979
Wholesale and retail trade 2527084 2425485 2738861 2453695
activity was particularly hard to find if Indeed it Wle trade 329754 325.515 371965 338150
was showfl at all .2 Exciudd from the statistics Retail trCde 2066267 1991297 2245029 2009290Wholesale and retail trade not
were sole proprietorship activities reported on the allocable 1310631 127374 119.870 106365
returns of the fiduciary agents of estates and trusts Finance insurances and real estate 1048.966 1009303 1039338 907465
Servces 3842790 3691669 4324423 3952801
however very little business activity was involved on Nature of business not allocable 753781 74561 114938 101.074
that category of return For 1974 the most recentOetall esceeds total due to resans repOrthtg rnuttlple businesses
year for which these data were published 33 thousand
fiduciary income tax returns with sole proprietorship The Standard Industrial Classification Manualactivity showed gross profit business receipts less
describes an establishment as an economic unitcost of sales and operations of $0.6 billion.r3generally at single physical location where businessis conducted or where services or industrial opera-
INDUSTRIAL CLASSIFICATION tions are performed The definition of an establishment is not necessarily identical with the SOl
Proprietorship schedules in the sample were examined definition of business which may consist of one orduring statistical processing and each return was more establishments To illustrate consider the
assigned single code classifying it by Industry even barber shop which was two different businesses forthough there may have been business activity from Sol
purposesi.e two self-employed barbers In
several different sources The information considered single establishment or the self-employed taxicabwas the description of the business activity and driver who has business but no estabIlshment or
principal product or service provided by the taxpayer fixed place of business.C6
Sole Proprietorship Returns/1981 Sample Design and Limitations
Among Government agencies usino the establishment this smaller sample would have been subject to high
reporting unit concept are the Bureau of Labor sampling variability Therefore the State estimates
Statistics and the Bureau of Census Noting thatpresented in this report were developed using ratio
there are differences in the scope of the statistical adjustment procedure table from the IRS mainline
studies the most recent number of nonagricultural processing system was produced and ratios of Statesole proprietorships reported In SO and by the Bureau totals to national totals were formulated from data inof Labor Statistics BLS are compared below that tabulation These ratios were then applied to
the national totals accumulated from the OI statis
tical sample The resulting estimates were thenNumber of reviewed in light of previous years State data
Returns SO 9584790 rounded and are presented in tableEstablishments BLS 7097000
Another processing change which affected early
income year 1981 sole proprietorship estimates but
The most recent year for which SO and Census datathe effects of which have been neutralized for the
can be compared is Income year l977 Allowing forincome year 1981 estimates reported herein involved
the differences In scope of the Census and IRSthe industry coding of proprietorship schedules
Preliminary statistics produced for income year 1981studies the estimated number of sole proprietorships
and published in the Summer 1983 edition of the SOare presented below
Bulletin showed sharp decrease in the numberf
Number of wholesale trade businesses and sharp increase in
Businesses SO 4854 198the number of wholesale and retail trade not alloc
Establishments Census 3749l3lable businesses compared with the income year 1980
statistics This was attributable to the increased
use for statistical purposes of the industry codesIn both of the above comparisons the large discre-
assigned to the proprietorship schedules for IRSpancies between SO figures and those of Census and
mainline revenue processing purposes PreviouslyBLS arise In that the latter are confined just to
each such code which was based on the taxpayersbusinesses with employees ndeed It may be only with
narrative description of the business activity wasthe Corporate form that major differences exist
verified during the statistical processing of returnsbetween counts of businesses and establishments
included in the SO sample nformation found in the
return and from various other references were used for
this purpose This verification could not be made
PROCESSING CHANGES during RS mainline processing because the sample
returns were not designated at that stageThe 1981 data are not altogether comparable with After the preliminary statistics were prepared an
data for prior years because of three changes in the examination of sampled returns coded in mainline
way the data were processed First data from processing as wholesale and retail not allocable was
Schedule Farm Income and Expenses and from Form conducted to see if it was possible to code such
4835 Farm Rental Income and Expenses and Summary of returns more precisely Using percentage
Gross Income from Farming and Fishing were not distributions within the wholesale and retail trade
processed for the SO sole proprietorship statistics classifications for prior Income years the majority
An agreement has been reached with the U.S of businesses originally classified in the wholesale
Department of Agriculture whereby farm data will be and retail trade not allocable category were
gathered from individual tax returns quinquennially in reclassified into specific wholesale trdeEconomic and Agricultural Census Years The next farm industries The reclassification produced the
study is scheduled for Income 1982 estimates in tables and Further research is
The second processing change initiated for income planned to ensure greater coding precision in the
year 1981 involved presentation of the statistics It future while continuing to utilize industry codes
has been mentioned in the Overall Sumary in Section assigned during IRS mainline processingand in the Industrial Classification portion of this
Section Simply stated this processing change called
dominant business processing consolidated all proprie-MANAGEMENT OF THE SAMPLE
torship activity into one summary business per proprieWhile the sample was being selected the selection
tor resulting in one-to-one relationship between the
number of income tax returns and the number of busi- process was monitored by applying prescribed sampling
nesses For returns with only one proprietorshiprates for each stratum to the population count for
schedule this relationship already existed and forthat stratum follow-up was required to reconcile
these returns no change in processing occurred Fordifferences between the actual number of returns
returns with multiple businesses all proprietorshipselected and the expected number
data were combined Into one proprietorship summaryIn transcribing and tabulating the information from
business bearing the industry designation of thethe returns in the sample checks were imposed to
proprietors dominant business defined as the improve the quality of the resulting estimates Incor
business with the largest amount of gross receipts rect or missing entries were altered during statistical
similar dominant or principal industrial activity editing to make them consistent with other entries on
notion is used in both the SO corporation and the return and accompanying schedules Data were also
partnership programs Data from consolidated adjusted during editing in an attempt to achieve con-
corporation returns as defined by law and from sistent statistical definitions For example if
partnership returns are assigned to the principal taxpayer incorrectly reported insurance payments on
Industry as indicated by the size of total receipts the Interest on business indebtedness deduction line
full explanation of this processing change as well of the Schedule and this error had been detected
as details about the supporting research are contained during statistical editing the amount of insurance
In research paper which is available upon request paid would have been entered into the proper field of
the sample record layoutThe third processing change affected State data Quality of the basic data abstracted at the pro-
Due to resource constraints the size of the SO cessing centers was controlled by number of techni
sample was reduced State estimates based on data in ques In addition the Statistics of Income Division
Sole Proprietorship Returns/1981 Sample Design and LImitations
in the National Office conducted an Independent Bureau of Labor Statistics estimates are publishedreprocessing of small subsample of the returns as in the annual Emoloyment and Ear report Census
further check on field processing Prior to tabula- statistics are published every five years in Enterprisetion each return record was subjected to numerous Statistics--General Report of Industrial Organizationcomputer tests to check for Inconsistencies
Finally prior to publication all statistics and The Bureau of Labor Statistics study includedtables were reviewed for accuracy and reasonableness
only establishments owned by self-employed individualsin light of provisions of the tax laws taxpayer which have employees whereas SOl includes all sole
reporting variations and limitations economicproprietorships with and without employees
conditions comparability with other statistical There is an IRS study underway that will link data
series and statistical techniques used in datagathered from quarterly reports of employee earnings
processing filed by employers to their annual income tax return
records Results from this study are expected by the
end of 1984NOTES AND REFERENCES FOR SECTION
The Census was limited to establishments in the
manufacturing mining and quarrying constructionReturns from the sample were used to produce
distributive trade and selected service industriesstatistics in the Statistics of Income- 1981
which had employees Also the Census study onlyIndividual Income Tax Returns report as well There-
included those establishments in existence as of
fore Forms lO4OA also were included in the sample fixed date during the income year SOT statisticseven though they did not contain sole proprietorship included businesses that were in existence at anytimedata Also farm Schedule returns were stratified
during the income year and counted more than once ifseparately as in past years even though no farm statis-
business changed ownership one or more times duringtics for income year 1981 appear in this publication the year
See also Income Tax Compliance Research Estimates
for 1973-1981 Internal Revenue Service Research Wolfe Raymond Methodological Changes in
Division July 1983 for other areas characterized bythe Statistics of Income Sole Proprietorship ProgramDominant Business Processing Internal Revenue
misreporting and noncompliance with income tax lawsService July 1982 copy of this paper can be
See Statistics of Income--1974 Fiduciary Income obtained by writing to the Director Statistics of
Income Division Internal Revenue Service WashingtonTax ReturnsD.C 20224
See also Processing Changes in this sectionWilson Robert Unincorporated Business
This is true especially for largersize busi Activity 1981 Internal Revenue Service 501
nesses For smallersize businesses the business Bulletin Volume Plumber Summer 1983
unit often does coincide with the establishmentIn the course of IRS mainline revenue processing
if the business activity could not be readily ascerAlso consider the business which is sold during
tamed it was coded in one of the not allocablean income year The establishment remains intactwhereas the business for SOl purposes becomes two
groups
businesses because each proprietor filed proprietor
ship schedule covering that portion of the year that Computer processing of the data was coordinated by
he or she owned the business Dan Trevors of the Individual Statistics Branch
BOX 2_SOLE PROP RTN-1981_05015
Section Tables
Sole proprietorship businesses Business receiptsselected deductions and net income less deficit
by industrial division 19571980 12
Nonfarm sole proprietorship businesses Business
receipts selected deductions and net income by
industry 1981 15
2CY Nonfarm sole proprietorship businesses Coeffi
cient of variation for selected items by industry1981 20
Nonfarm sole proprietorship businesses Income
statement for selected industries 1981 25
Nonfarm sole proprietorship businesses Business
receipts depreciation net income and net deficit
by State 1981 41
Raymond Wolfe was responsible for the review and analysis of the data contained in the tables
He was assisted by Mary Green Brenda Harrison and Linda Thompson of the Individual Returns
Analysis Section11
12
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Sole Proprietorship Returns/1981 41
Table 4.Nonfarm Sole Proprietorship Businesses Business Receipts Depreciation Net Income and Net Loss by State 1981
figures are eslimates based on samples money amounts are in thousands of dollaral___________ ___________ ___________
Numbar Net income
_________________________________________________________________________Returns
ReceiptsDepr
detict
IneDeficit
Unttsd Stat. total 958479 427063051 1585451 5307182 88552791 15481163
Alabama 124601 7260071 23781 63686 82254 185686
Alaska 38331 1708251 12683 15921 27418 114967
Arizona 124601 469769 20610 47764 754001 276356
Atikansas 95841 512475 19025 47764 61891 139265
Ceilfornia l2747T 58507631 214035 672781 932218 2594379
Colorado 182111 6833001 36465 95528 123381 278530
Connecticut 12460 5551824 158541 95528 102818 72894
Delaware 19174 854124 31701 10614 137091 30948
Oistjict oil Columbia 19114 42706 15851 106143 137091 30948
Florida 421731 1750958 776871 371501 3153093 2781592
Georgia 19169 939538 301234 111450 130236 187861
Hawaii 4792 1281181 4756 21228 27418 61895
Idalto 5750 2562374 11098 21228 34272 130441
Illinois 440904 2007196 68174 2653581 322163 568058
Indiana 220454 939538 317091 122064 143945 218809
Iowa 162941 768713 237811 79607 95963 163563Kansas 13418 6405944 28952 74300 95963 216634
Kentucky 14377 7260.071 237811 796.07 95963 163.563
Louisiana 14377 8114191 332941 1008361 130236 294004Maine 5750 2562374 11098 31843 34272 24298
Maryland 162941 6405944 206101 1008361 116527 156913Massachusetts 21086 896832 269.52 175136 185072 99365
Michigan 316251 13666011 206101 159214 205636 464216Minnesota 21086 8541261 332941 95528 116527 209985
Mississippi 7667 512475 221963 53071 61691 86194
Missouri 23003 9822454 301231 122064 143945 218809
MontaM 4792 2562371 11098 21228 27418 61895
Nebraska 8626 4270631 158544 42457 54836 123791
Nevada 3833 170825 95.12 106143 27418 168039
New Hanpslo 4792 213531 7927 26535 34272 77370
New Jecsay 23003 10676574 332944 196365 2124911 161261
New Mexico 5750 2989441 126831 26535 34272 17370
New York 56550 20926051 60247 403344 459254 559105
North Carolina 21086 939538 285381 116757 130236 134789
North Dakota 3833 213531 7927 15921 20563 46422
Ottio 392.97 10.228.351 586.61 222900 2.67327 444267
OkJaJtoma 182111 896832 36465 90221 130236 400147
Oregon 15335 597888 269.52 689931 891.09 201.161
pennsyivuia 41214 2306140 776871 2972011 335873 386.719
Rhode Island 28.75 1281.18 4756 265.35 274.18 8824
South Carolina 9584 512475 142691 58378 68545 101667
South Dakota 38.33 256231 9512 159.21 205.63 46422Tennessee 182111 9822454 285381 106143 123381 172386
Texas 69969 3544623 155374 424573 575782 1512093
1667 2989441 142691 26535 41127 145915
VemoiIt 2875 1.28118 4756 15921 205.63 46.422
VIrginia 201281 768713 25367 111450 130236 187.861
Washington 22045 896832 36465 1.11450 143945 324952
west J4jgjpj 5750 2989441 11098 371501 411273 39.772
WIsconsin 201281 896832 380504 1008361 123381 225.458
Wyoming 2875 170825 9512 159211 20563 46422
U.S Citizens Abroad 2875 854125 31.691 65.361 75.82 10460
Returns filed 1mm Aimy Poet Office end Fleet Poet Office addresses and by U.S citizens living In U.S possessons or abroad
NOTE Detail ray retf add to total because of rowsilng
BOX 2_SOLE PROP RTN-1 981_05047
Section Explanationof Terms
This section contains brief descriptions of most of Business Receiptsthe terms that appear in the tables in this reportThe instructions for the Schedules and included in Business receipts represented all income from the
Section of this report provide additional informa- operation of the business including other business
tion about many items income which often consisted of incidental income froni
Explanations of terms are designed to ajd in under such items as sales of scrap or cash rebates corpora-
standing the statistical content of this report and tions and partnerships generally included these in
should not be construed as interpretations of the other receipts and windfall profit tax credits or
Internal Revenue Code or related regulations proce- refunds reduced by the cost of returned goods and
dures or policies Code sections cited are those allowances Dividends interest rents royalties
which were in effect during the period covered by this and other investment-type Income were generally not
report Generally terms used in this report are included in sole proprietorship receipts although
identical definitionally to those used in other rents or interest that were actually Income from
Statistics of Income reports Differences in meaningbusiness operations were sometimes included For
are noted below Also in cases where the definition example rents received by real estate operators and
of term has changed since the Statistics of Income-- interest received by small loan companies were
1979-1980 Sole Proprietorship Re-turns puDilcatlon ue included Business receipts may have included excise
to tax law revisions or other factors the yinbol and sales taxes which were included in the sales price
follows the term of the product some taxpayers reported receipts this
way and deducted the taxes as expenses while others
Amortization reported their receipts after adjustment for any taxes
Business receipts and their components income from
Amortization was deduction for recovery of certain sales and operations other business income and
capital expenditures over certain period of time in windfall profit tax credits or refunds are
manner similar to straight-line depreciation Typi- classified by industry in table
cally the period of time over which the expenditure
was written off was nuch shorter than if depreciation Comaissions
had been used often depending on the specific provi
sion of the law the period of time was only 60 months Comissions paid to an agent for his or her services
Examples of items qualifying for the amortization were deductible as ordinary and necessary expensesdeduction were expenditures for bcrd premiums child Identifiable amounts of coninissions reported as part
care facilities coal mine safety equipment pollution of cost of sales and operations were transferred
control facilities and trademark and trade names during statistical processing The deduction for
In order to confine the statistics insofar as conmuissions classified by industry is shown in table
possible to rapid write-offs identifiable amounts
reported as amortization that related to items not
specified in the Code were transferred to deprecia-Cost of Labor
tion or other deductions as appropriate Thededuction for amortization classified by industry is
Cost of ibor was component of cost of sales and
shown in tableoperations For nonfarm sole proprietorships it
represented the amount reported on Schedule C-i Form
Bad Debts1040 The taxpayer was required to reduce the deduction for cost of labor by the amount claimed for the
Bad debts occurring during the year or reasonablejobs credit Cost of labor classified by industry is
addition to reserve for bad debts were allowableown in table
deduction under section 166 of the CodeRecoveries of bad debts previously deducted by
Cost of Sales and Operations
taxpayers who used the reserve method were netted
against the current years bad debt deductionIf the receipts of the business included income from
recoveries by taxpayers deducting actual bad debtsthe sale of goods made or bought cost of sales
were included in other business income The generally included the direct cost of those goods In
deduction for bad debts classified by industry is this sense it included goods purchased for resale
shown in table including inventory change in trade industries and
raw materials supplies labor and other direct costs
in agriculture mining manufacturing and other
Business Deductions industries whose principal activity was producing
ods Cost of operations related to businesses for
Business deductions were the sum of all ordinary and which inventories were not an incomedetermining
necessary business deduction items reported on thefactor
proprietorship schedule plus the deduction fromle proprietorships which engaed in manufacturin
business receipts of cost of sales and operations or production operations were required to use the ful
Business deductions and its components are classified absorption method of valuing items in inventory Both
by Industry in table direct and indirect production costs had to be taken
43
44 Sole ropetorshlp Returns/1981 Terms
into account in the computation of inventory costs which they were used Depreciation could alternaIndirect costs included repairs maintenance util- tively be computed using separate useful lives for
ities rent and indirect labor and managerial wages each Individual asset These guideline lives were
See the discussions in this section under purchases modified for 1971 under the class life asset
cost of labor materials and supplies and otherdepreciation range CLADR system Under this
costs Cost of sales and operations is classified system the taxpayer grouped assets of the same type
by industry in tableacquired in the same year into one or more vintageaccounts and assigned each account useful life
Depletion chosen from published permissible range of lives
The range of useful lives was generally within 20
This deduction was allowed for the exhaustion ofpercent of the Industry-grouped guideline lives
natural deposits and timber For standing timber established under the previous rules Use of the 1971
depletion was computed on the basis of cost In the rules did not have to be justified based on past
case of natural deposits the depletion could be com- retirement and replacement practices The only
puted either on the basis of cost or upon fixed per- allowable depreciation methods under the system were
centage of the gross income less rents and royalties the straight-line declining balance and sum of the
from the depletable property Generally for gas and years-digits Salvage value was not to be taken into
oil wells the gross income was the actual sales account in computing depreciation and no vintageprice or representative market or field price if the account could be depreciated below reasonable
gas or oil was later converted or manufactured prior salvage value Under the CLADR system assets
to sale For other natural deposits gross income acquired prior to 1971 were depreciated under the
was the gross income from mining defined to include revised rules but no range of useful lives was
extractive and certain treatment processes Also allowed
included as gross income were exploration expendi-Several methods of computation were used In deter
tures previously deducted that were required under mining the deduction for income year 1981 Most
provisions of Code section 617 to be recaptured when taxpayers elected to use the newly introduced method
the mine reached the production stage the Accelerated Cost Recovery System ACRS for their
Under elective provisions of the Code exploration new acquisitions This system replaced the Asset
and development expenditures connected with certain Depreciation Range ADR system This new method
domestic natural deposits except oil and gas could recovered the cost of eligible property over 3- 5-be deducted currently treated as deferred expenses 10- or 15-year period For any tax year that the
or capitalized The write-offs of amounts deferred or ADR System was elected taxpayers were still bound by
capitalized were not included as part of depletion all its accounting and reporting rules throughout the
Percentage depletion though based on percentages of remaining period of use of the asset Other taxpayers
gross income from the depletable property was elected to continue use of the straight-line methodlimited Generally it could not exceed 50 percent of whereby an equal amount is deducted in each year of
the net income from the property computed without the the useful life of the asset The declining balance
depletion deduction Percentage depletion rates for and the sum of the yearsdigits methods whereby
each type of natural deposit were listed in Code larger portion of the assets cost is written off
section 613 and ranged from to 22 percent during the earlier years of its life than during its
Generally percentage dplet1on could not be used later years were also coimnonly usedfor oil and gas wells However independent producers Amounts shown depreciation include any identifiand royalty owners could use percentage depletion able depreciationeported as an operating or manufacprovided they did not refine more than 50000 barrels
turing cost Also included in the statistics areof crude oil in any day and provided they did not sell
amounts deductedicth leasehold improvements patentsoil or natural gas through retail outlet The
and copyrights Additional first-year depreciationdepletion deduction for these small producers was
Internal Revenue Code section 179 was includedlimited to 65 percent of their net income before the
Depreciation is classified by industry In tablesdepletion deduction If the 65 percent limit caused
andan amount to be disallowed for taxable year the
sole proprietor could carry the disallowed portion toEmployee Benefit Programs
the next year for inclusion in the depletion deduction The depletion rate for small producers for
Contributions by employers to employee benefit plansincome year 1981 was 20 percent for maximum daily
other than deferred compensation plans were deductibleaverage of 1000 barrels
under Code section 162 for all forms of businessThe Tax Reduction Act of 1975 repealed several
organizations These plans included such things asdepletion allowances See Statistics of Income--l975
hospitalization Insurance health and accidentBusiness Income Tax Returns for detailed discussion
insurance group life insurance and other employeeof the Act The statistics in this report Include any welfare plans The statistics for this item includeidentifiable depletion reported as cost of sales and
amounts identified in the cost of sales and operationsoperations The deduction for depletion classified sàhedules The deduction for employee benefit
by industry is shown in tableprograms classified by industry is shown in table
DepreciationIncome From Sales and Operations
The deduction for depreciation permitted reason
able allowance for the exhaustion wear and tear and See Business Receipts for definition Income
obsolescence of business property in cases where the from sales and operations classified by industry is
estimated life of the property exceeded one year shown in table
deduction for depreciation was not allowable on Inven
tories or land apart from the physical improvements Insurance
or developments to itIn 1962 standard lives guidelines were issued for Insurance included the amounts reported as ordinary
establishing the reasonableness of the depreciation and necessary business expenses as well as identifiable
deduction These guidelines were based on groupings amounts reported as part of the cost of sales and
of assets according to the industrial activities in operations Included among the deductible expenses
Sole Proprtetorshlp Returns/1981 Terms 45
were premiums paid for fire hazard and business Material and Supplies
vehicle insurance Amounts paid for workmens
compensation insurance were included in the taxes paidThe value of materials and supplies was component
deduction The deduction for insurance expenditures of cost of goods sold For nonfarm businesses It was
classified by industry is shown in table the amount in Schedule C-l Materials and supplies
classified by industry is shown in table
Interest Paid
Net Income Less DeficitInterest paid in connection with business indebt
edness was deductible as an ordinary and necessary Net income less deficit was the sum of net Incomebusiness expense Included in the statistics were for businesses reporting profit offset by the deficitamounts of interest paid on installment purchases if for businesses reporting loss for all businesses
they were stated in the contract as well as certain within particular industry or income classificationunstated amounts under Code section 483 The Net income or loss for each business was the result ofdeduction for interest paid classified by industry is business receipts minus the sum of cost of sales andshown in tables and operations and other business deductions Net income
less deficit appears in all tablesInventories
Number of BusinessesInventories consisted of goods held for sale or raw
materials and supplies that would become part of The number of businesses was based on the number ofgoods held for sale Taxpayers engaged in
Schedules Cs filed with the Individual income tax
manufacturing trade or any other business except return Form 1040 of the sole proprietor The numberfarming where the production purchase or sale of
of businesses is shown in the statistics for yearsmerchandise was an income producing factor were r1or to 1981 and represented the number of active
required to use inventories in computing the gross business orqanizations operated as sole proprietorships
income from their businesses The use of inventories by individuas or married couples filing joint returns
required that direct expenses of production such as For 1981 number of businesses was dropped as the
factory labor for manufacturing concern be accrued statistical reporting unit and replaced by the number
and charged against sales In the year that the of returns See Processing Changes in Section of
finished goods were sold In accounting for the sale this report for discussion of the distinction
of goods therefore all such businesses were required between number of businesses and number of returns
to use the accrual method of accounting Inventories Number of businesses for both farm and nonfarm data
were normally valued at the lower of actual cost or are shown in table
market priceIn order to conform as nearly as possible to the Number of Returns
best accounting practices and to clearly reflect
income as required by section 471 of the Internal The number of returns represented the number of
Revenue Code both direct and indirect production individual income tax returns Forms 1040 that were
costs had to be taken into account in the computatofl filed with at least one nonfarm proprietorshipof costs in accordance with the full absorption schedule attached See Section for discussion of
method of inventory costing Under this method of the distinction between number of returns and number
inventory costing production costs had to be of businesses Number of returns Is shown in tables
allocable to goods produced during the taxable year and
whether they were sold during the taxable year or
whether they were in inventory at the close of the Other Business Deductions
taxable year Thus the business had to Include as
costs all direct production costs and certain Indirect This item was computed during statistical processing
production costs Inventories classified by industry and comprised business expenses which were not alloc
are shown in table able to specific deduction item on the return formsuch as general administrative and selling expenses
Jobs CreditOther business deductions classified by industry areshown in tables
The Tax Reduction and Simplification Act of 1977Other Business Income
created credit against income tax which provided
employers with tax incentive to create new jobsSee Business Receipts for the definition Other
Generally the jobs tax credit was based upon thenusiness income classified by Industry is shown in
aggregate unemployment insurance wages paid under thetable
Federal Unemployment Tax Act RiTA For income years
1980 and 1981 the basis of the credit was limited to Other Costs
wages paid to seven specific groups of structurally
unemployed individuals Jobs credit reported in the Other costs was component of cost of sales anddeduction section of Schedule is classified by operations These costs were reported on Scheduleindustry In table Cl Form 1040 and included such Items as containers
and packages that were not an integral part of the
manufactured product for example freightinLegal and Professional Services expressin and cartage-In aw materials and
supplies used In production merchandise purchased forThe deduction for legal and professional services sale and overhead expenses such as heat light
included amounts paid for accounting and bookkeeping power maintenance labor and supervision If
services as well as those fees paId to lawyers inventories purchases and the other components of
doctors architects and others rendering professional costs of goods sold were not reported separately they
service to the sole proprietorship The deduction were Included in other costs
for legal and professional service classified by The following items were transferred out of other
industry is shown in table costs and were Included in the appropriate deduction
46 Sole Proprietorship Returns/1981 Terms
Item during statistical processing amortization of taxes and other expenses paid by lessees in conneccontributions to pens4on and profit-sharing plans and tion with rent paid were included in their respectiveto employee benefit programs depletion depreciation deduction headings The deduction for rent paidtaxes Interest bad debts comissions rent and classified by industry is shown In tableinsurance Other costs classified by Industry are
shown in table Salaries and Wages
Payroll This item consisted of those salaries and wages paid
to employees of the sole proprietor Wages includedPayroll was computed during statistical processing as cost of labor in the cost of sales and operations
It was the sum of cost of labor reported in cost of schedule on the Income tax return were not includedsales and operations plus salaries and wages less jobs Salaries and wages excluded the jobs and WIN credits
and work incentive WIN tax credits repOrted among if the taxpayer made the required reduction for the
the deduction items Various kinds of contract labor credit Salaries to sole proprietors were not included
not actually representing payroll such janitorialin this amount See also Payroll The deduction
or secretarial services were also Included Paymentsfor salaries and wages tlassified by industry is shown
to owners were excluded in table
Mtounts of payroll were frequently included by tax-Taxes Paid
payers In other items such as comissions legal and
professional fees or repairs Because of the diffi-Taxes paid included the amounts reported as an ordi
culty In identifying such amounts they were shown In
these tables as reported by the taxpayer Thus thenary and necessary business expense as well as iden
amount shown for payroll Is probably understated tiflable amounts reported as part of the cost of sales
Payroll.classlfied by industry is shown In tableand operations Included among the deductible taxes
were ordinary State and local taxes paid or accrued
Pension and Profit-Sharing Plans durin the year social security and payroll taxesunemployment insurance taxes import and tariff
This item generally Included contributions byduties and business license and privilege taxes
employers to deferred compensation employee benefitIncome and profits taxes paid to foreign countries or
plans such as retirement pension profit-sharingU.S possessions were also deductible unless claimed
as credit against income tax Not deductible werestock bonus and annuity plans as defined in Code
such taxes as Federal income taxes gift taxes andsection 404 The statistics for this item Include
taxes assessed against local benefits If businessamounts identified in the cost of sales and operations
included in business receipts the sales taxes andschedules The deduction for pension and
excise and related taxes included in the sales priceprofit-sharing plans classified by Industry Is shown
of its products these taxes also were generallyin table
included in the statistics for the deduction for taxes
paid The taxes paid deduction classified by industryPurchases is shown in tables and
This item was component of the cost of gonds sold Travel and Entertainment
For nonfarm businesses the source was Schedule C-lPurchases classified by industry are shown in table Travel and entertainment expenses were deductible as
ordinary and necessary business expenses Identifiable
amounts of travel and entertainment expenses in otherRent Paid business deductions were transferred during statisti
cal processing to this item The deduction for travelRent paid on business property was deductible as an and entertainment classified by industry is shown in
ordinary and necessary expense Indentifiable amounts table
Section Industrial
Classification
The industrial classification system used in this report was based on theStandard Industrial Classification Manual as discussed in Section Industrial
classifications used for sole proprietorships are similar to those used in theStatistics of Income Partnership Returns and Statistics of Income CorporationReturns reports The major difference between partnership and sole proprietorshipindustries is that the finance insurance and real estate division for partnershipsis mere disaggregated due to heavier emphasis on these industries in partnershiptabulations Corporation statistics are classified by principal business activity
using the Enterprise Standard Industrial Classification ESIC which follows closelyalong the lines of the Standard Industrial Classification SIC system In aMitionto the miscellaneous classifications which exist throughout the SIC system notalloca1 classifications were established for most major industry groups for
purposes of this report Businesses designated as not allocable for Statistics ofIncome were those with activities ton diverse or those with not enough information
to classify
Standard Industrial
Classification Codes Statistics of Income Description
Agriculture Services forestry and fishing
Agricultural services
0741 0742 Veterinary services
0751 part Livestock breeding0751 part 0752 Animal services except livestock breeding
and veterinary07810783 Landscape and horticultural services
0711 07210724 07290761 0762 Other agricultural services
0811 0821 0843 08490851 Forestry0912 0913 0919 09210971 Fishing hunting and trapping
Mining
Mior grnup 10 1011-1009 Metal mining
Major groups 11 and 12
11111213 Coal miningMajor group 13 13111389 Oil and gas extraction
Major group 14 1411-1499 Nonmetallic minerals except fuels
Construction
General building contractors and operativebull ders
1521 1522 1541 1542 General building contractors
153i Operative builders
Heavy construction contractors
1611 Highway and street construction
1622 1623 1629 Heavy construction except highway
Special trade contractors
1711 Plumbing heating and air conditioning1721 Painting paper hanging and decorating1731 Electrical work
17411743 Masonry stonework tile setting and
plastering1751 1752 Carpentering and flooring1761 Roofing and sheet metal work
1771 Concrete work
1781 Water well drilling
1791 1793-1796 1799 Miscellaneous special trale contractors
47
48 Sole Proprietorship Returns/i 981
Standard In4ustrial
Classification Codes Statistics of Income Description
Manufacturing
Major group 20 20112099 Food and kindred products
Major group 22 22112299 Textile mill products
Major group 23 2311-2399 Apparel and other textile prolucts
Major group 24 2411-2499 Lumber and wood products except furniture
Major group 25 25112599 Furniture and fixtures
Major group 27 27112795 Printing publishing and allied industries
Major group 28 28122899 Chemicals and allied products
Major group 31 3111-3199 Leather and leather products
Major group 32 32113299 Stone clay and glass products
Major group 33 33123399 Primary metal industries
Major group 34 34113499 Fabricated metal products
Major group 35 3511-3599 Machinery except electrical
Major group 36 36123699 Electrical and electronic equipment
Major group 37 37113799 Transportation equipment
Major groups 21 26 2930 38 39 211121412611-2661 2911-2999 3011-
3079 38113873 39113999 Other manufacturing industries
Transportation communication electric gasand snitarv services
Local and interurban passenger transit
4121 Taxicahs
4111 4119 4131 4141
4142 4151 4171 4172 Other passenger transportation
Trucking and warehousing42124214 Trucking local and long distance
4221 4222 422442264231 Public warehousing and trucking terminals
Major group 44 4411-4469 Water transportation
Major group 45 45114583 Air transportation
Transportation services
4722 Passenger transportation arrangement
4723 Freight transportation arrangement
4612 4613 4619 4712 4742
4743 4782-4784 4789 Other transportation services
Major group 48 4811-4899 Communication
4911 49224925 4931
4932 4939 4941 4961
4971 Electric and gas services
4952 4953 4959 Sanitary services
Wholesale and retail trade
Wholesale trade
50125014 Motor vehicles and automotive equipment
5031 5039 Limher and construction materials
50635065 Electrical goods
5072 5074 5075 5078 Hardware plumbing and heat equipment5083 Farm machinery and equipment
5081 5082 5084-5088 Other machinery equipment and supplies
5021 5023 504150435051 5052 5O3 50945099 Other durable goods
5122 5161 Drugs chemicals and allied products
5133 5134 5136 51375139 Apparel piece goods and notions
5141-5149 Groceries and related products
5152 5153 5154 5199 Farm-product raw materials
5181 5182 Alcoholic beverages
51115113 5171 5725191 5194 5198 5199 Other nondurable goods
Retail trade
Building materials hardware garden
supply and mobile home dealers
5211 Lumber and other building materials
dealers
5231 Paint glass and wallpaper stores
5251 Hardware stores
5261 Retail nurseries and garden supply
stores
.5271 Mobile home dealers
Sole Proprietorship Returns/i 981 49
Standard Industrial
Classification Codes Statistics of Income Description
Wholesale and retail trade-continued
Retail tradecontinued
General merchandise stores
5331 Variety stores
5311 5399 Other general merchandise stores
Fod stores
5411 Grocery stores
5422 5423 Meat and fish markets including
freezer provisions
5431 Fruit stores and vegetable markets
5441 Candy nut and confectionary stores
5451 Dairy product stores
5462 5463 Retail bakeries
5499 Miscellaneous food stores
Automotive dealers and service stations
5511 Motor vehicle dealersnew car dealers
franchised5521 Used car dealers
5531 Auto and home supply stores
5541 Gasoline service stations
5551 Boat dealers
5561 Recreational vehicle dealers
5571 Motorcycle dealers
5599 Miscellaneous aircraft and automotive
deal ers
Apparel and accessory stores
5611 Mens and boys clothing and furnishing
stores
5621 Womens ready-towear stores
5631 Womens accessory and specialty stores
5641 Childrens and infants wear stores
5651 Family clothing stores
5661 Shoe stores
5681 Furriers and fur shops5699 Apparel and accessory stores not
elsewhere classified
Furniture and home furnishings stores
5712 Furniture stores
5713 Floor covering stores
5714 Drapery curtain and upholstery stores
5719 Home furnishings and equipment stores
except appliance
5722 Household appliance stores
5732 Radio and television stores
5733 Music stores
Eating and drinking places5812 Eating places5813 Drinking places
Miscellaneous retail stores
5912 Drug stores and proprietary stores5921
Liquor stores5931 Used merchandise stores5941
Sporting goods and bicycle shops5942 Book Stores5943
Stationery stores5M4
Jewelry stores5945 Hobby toy and game shops.5946 Camera and photographic supply stores5947 Gift novelty and souvenir shops548 Luggage and leather goods stores5949 Sewing needlework and piece good
stores5961 Mail order hoises
5962Merchandising machine operators
5963 Dirert selling organizations5982 Fuel and ice dealers except fuel oil
dealers and bottled gas dealers5983 Fuel oil dealers
5984 Liquified petroleum gas bottled gasdeal ers
5992 Florists
5993 Cigar stores and stands
5994 News dealers and newsstands5999 Other miscellaneous retail stores
50 Sole ProprietorshIp Returns/i 981
Standard Industrial
Classification Codes Statistics of Income Description
Finance insurance and real estate
Finance
6022-6028 6032-6034
6042 604 6052 6054
6055 6059 Banking and miscellaneous finance
6112 6113 6131 61446145 6146 6149 6153
6159 6162 6163 Credit agencies other than banks
Security commodity brokers and services
6211 Security brokers and dealers except
underwriting syndicates
6221 6231 6281 Coimiodity contracts brokers exchangesand services
6411 Insurance agents brokers and services
Real estate
6512-6514 Operators and lessors of buildings
6515 6517 6519 Lessors other than buildings
6531 Real estate agents brokers and managers6541 Title abstract companies
6552 Subdividers and developers except
cemeteries
6553 Cemetery subdividers and developers
6611 Combined real estate insurance loansand law offices
Services
Hotels and other lodging places
7011 part Hotels
7011 part Motels motor hotels and tourist courts
7021 Rooming and boarding houses
7032 Sporting and recreational camps
7033 Trailering parks and camp sites
7041 Organizational hotels and lodging houseson membership basis
Personal services
7215 Coin-operated laundries and dry cleaning
72117214 72167219 Other laundry cleaning and garment
services
7221 Photographic studios portrait
7231 Beauty shops
7241 Barber shops7251 Shoe repair and hat cleaning shops
7261 Funeral service and crematories
7299 Miscellaneous personal services
Business services
7311-7313 7319 Advertising
7341 7342 7349 Services to buildings
7372 7374 7379 Computer and data processing services
7392 Management and public relations
7394 Equipment rental and leasing
7321 7331-7333 73397351 7361 7362 73697391 7393 7395 7396
7397 7399 Other business services
Automobile repair and services
7512 7513 7519 Automotive rentals without drivers
7523 7525 Automobile parking
7531 Automobile top and body repair shops
7538 General automotive repair shops7534 7535 7539 Other automotive repair shops
7542 7549 Automotive services except repair
Miscellaneous repair services
7622 Radio and TV repair shops
7623 7629 Electrical repair shops except radio
and TV
7641 Reupholstery and furniture repair
7631 7692 7694 7699 Other miscellaneous repair shopsMotion pictures
7813 7814 7819 7823
7824 7829 Motion picture production distributionand services
7832 7833 Motion picture theaters
Sole ProprietorshIp Returns/i 981 51
Standard Industrial
Classification Codes Statistics of Income Description
Services--continued
Amusement and recreation services except
motion pictures
7922 7929 Producers orchestras and entertainers
7932 Billiard and pool establishments
7933 Bowling alleys7941 Professional sports clubs and promoters7948 Racing Including track operation
7911 7992 7993 7996
7997 7999 Other amusement and recreation services
Medical and health services
8011 Offices of physicians8021 Offices of dentists
8031 Offices of osteopathic physicians
8041 Offices of chiropractors8042 Offices of optometrists8049 part Registered and practical nurses
8051 8059 Nursing and personal care facilities
8062 8063 8069 Hospitals
8071 Medical laboratories
8072 Dental laboratories
8049 part 8081 8091 Other medical and health services
8111 Legal services
8211 8221 8222 82318241 8243 8244 82498299 Educational services
8911 Engineering and architectural services
Accounting auditing and bookkeeping
services
8931 part Certified public accountants8931 part Other accounting auditing and
bookkeeping services
8999 Other services
BOX 2_SOLE PROP RTN-1 981_05057
Section Facsimiles of
Formsand
Instructions
The statistics in this report were derived from the
sole proprietorship schedules and also from the parent
Forms 1040 Presented in this section are facsimiles
of the Schedules and and the appropriate instruc
tions facsimile of the Individual Income Tax
Return Form 1040 appears in Statistics of
Inccine--l981 Individual Income Tax Returns
CONTENTS
Schedule Profit or Loss from Business or
Profession 54
Instructions for Schedule 56
Schedule Farm Income and Expenses 55
Instructions for Schedule 57 58
53
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Form 6839 Rev 11-83 USER SURVEYDepartment of the Treasury
internal Revenue Service Statistics of Income 1981 Sole Proprietorship Returns
Please take few moments to answer the following questions concerning this Statistics of Income publication Your responses
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Form 683911-83 59
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PROPERTY OF
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COMPLIANCE ANALYSIS GROUP
1981 Sole ProprietorshipStatistics Returnsof Income
Overall Summary and Return Coverage
Sample Selection and Limitations of the Data
Historical Statistics
Tax Year 1981 Statistics
Proprietorship Statistics by State
Explanation of Terms
Industry Coding
Facsimiles of Forms and Instructions Used
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Dzpwtrnent of the Traasury tntemal Ravnue Sevvice Publication 113111-83
