Tax Administration: Information on Expenses Claimed by Small
Business Sole Proprietorships (23-JAN-04, GAO-04-304).
Meeting the requirements of tax rules can be especially
burdensome to small business sole proprietorships that
independently own their businesses. Internal Revenue Service
(IRS) data show that, compared to other taxpayer groups, sole
proprietorships have more problems complying with their tax
obligations. Simplifying how sole proprietorships account for and
report expenses may ease their burden and increase compliance.
Because of the requesters' interest in alleviating any
unnecessary burden that federal tax requirements impose on small
businesses, we were asked to provide information on the expenses
that sole proprietorships report on IRS's Form 1040 Schedule
C--Profit or Loss from Business and on Form 1040 Schedule
F--Profit or Loss from Farming. By having information on the
expenses reported by sole proprietorships, policymakers may be in
a better position to develop alternatives for simplifying how
these taxpayers account for and report their expenses.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-304
ACCNO: A09162
TITLE: Tax Administration: Information on Expenses Claimed by
Small Business Sole Proprietorships
DATE: 01/23/2004
SUBJECT: Data collection
Federal taxes
Small business
Tax returns
Taxpayers
Noncompliance
Expenses
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GAO-04-304
United States General Accounting Office
GAO Report to Congressional Requesters
January 2004
TAX ADMINISTRATION
Information on Expenses Claimed by Small Business Sole Proprietorships
a
GAO-04-304
Highlights of GAO-04-304, a report to congressional requesters
Meeting the requirements of tax rules can be especially burdensome to
small business sole proprietorships that independently own their
businesses. Internal Revenue Service (IRS) data show that, compared to
other taxpayer groups, sole proprietorships have more problems complying
with their tax obligations. Simplifying how sole proprietorships account
for and report expenses may ease their burden and increase compliance.
Because of the requesters' interest in alleviating any unnecessary burden
that federal tax requirements impose on small businesses, we were asked to
provide information on the expenses that sole proprietorships report on
IRS's Form 1040 Schedule C-Profit or Loss from Business and on Form 1040
Schedule F-Profit or Loss from Farming. By having information on the
expenses reported by sole proprietorships, policymakers may be in a better
position to develop alternatives for simplifying how these taxpayers
account for and report their expenses.
January 2004
TAX ADMINISTRATION
Information on Expenses Claimed by Small Business Sole Proprietorships
In tax years 2000 and 2001, the 10 most commonly claimed categories of
expenses of sole proprietors filing Schedule C included Other expenses,
Car/truck, Supplies, Utilities, Office, and Professional/legal. The
percentage of such taxpayers reporting expenses in these categories varied
from 73 percent for Other expenses to 48 percent for Professional/legal.
Because IRS does not separately compile information on each of the
categories of expenses on Schedule F, we could not determine the most
commonly claimed expenses for taxpayers who filed that schedule. However,
the IRS data showed that more than 50 percent of the taxpayers who filed
Schedule F claimed expenses for Depreciation, Repairs, Gasoline/oil, and
Supplies.
The expenses that small businesses reported on schedules C and F varied
widely across and within expense categories. There was wide variation in
both median dollar amounts and ranges. Expenses also varied greatly within
the categories of expenses. For example, the expenses for Wages taxpayers
reported on Schedule C in tax year 2001 ranged from about $1,000 at the
10th percentile to $99,000 at the 90th percentile.
In tax year 2001, there was wide variability in the expenses of sole
proprietorships by business characteristics such as gross receipts,
industry category, businesses with inventories, and businesses with home
offices. Not surprisingly, businesses with higher gross receipts had
higher expenses compared to businesses with smaller gross receipts.
Further, the distribution of expenses across expense categories generally
remained similar for all businesses. However, expenses across industry
categories showed wide variability in the amounts and ranges of expenses.
Sole proprietors in six industries whose businesses maintained inventories
had significantly higher median expenses than those without inventory and
sole proprietors with home office expenses generally had lower median
expenses than those without home offices.
Ranges of Expenses for the 10 Most Commonly Claimed Categories of Expenses
on
www.gao.gov/cgi-bin/getrpt?GAO-04-304.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Michael Brostek at (202)
512-9110 or [email protected].
Schedule C
Other
Car/truck
Supplies
Utilities
Office
Legal/professional services
Depreciation
Taxes
Insurance
Meals/entertainment
0 20 40 60 80 100 120 Dollars in thousands
Bars show values between the 10th and 90th percentiles and the lines
extend the ranges to the 1st and 99th percentiles.
Contents
Letter
Results in Brief
Background
The Most Commonly Claimed Categories of Expenses of Sole
Proprietorships Wide Variation in Amounts of Expenses Within and Across
Expense
Categories Wide Variation in Expenses by Business Characteristics Agency
Comments
1 2 4
5
7 11 25
Appendixes
Appendix I:
Appendix II:
Appendix III: Appendix IV: Appendix V:
Appendix VI: Appendix VII: Objectives, Scope, and Methodology
Information on the Percent of Taxpayers Who Claimed Expenses on Schedule C
and Schedule F in Tax Years 2000 and 2001
Information on the Amounts and Ranges of Expenses Reported on Schedule C
and Schedule F
Information on the Expenses Reported on Schedule C by Selected Business
Characteristics
Information on Cost of Goods Sold for Businesses With Inventories and
Depreciation Expenses by Industry Categories
Comments from the Internal Revenue Service
GAO Contacts and Staff Acknowledgments
GAO Contacts Acknowledgments 26
29 33 40
72
78
79 79 79
Glossary
Tables Table 1: Percentage of Taxpayers Who Claimed Expense
Categories on Schedule C, Tax Years 2000 and 2001 30
Table 2: Percentage of Taxpayers Who Claimed Expense
Categories on Schedule F, Tax Years 2000 and 2001 31
Table 3: Information on Expense Categories on Schedule C by
Amount and Range, Tax Year 2000 34
Contents
Table 4: Information on Expense Categories on Schedule C by
Amount and Range, Tax Year 2001 36
Table 5: Information on Expense Categories on Schedule F
Compiled by SOI by Amount and Range, Tax Year 2000 38
Table 6: Information on Expense Categories on Schedule F
Compiled by SOI by Amount and Range, Tax Year 2001 39
Table 7: Percentage of Taxpayers Who Claimed Expense
Categories on Schedule C by Size Based on Business Gross
Receipts, Tax Year 2000 41
Table 8: Percentage of Taxpayers Who Claimed Expense
Categories on Schedule C by Size Based on Business Gross
Receipts, Tax Year 2001 43
Table 9: Information on Expense Categories on Schedule C by Size
Based on Business Gross Receipts, Tax Years 2000 and
2001 45
Table 10: Range Information on Expense Categories on Schedule C
by Size Based on Businesses Gross Receipts, Tax Year
2000 47
Table 11: Range Information on Expense Categories on Schedule C
by Size Based on Businesses Gross Receipts, Tax Year
2000 49
Table 12: Range Information on Expense Categories on Schedule C
by Size Based on Businesses Gross Receipts, Tax Year
2000 51
Table 13: Range Information on Expense Categories on Schedule C
by Size Based on Businesses Gross Receipts, Tax Year
2001 53
Table 14: Range Information on Expense Categories on Schedule C
by Size Based on Businesses Gross Receipts, Tax Year
2001 55
Table 15: Range Information on Expense Categories on Schedule C
by Size Based on Businesses Gross Receipts, Tax Year
2001 57
Table 16: Information on Expense Categories on Schedule C by Total
Business Gross Receipts, Tax Years 2000 and 2001 59
Table 17: Information by Industry Categories for Schedule C
Expenses by Business Gross Receipts, Tax Years 2000 and
2001 60
Table 18: Information by Industry Categories for Schedule C
Expenses, Tax Years 2000 and 2001 61
Table 19: Information by Industry Categories for Schedule C
Expenses, Tax Years 2000 and 2001 62
Contents
Table 20: Information by Industry Categories for Schedule C Expenses by
Businesses With Inventory, Tax Years 2000 and 2001 63
Table 21: Information by Industry Categories for Schedule C Expenses by
Businesses With and Without Inventory, Tax Year 2000 64
Table 22: Information by Industry Categories for Schedule C Expenses by
Businesses With and Without Inventory, Tax Year 2001 65
Table 23: Information on Expense Categories on Schedule C by Businesses
With and Without Home Office Expense, Tax Year 2000 66
Table 24: Information on Expense Categories on Schedule C by Businesses
With and Without Home Office Expense, Tax Year 2001 68
Table 25: Information by Industry Categories for Schedule C Expenses by
Businesses With Home Office Expense, Tax Year 2000 70
Table 26: Information by Industry Categories for Schedule C Expenses by
Businesses With Home Office Expense, Tax Year 2001 71
Table 27: Information by Industry Categories for Schedule C Expenses by
Cost of Goods Sold for Businesses With and Without Inventory, Tax Year
2000 73
Table 28: Information by Industry Categories for Schedule C Expenses by
Cost of Goods Sold for Businesses With and Without Inventory, Tax Year
2001 74
Table 29: Depreciation Expense Reported on Schedule C by Industry, Tax
Year 2000 75
Table 30: Depreciation Expense Reported on Schedule C by
Industry, Tax Year 2001
77
Ten Most Commonly Reported Expenses
Figures Figure 1: on Schedule C, Tax Years 2000 and
2001 6
Figure 2: Reported Expenses Compiled by SOI
from Schedule F,
Tax Years 2000 and 2001 7
Figure 3: Ranges of Expenses Reported on
Schedule C, Tax Year
2001 9
Figure 4: Ranges of Expenses Reported on SOI, Tax Year 10
Schedule F Compiled by 2001
Contents
Figure 5: Percentage Distribution of Taxpayers According to Their
Aggregate Expenses Reported on Schedule C, Tax Year
2001 11
Figure 6: Comparison of Ranges of the 10 Most Commonly Claimed
Expenses on Schedule C Based On Gross Receipts, Tax
Year 2001 13
Figure 7: Aggregate Expenses Greater Than 5 Billion Claimed on
Schedule C and Schedule F by Industry Categories, Tax
Years 2000 and 2001 15
Figure 8: Schedule C Industry Categories With Median Expenses
$5,000 or More, Tax Years 2000 and 2001 16
Figure 9: Businesses Maintaining Inventory by Industry Category,
Tax Years 2000 and 2001 (Schedule C) 18
Figure 10: Median Expenses of Businesses Without and With
Inventory by Industry, Tax Year 2001 (Schedule C) 20
Figure 11: Businesses Claiming Home Office Expenses by Industry,
Tax Years 2000 and 2001 (Schedule C) 22
Figure 12: Median Home Office Expenses Reported on Schedule C
by Industry Category, Tax Year 2001 23
Figure 13: Median Business Expenses Claimed by Businesses With
and Without Home Office Expense, Tax Year 2001
(Schedule C) 24
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A
United States General Accounting Office Washington, D.C. 20548
January 23, 2004
The Honorable Olympia J. Snowe
Chair
Committee on Small Business and Entrepreneurship
United States Senate
The Honorable Christopher S. Bond
United States Senate
Complying with tax rules can be especially burdensome to small business
sole proprietorships who independently own their unincorporated
businesses. Internal Revenue Service (IRS) data show that sole
proprietorships have more problems meeting their tax obligations than
other taxpayer groups. For example, IRS examiners proposed adjustments
to sole proprietors' tax returns at three times the rate as it did for
nonbusiness individual tax returns in fiscal year 2001. Simplifying how
sole
proprietorships account for and report their business expenses may ease
their burden and increase compliance.
Sole proprietorships report their business-related expenses on IRS's Form
1040 Schedule C-Profit or Loss from Business, and farm-related expenses
on IRS's Form 1040 Schedule F-Profit or Loss from Farming.1 Both forms
are preprinted with a list of expense categories for taxpayers to itemize
their expenses, including "Other expenses" for expenses not included in
another category.
Because of your interest in alleviating any unnecessary burden that
federal
tax requirements impose on small businesses, you asked us for information
on the expenses that small businesses operating as sole proprietorships
report on their income tax returns. As agreed with your office, we are
providing you with information on the expenses claimed by taxpayers on
Schedule C and Schedule F. Specifically, we are providing information on
o the most commonly reported categories of expenses;
o the amount of variation within and across expense categories; and
1Elsewhere in this report, we refer to these forms simply as Schedule C
and Schedule F.
o the expenses based on selected business characteristics such as size,
industry category, businesses with inventories, and businesses with home
offices.
You also asked us for information on the cost of goods sold for businesses
with inventories and information on depreciation expenses by industry
categories. Appendix V provides that information.
To address our objectives, we reviewed the Schedule C and Schedule F tax
forms, their related instructions, and other IRS publications pertaining
to small businesses. We obtained IRS's Statistics of Income (SOI)
individual income tax databases for tax years 2000 and 2001, the most
recent 2 years that data were available. The SOI databases included
information on taxpayers who reported business expenses on Schedule C and
Schedule F. We used these databases to develop the statistical information
in this report. Given that the SOI data are a sample, the population
estimates made from the data are subject to sampling errors. The numbers
we report are estimated to the population with a 95 percent confidence
interval. The sample error surrounding each estimate is disclosed for each
data table contained in the appendixes. Also, we omitted population
estimates from some tables when there were too few observations or too
much sample variation to generate reliable estimates. This report only
addresses one group of small business taxpayers, that is, sole
proprietorships who reported business expenses on Schedule C or Schedule
F.
We determined that the SOI databases were reliable for our purposes,
although they have limitations for our purposes. Specifically, because IRS
does not compile separate information on each of the expense categories
listed on Schedule F, we could not provide complete information on the
expenses of small businesses engaged in farming. Furthermore, the SOI data
contain information as reported by taxpayers on their tax returns prior to
verification by IRS through audits and other checks.
We conducted our work between April 2003 and October 2003 in accordance
with generally accepted government auditing standards. Appendix I
describes our objectives, scope, and methodology in greater detail.
Results in Brief In tax years 2000 and 2001, the most commonly claimed
categories of expenses for sole proprietors filing Schedule Cs included
Other expenses, Car/truck, Supplies, Utilities, Office, and
Professional/legal. The
percentage of taxpayers filing Schedule Cs that reported expenses in these
categories varied from 73 percent for the Other expense category to 48
percent for the Professional/legal expense category. Because the SOI
database did not separately compile information for each expense category
on Schedule F, we were unable to determine the most commonly reported
categories of expenses of taxpayers filing Schedule F. However, over 50
percent of the taxpayers filing Schedule F claimed expenses for
Depreciation, Repairs, Gasoline/oil, and Supplies.
The expenses that small businesses reported on Schedule C and Schedule F
varied widely across and within expense categories. There was wide
variation in both median dollar amounts and ranges. On Schedule C in tax
year 2001, the 99th percentile2 ranged from about $10,000 for
Meals/entertainment expenses to nearly $350,000 for Wages. Expenses also
varied greatly within the categories of expenses. For example, the
expenses for Wages that taxpayers reported on Schedule C in tax year 2001
ranged from about $1,000 at the 10th percentile to about $99,000 at the
90th percentile.
In tax year 2001, there was wide variability in the expenses of sole
proprietorships based on business characteristics such as size (measured
in gross receipts), industry category, businesses with inventories, and
businesses with home offices.3 Not surprisingly, for the 10 most commonly
claimed expenses on Schedule C, businesses with higher gross receipts had
higher expenses in contrast to businesses with smaller gross receipts that
had lower expenses. Further, the distribution of expenses across expense
categories generally remained similar for all business sizes. However, in
viewing the expenses across industry categories, the data showed wide
variability in the amounts and ranges of expenses. For example, the total
expenses that farming sole proprietorships claimed were about 75 percent
larger than the total expenses that taxpayers claimed for any other
industry. In six industries, sole proprietors whose businesses maintained
inventories had significantly higher median expenses than those that did
not, and sole proprietors with home office expenses generally had lower
median expenses than those without home offices.
2We are not providing information on ranges of expense categories for the
absolute minimum and maximum amounts to remove extreme outliers and to
ensure that we do not disclose taxpayer information.
3Businesses with home office expenses only relate to sole proprietors
filing Schedule Cs.
Background IRS defines small businesses to include all partnerships,
corporations, and S corporations with assets under $10 million, and all
self-employed individuals also known as sole proprietorships.4 Each form
of business has distinctive legal characteristics that bring about
different tax consequences. For example, corporations are taxed as
separate entities distinct from their owners, with taxable dividends
included in the shareholders' income; income earned by S corporations and
partnerships is passed through to their owners and taxed at the owners'
rates; and sole proprietorships are taxed as individuals.5
According to IRS's data, a majority of small businesses are sole
proprietorships. In calendar year 2003 about 20.4 million sole proprietors
were expected to file tax returns. In addition, about 7 million of the 8.2
million partnerships, corporations, and S corporations were expected to
file tax returns had assets of less than $10 million.
Sole proprietors report their business income to IRS on Form 1040, the
individual income tax return. They are also required to attach the
appropriate schedules for reporting income and expenses related to their
business operations such as Schedule C and Schedule F.6 Schedule C is
preprinted with 24 expense categories including a separate line for
taxpayers to record expenses for business use of their homes. Similarly,
Schedule F has 25 expense categories. One of the expense categories on
both schedules is for taxpayers to report any other expenses that do not
generally fit within one of the itemized categories. In tax year 2001,
about 90 percent of the sole proprietors submitted Schedule Cs and about
10 percent submitted Schedule Fs.
4Sole proprietors may employ individuals other than themselves to work in
their business.
5A limited liability company (LLC) may be classified for federal income
tax purposes as a sole proprietorship, partnership, or a corporation. If
the LLC has only one owner, it will automatically be considered to be a
sole proprietorship, unless an election is made to be treated as a
corporation.
6Sole proprietors with a single business that had $2,500 or less in
expenses and used the cash method for accounting purposes and had no
inventory at any time during the year can use Schedule C-EZ provided they
had no operating loss and met certain other criteria.
The Most Commonly Claimed Categories of Expenses of Sole Proprietorships
Figure 1 shows the 10 most commonly claimed categories of expenses that
sole proprietorships reported on Schedule C. As illustrated, the most
commonly claimed categories of expenses on Schedule Cs included Other
expenses, Car/truck, Supplies, Utilities, Office, and Professional/legal.
The percentage of taxpayers claiming these particular categories of
expenses ranged from 73 percent for Other expenses to 48 percent for
Professional/legal. While the information contained in IRS's SOI database
precluded us from determining the most common expenses that taxpayers
reported on Schedule Fs, figure 2 shows the percentage of taxpayers
claiming Schedule F expenses that SOI does individually track. The
available data showed that more than half of the sole proprietors claimed
expenses in the categories for Depreciation, Repairs, Gasoline/oil, and
Supplies. We could not determine the most commonly reported expenses of
taxpayers who filed Schedule F because IRS does not compile detailed
information on 13 of the 25 expense categories on Schedule F.7 Instead,
the data on these 13 expense categories are aggregated with and reported
in the Other expense category. Consequently, the value of the Other
expense category is overstated. The tables in appendix II provide
additional information on the percentage of taxpayers who claimed certain
expense categories on Schedule Cs and Schedule Fs in tax years 2000 and
2001.
7SOI officials stated that they do not compile information on each
category of expenses on Schedule Fs because currently there is no
requirement to do so.
Figure 1: Ten Most Commonly Reported Expenses on Schedule C, Tax Years
2000 and 2001
Percentage of taxpayers
100
90
80
70
60
50
40
30
20
10
0
Other Car/truck Supplies Utilities Office Legal/ Depreciation Taxes
Insurance Meals/ professional entertainment servicesExpense categories
2000 2001 Source: GAO analysis of IRS data.
Note: Insurance expense excludes accident and health insurance for
employees.
Figure 2: Reported Expenses Compiled by SOI from Schedule F, Tax Years 2000 and
2001
Percentage of taxpayers
Depreciation Repairs Gasoline/oil Supplies Seeds/plants Custom hire
Interest on other business debt
Interest on mortgage
Labor hired
Employee benefit programs
Pension/profit sharing plans
Expense categories
2000 2001
Source: GAO analysis of IRS data.
Note: Excludes the Other expenses category because SOI aggregates the 13
categories of expenses for which data are not individually compiled into
the Other expenses category.
The expenses reported by sole proprietorships on Schedule C and Schedule F
varied widely across and within expense categories. The median dollar
amounts for expenses varied extensively across expense categories as did
the ranges of expenses reported on both schedules. For example, the 99th
percentile of expenses on Schedule C ranged from about $10,000 for
Meals/entertainment to about $350,000 for Wages. Within an expense
category, the data also showed wide variation.
Figures 3 and 4 show the broad ranges of expenses that sole
proprietorships reported on Schedule Cs and Schedule Fs in tax year 2001.
The solid bars represent the ranges of expenses at the 10th and the 90th
Wide Variation in Amounts of Expenses Within and Across Expense Categories
percentiles and define the ranges where 80 percent of the expenses fell.
For example, 80 percent of claims on Schedule C for Wage expenses fell
between $895 at the 10th percentile and $99,163 at the 90th percentile.
The lines that extend out from the ends of the bar show the range of the
expenses to the 1st and 99th percentiles. For example, Wage expenses on
Schedule C ranged from approximately $100 at the 1st percentile to about
$350,000 at the 99th percentile. Like schedule C, the ranges of expenses
on Schedule F varied widely.
Figure 3: Ranges of Expenses Reported on Schedule C, Tax Year 2001
Expense catagories Advertising
Bad debts
Car/truck
Commissions
Depletion
Depreciation
Employee benefits
Insurance
Interest on mortgage
Interest on other business debt
Legal/professional services
Office
Pension/profit sharing programs
Rent on machinery/equipment
Rent on other business property
Repairs
Supplies
Taxes
Travel
Meals/entertainment
Utilities
Wages
Other
Home office 350 Dollars in thousands
Bars show values between the 10th and 90th percentiles and the lines
extend the ranges to the 1st and 99th percentiles
Source: GAO analysis of IRS data.
Note: Insurance expense excludes accident and health insurance for
employees.
Figure 4: Ranges of Expenses Reported on Schedule F Compiled by SOI, Tax
Year 2001 Expense catagories Custom hire
Depreciation Employee benefit programs
Gasoline/oil
Interest on mortgage Interest on other business debt
Labor hired Pension/profit sharing plans Repairs
Seeds/plants
Supplies Other
Source: GAO analysis of IRS data.
0
Dollars in thousands
Bars show values between the 10th and 90th percentiles and the lines
extend the ranges to the 1st and 99th percentiles
Note: The Other expense category includes information on the Other expense
category plus the 13 categories of expenses for which IRS does not compile
separate data.
Figure 5 shows the percentage distribution of taxpayers according to the
aggregate amount of expenses they reported on Schedule C in tax year 2001.
As illustrated, the median expenses claimed were $8,968. This means that
half of the taxpayers claimed less than $8,968 in total expenses while
half claimed more.
Figure 5: Percentage Distribution of Taxpayers According to Their
Aggregate Expenses Reported on Schedule C, Tax Year 2001
Percentage 100 80
median mean
60
40
20 0 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000
Source: GAO analysis of IRS data.
Wide Variation in There was a high degree of variability in the amounts
and ranges of
expenses based on business size, industry category, businesses
withExpenses by Business inventories, and businesses with home offices.8
Characteristics
As Gross Receipts Increased, the Distribution of Expenses Remained Similar
To provide some perspective on how business expenses may differ between
larger and smaller businesses, we used gross receipts as a measure of
business size. Not surprisingly, sole proprietors with larger gross
receipts generally claimed more expenses in the 10 most commonly claimed
Schedule C categories than those with smaller gross receipts. While the
amounts and ranges of expenses were larger as gross receipts increased,
the distribution of expenses across expense categories generally remained
similar. We analyzed information for three different size categories-(1)
under $25,000 in gross receipts, which represented 61
8Comparable data on business characteristics were not available for sole
proprietorships that filed Schedule F.
percent of the sole proprietors who filed Schedule Cs, (2) between $25,000
and $100,000 in gross receipts, which represented 25 percent of the sole
proprietors who filed Schedule Cs, and (3) and over $100,000 in gross
receipts, which represented 14 percent of the sole proprietors who filed
Schedule Cs. Figure 6 compares the ranges of expenses across these three
business sizes. Comparable information on gross receipts was not available
for us to analyze farming expenses in this manner.
Figure 6: Comparison of Ranges of the 10 Most Commonly Claimed Expenses on
Schedule C Based On Gross Receipts, Tax Year 2001
Dollars in thousands
Bars show values between the 10th and 90th percentiles and the lines
extend the ranges to the 1st and 99th percentiles
Note: Table shows 10 most common expenses claimed by sole proprietors on
Schedule C. Insurance expense excludes accident and health insurance for
employees.
Expenses Vary by Industry Category
Figure 7 shows the total dollar amounts of expenses that sole proprietors
reported on Schedule Cs and Schedule Fs by industry category in tax years
2000 and 2001. In filling out their Schedule Cs, taxpayers are to select
an industry category that best describes their business from the list of
codes included in the schedule's instructions. (See app. I for more
information.) As illustrated by the figure, the total expenses that
taxpayers claimed related to the farming industry on Schedule F were about
75 percent larger than the expenses for any other single industry category
for Schedule C businesses. Figure 8 shows that variation exists in median
expenses across industry categories.
Figure 7: Aggregate Expenses Greater Than 5 Billion Claimed on Schedule C
and Schedule F by Industry Categories, Tax Years 2000 and 2001
Industry categories Farming (Schedule F)
Construction
Professional/technical
Health care/social assistance
Retail trade
Transportation/warehousing
Other services
Finance/insurance
Real estate/leasing
Accommodation/food services
Administrative/waste management
Arts/recreation
Manufacturing
Agriculture/forestry
Wholesale trade 0 20 40 60 80 100 Dollars in billions
2001
2000
Source: GAO analysis of IRS's data.
Note: Expenses for the farming industry category were reported on the
Schedule F. Expenses for all other industry categories were reported on
the Schedule C.
Figure 8: Schedule C Industry Categories With Median Expenses $5,000 or
More, Tax Years 2000 and 2001
Industry categories
Accommodation/food services
Transportation/warehousing
Finance/insurance
Real estate/leasing
Construction
Agriculture/forestry
Manufacturing
Utilities
Wholesale trade
Health care/social assistance
Other services
Professional/technical
Mining
Retail trade
Arts/recreation
Administrative/waste management 0 5 101520 Dollars in thousands
2001 2000 Source: GAO analysis of IRS data.
In Six Industries, Sole All industries had some small businesses that
maintained inventories. In Proprietorships With only four industries,
however-Retail trade, Accommodation/food Inventory Had Significantly
services, Wholesale trade, and Manufacturing-did more than 15 percent of
Higher Median Expenses businesses have inventories in tax years 2000 and
2001. (See fig. 9.)
Than Those Without Inventory
Figure 9: Businesses Maintaining Inventory by Industry Category, Tax Years
2000 and 2001 (Schedule C)
Industry categories
Religious/civic
Mining
Transportation/warehousing Finance/insurance Health care/social assistance
Real estate/leasing Education services Administrative/waste management
Professional/technical
Construction
Unclassified
Agriculture/forestry
Arts/recreation
Information
Utilities
Other services
Manufacturing Wholesale trade
Accommodation/food services
Retail trade
0 5 10152025 30354045 50 Percentage
2000 2001 Source: GAO analysis of IRS data.
Figure 10 shows a comparison of median expenses of businesses by industry
with and without inventory. The median expenses for businesses with
inventory were significantly higher than those of businesses without an
inventory for six industries-Accommodation/food services, Health
care/social assistance, Mining, Transportation/warehousing, Construction,
and Other services.
Figure 10: Median Expenses of Businesses Without and With Inventory by
Industry, Tax Year 2001 (Schedule C)
Industry categories
Unclassified
Education services
Arts/recreation
Professional/technical Finance/insurance
Retail trade
Administrative/waste management Manufacturing
Agriculture/forestry
Information
Wholesale trade
Real estate/leasing
Other services
Construction
Transportation/warehousing
Accommodation/food services
Health care/social assistance
Mining 250 Dollars in thousands
Without With
Source: GAO analysis of IRS data.
Note: Two industries-Religious/civic and Utilities-are not included
because reliable population estimates could not be developed.
Sole Proprietorships Claiming Home Office Expense Generally Had Lower
Median Expenses Than Those Without Home Offices
While all industries had some businesses with home offices, they were more
prevalent in some industries. Health care/social assistance and
Professional/technical had the highest percentage of Home office expenses
claimed in tax years 2000 and 2001 (see fig. 11). Figure 12 shows the
variation in the median amounts of Home office expense by industry in tax
year 2001. Those businesses without home offices generally reported higher
median expenses than those with home offices, although Office and Other
expenses were higher for those businesses with a home office (see fig.
13).
Figure 11: Businesses Claiming Home Office Expenses by Industry, Tax Years
2000 and 2001 (Schedule C)
Industry categories
Mining
Unclassified
Religious/civic
Transportation/warehousing
Accommodation/food services Agriculture/forestry
Other services Retail trade Arts/recreation
Finance/insurance
Construction
Real estate/leasing
Administrative/waste management
Education services
Manufacturing
Wholesale trade
Information
Professional/technical
Health care/social assistance 0 5 10 15202530 Percentage
2000 2001 Source: GAO analysis of IRS data.
Note: The Utilities industry was excluded from the analysis because it had
less than 100 sample observations.
Figure 12: Median Home Office Expenses Reported on Schedule C by Industry
Category, Tax Year 2001
Industry categories Mining
Retail trade
Unclassified
Agriculture/forestry
Administrative/waste management
Transportation/warehousing
Real estate/leasing
Construction
Education services
Manufacturing
Other services
Religious/civic
Information
Professional/technical
Accommodation/food services
Finance/insurance
Arts/recreation
Wholesale trade
Health care/social assistance 0 12 3
Dollars in thousands
Source: GAO analysis of IRS data.
Note: The Utilities industry was excluded from the analysis because it had
less than 100 sample observations.
Figure 13: Median Business Expenses Claimed by Businesses With and Without
Home Office Expense, Tax Year 2001 (Schedule C)
Expense categories
Advertising
Bad debts
Car/truck
Commissions Depletion
Depreciation
Employee benefit programs
Insurance Interest on mortgage
Interest on other business debt
Legal/professional services
Office
Pension/profit sharing plans
Rent on machinery/equipment
Rent on other business property
Repairs
Supplies
Taxes
Travel
Meals/entertainment
Utilities
Wages
Other
Dollars in thousands
With Without Source: GAO analysis of IRS data.
Appendix IV provides additional information on expenses of sole
proprietors by the business characteristics described above.
Agency Comments IRS's Director, Research, Analysis, and Statistics
provided us written comments on a draft of this report in a January 13,
2004, letter, which is reprinted in appendix VI. The Director agreed that
the tabulations in the report accurately reflect the SOI sample data for
small business expenses claimed by taxpayers on Schedule Cs and Schedule
Fs.
As agreed with your office, unless you announce the contents of this
report earlier, we plan no further distribution of this report until 30
days from the date of this letter. At that time, we will send copies of
this report to the Ranking Minority Member of your Committee, the Chairman
and Ranking Minority Member of the House Committee on Small Business, the
Chairman and Ranking Minority Member of the Senate Committee on Finance,
and the Chairman and Ranking Minority Member of the House Committee on
Ways and Means. We will also send copies to the Secretary of the Treasury,
the Commissioner of Internal Revenue, and the Director, Office of
Management and Budget. Copies will be made available to others upon
request. The report is also available on GAO's home page at
http://www.gao.gov.
If you have any questions concerning this report, please contact me or
Charlie Daniel at (202) 512-9110. Key contributors to this work are listed
in appendix VI.
Michael Brostek Director, Tax Issues
Appendix I
Objectives, Scope, and Methodology
Our objective was to provide descriptive information on (1) the most
commonly reported categories of expenses of small business taxpayers
operating as sole proprietorships, (2) the amount of variation within and
across expense categories, and (3) the expenses based on selected business
characteristics such as size, industry, businesses with inventories, and
businesses with home offices.
To address our objective, we obtained information from IRS's nonpublic use
SOI databases of individual income tax returns that reported expenses for
small business sole proprietorship on Schedules C and Schedule F for tax
years 2000 and 2001. These years were the most recent that data were
available. SOI's nonpublic use databases differs from its public use
databases in that they contain more detailed data, some of which could be
associated to specific taxpayers. According to IRS, the SOI databases were
compiled from transaction file records created when IRS processed
individual income tax returns. The statistics compiled by SOI are
estimates from a stratified probability sample of unaudited individual
income tax returns filed during calendar years 2001 (for tax year 2000)
and 2002 (for tax year 2001). IRS excluded tentative and amended tax
returns from the database. Tentative returns were excluded because the
revised returns may have been sampled later and amended returns were
excluded because the original returns had already been subjected to
sampling. The sample was stratified on the basis of subpopulation groups
called strata, and a sample was randomly selected independently from each
stratum. For example, one stratum is for the presence of both Schedule F
and Schedule
C.
To assess the reliability of IRS's SOI individual income tax return
databases, we followed our guidance for assessing the reliability of
computerized databases.1 In particular, we (1) performed electronic
testing for obvious errors in the accuracy and completeness of the data,
(2) reviewed the SOI dataset documentation, and (3) interviewed IRS
officials knowledgeable about the data to gain an understanding of the
internal procedures that were in place to ensure data quality. According
to SOI, the data derived from the tax returns were subjected to a number
of validation and consistency checks, including systematic verifications
of some work of each tax examiner involved in the SOI processes to compile
the databases. Most of the data validation checks were computerized tests
of records.
1U.S. General Accounting Office, Assessing the Reliability of
Computer-Processed Data (External version1), GAO-03-273G (Washington,
D.C.: October 2002).
Appendix I
Objectives, Scope, and Methodology
While we found the data reliable for the purpose of our engagement, we
noted limitations of the database. In particular, SOI data contain
information as reported by taxpayers on their income tax returns that may
not have been subjected to much of IRS's internal accuracy checks such as
the document matching of information returns. In addition, IRS does not
separately transcribe all of the detailed expense information from
Schedule F like it does for the Schedule C. Consequently, we could not
provide the same level of detailed information on expenses relating to
Schedule F as we could for Schedule C tax returns.
To determine the most commonly reported expenses of small business sole
proprietorships, we estimated the percent of taxpayers who reported a
nonzero value in each expense category listed on the Schedule Cs and
Schedule Fs. We excluded taxpayers who filed Schedule C-E, because that
form does not have itemized expenses. We also excluded taxpayers who filed
Schedule Cs or Schedule Fs but did not list any itemized expenses on them.
Because IRS does not compile information on all of the expense categories
on Schedule F, we were unable to precisely determine what were the most
commonly reported categories of expenses. Of the 25 categories of expenses
on Schedule F, IRS only compiles detailed information on 12 categories.
The SOI databases combine information on the remaining 13 expenses and
reports them as a single amount under the Other expenses category on
Schedule F. As shown in table 2 in appendix II, the Other expenses
category represented about 51 percent of the expenses reported by
taxpayers on Schedule F in tax year 2001. However, we used IRS's available
data to provide some perspective on the percent of taxpayers who filed
Schedule Fs that reported nonzero values in the expense categories where
data were available. This information was not sufficient for us to rank
the categories and present reliable information on the most commonly
claimed expenses.
To provide information on the amount of variation within and across
expense categories, we summarized information on the dollar amounts of
expenses from IRS's SOI individual databases that reported expenses of
small business sole proprietorships and estimated the population mean and
median values. We also estimated population percentile values of the
business expense categories on Schedule Cs and Schedule Fs. We estimated
values for the 1st, 10th, 50th, 90th, and 99th percentiles. Our
information on Schedule F taxpayers was limited to those expense
categories for which IRS had data. To mitigate the possibility of
presenting unusual outliers and to ensure that we do not disclose taxpayer
Appendix I
Objectives, Scope, and Methodology
information, we do not provide the minimum and maximum values. Rather we
provide estimates of the 1st and 99th percentiles.
To provide information on the selected business characteristics that you
requested, we estimated population expense values based on business size,
industry category, businesses maintaining inventory, and businesses with
home offices. We also included information on businesses operating farms
and agricultural enterprises. To perform our analysis of business expenses
based on the size of businesses, we used different levels of gross
receipts as the measure for size. To determine industry categories, we
collected information from IRS's SOI databases by the principal business
codes as reported by taxpayers. Taxpayers were to determine their
principal business codes from the North American Industry Classification
System information in the instructions for the tax forms.
To provide information on the cost of goods sold for businesses with
inventories and information on depreciation expenses by industry
categories, we estimated population values for different categories of
industries.
Because the SOI data are a sample, the population estimates made from that
data are subject to some imprecision owing to sampling variability. We
express our confidence in the precision of the sample's results as a 95
percent confidence interval of plus or minus some percentage for sampling
errors. The sampling errors associated with our population estimates are
listed with each table in the appendixes. Further, for some entries in
some tables there were too few observations or too much sample variation
to generate reliable population estimates. In these cases the estimates
are omitted.
We did our work at IRS headquarters in Washington, D.C. between April 2003
and October 2003 in accordance with generally accepted government auditing
standards.
Appendix II
Information on the Percent of Taxpayers Who Claimed Expenses on Schedule C
and Schedule F in Tax Years 2000 and 2001
This appendix provides complete information on the percentage of taxpayers
who claimed expenses in the categories of expenses listed on Schedule C
and on Schedule F, to the extent that data on farming expenses were
available. It also provides information that shows how each individual
expense category compares as a percentage of the total expenses
Appendix II Information on the Percent of Taxpayers Who Claimed Expenses on
Schedule C and Schedule F in Tax Years 2000 and 2001
Table 1: Percentage of Taxpayers Who Claimed Expense Categories on Schedule C,
Tax Years 2000 and 2001 2000 2001 Expense category
Percentage of taxpayers who claimed expense Expense as percentage of total
expenses Percentage of taxpayers who claimed expense Expense as percentage
of total expenses
Advertising 35.3 2.4 35.1
Bad debts 2.6 0.2a 2.8 0.3b
Car/truck 71.5 10.9 71.0
Commissions 7.9 2.8 7.8
Depletion 0.6 0.2a 0.6 0.2a
Depreciation 44.5 7.7 43.1
Employee benefit programs 2.3 0.4 2.2
Insurance 37.9 3.3 37.1
Interest on mortgage 5.7 1.3 5.6
Interest on other business debt 13.6 1.7 13.2
Legal/professional services 48.0 1.8 47.9
Office 49.7 2.5 49.5
Pension/profit sharing plans 1.1 0.2a 1.1 0.2a
Rent on machinery/equipment 15.2 2.1 15.1
Rent on other business property 20.4 5.8 19.7
Repairs 31.2 2.9 30.5
Supplies 56.1 5.2 56.4 5.3
Taxes 40.9 3.3 40.1 3.3
Travel 26.6 2.0 26.8 2.0
Meals/entertainment 35.8 1.1 36.2 1.1
Utilities 54.0 4.6 53.5 4.7
Wages 10.7 15.2 10.1 14.7
Other 72.8 20.8 72.3 21.8
Home office 15.6 1.4 16.4 1.4
Totalc 100% 100%
Source: GAO analysis of IRS data.
Notes: Estimates in the first and third columns have sampling errors of
(+/-) 2 percentage points or less. Estimates in the second and fourth
columns have sampling errors of (+/-) 10 percent or less of the value of
the estimates unless otherwise noted.
aSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cTotals may not add to 100 percent due to rounding.
Appendix II Information on the Percent of Taxpayers Who Claimed Expenses on
Schedule C and Schedule F in Tax Years 2000 and 2001
Table 2: Percentage of Taxpayers Who Claimed Expense Categories on
Schedule F, Tax Years 2000 and 2001
Ca
2000 2001
Percentage of Expense as
Percentage of Expense as
taxpayers who percentage of
taxpayers who percentage of
Expense category claimed expense total
expenses claimed expense total expenses
a a
r/truck
Chemicals a a
Conservation a a
Custom hire 30.9 2.7 31.2
Depreciation 78.3 15.7 78.7
Employee benefit programs 2.2 0.3c 2.5 0.3c
aa
Feed purchased
aa
Fertilizers/lime
aa
Freight/trucking
Gasoline/oil 64.1 3.8 65.4
Insurance a a
Interest on mortgage 24.1 4.0 25.5
Interest on other business debt 30.0 4.3 30.5
Labor hired 24.9 4.9 25.3
Pension/profit sharing plans 0.2 0.0d 0.2
aa
Rent on machinery/equipment
aa
Rent on other business property
Repairs 73.8 6.5 72.8 6.5 Seeds/plants 39.0 3.8 37.3 3.8
aa
Storage/warehousing
Supplies 63.5 3.4 62.9 3.1
aa
Taxes
aa
Utilities
aa
Veterinary/medicine
Other expensesb 97.3 50.8 97.1 50.8
Totale 100% 100%
Source: GAO analysis of IRS data.
Note: Estimates in the first and third columns have sampling errors of
(+/-) 3 percentage points or less. Estimates in the second and fourth
columns have sampling errors of (+/-) 10 percent or less of the value of
the estimates unless otherwise noted.
aIncluded with Other expenses.
bIncludes: Car/truck, Chemicals, Conservation, Feed purchased,
Fertilizers/lime, Freight/trucking, Insurance, Rent on
machinery/equipment, Rent on other business property, Storage/warehousing,
Taxes, Utilities, and Veterinary/medicine as well as any expenses
taxpayers included in the Other expenses category.
Appendix II Information on the Percent of Taxpayers Who Claimed Expenses
on Schedule C and Schedule F in Tax Years 2000 and 2001
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate. dSampling errors exceeds (+/-) 50 percent of the value of
the estimate. eTotals may not add to 100 percent due to rounding.
Appendix III
Information on the Amounts and Ranges of Expenses Reported on Schedule C
and Schedule F
As we reported earlier, the amounts and ranges of expenses that sole
proprietors reported on Schedule Cs and Schedule Fs varied widely. This
appendix provides greater detail on these measures. In particular, the
tables in the appendix provide information on the percentile ranges for
the expenses. To mitigate the possibility of presenting unusual outliers
and because of taxpayer disclosure concerns, we do not provide the minimum
and maximum values. Rather we provide estimates of the 1st and 99th
percentiles. Estimates of the mean and median expenses are also provided.
Appendix III Information on the Amounts and Ranges of Expenses Reported on
Schedule C and Schedule F
Table 3: Information on Expense Categories on Schedule C by Amount and Range,
Tax Year 2000
Dollars in thousands
2000
Expense category Total Mean 1st 10th Median 90th 99tha
Advertising $10,148,616 $2.0 $0.01 $0.05 $0.46 $4.44 $22.45
Bad debts 983,868b 2.6b 0.01d 0.06c 0.49b 4.50c 30.55
Car/truck 45,711,214 4.4 0.05 0.29 2.36 9.75 32.56
Commissions 11,610,550 10.1 0.01e 0.08c 1.09b 19.35c 139.77
Depletion 684,974b 8.1c 0.01e 0.07d 1.05d 14.51d 110.57
Depreciation 32,196,152 5.0 0.02e 0.22 1.83 11.74 42.73
Employee benefit 1,871,875 5.7 0.05d 0.41c 2.85b 12.69b 36.21
programs
Insurance 13,623,747 2.5 0.04 0.17 0.95 5.66 22.76
Interest on mortgage 5,250,896 6.3 0.04d 0.43 2.78 13.37b 55.44
Interest on other 6,981,950 3.6 0.01d 0.11 1.08 7.12 31.72
business debt
Legal/professional 7,312,591 1.0 0.02 0.07 0.25 1.93 12.00
services
Office 10,456,413 1.4 0.01 0.06 0.45 3.41 15.26
Pension/profit sharing 892,873 5.8 0.01e 0.40c 3.52b 12.86b 40.03
plans
Rent on 4.0 0.03 0.12 1.47 9.07b 35.18
machinery/equipment 8,880,267
Rent on other business property 24,342,102 8.2 0.04 0.41 4.02 18.98 60.41
Repairs 12,280,522 2.7 0.02 0.09 0.82 6.30 28.28 Supplies 21,793,943 2.7
0.02 0.10 0.80 5.39 29.67 Taxes 13,955,915 2.4 0.01 0.04 0.34 5.69 29.21
Travel 8,457,309 2.2 0.02 0.12 0.84 4.96 19.87 Meals/entertainment
4,664,691 0.9 0.01 0.04 0.33 2.28 7.29 Utilities 19,381,870 2.5 0.02 0.18
1.09 5.84 19.19 Wages 63,485,482 40.8 0.12 1.03c 16.37 96.47 330.87 Other
87,025,927 8.2 0.02 0.17 1.58 14.04 96.40 Home office 5,642,543 2.5 0.07
0.37 1.54 5.59 13.66 All categories $417,636,291f $28.8 $0.10 $1.03 $8.80
$62.23 $316.05
Source: GAO analysis of IRS data.
Note: Estimates in the first, second, fifth, and sixth columns have
sampling errors of (+/-) 10 percent or less of the value of the estimates
unless otherwise noted. Estimates in the third column have sampling errors
of (+/-) 50 percent or less of the value of the estimates unless otherwise
noted. Estimates in the fourth column have sampling errors of (+/-) 20
percent or less of the value of the estimates unless otherwise noted.
aFor these estimates we are more than 95 percent confident that the actual
percentile is at least 80 percent of the estimate shown.
bSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
Appendix III Information on the Amounts and Ranges of Expenses Reported on
Schedule C and Schedule F
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling errors exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
fTotal may not add due to rounding.
Appendix III Information on the Amounts and Ranges of Expenses Reported on
Schedule C and Schedule F
Table 4: Information on Expense Categories on Schedule C by Amount and Range,
Tax Year 2001
Dollars in thousands
2001
Expense category Total Mean 1st 10th Median 90th 99tha
Advertising $10,774,079 $2.1 $0.01 $0.05 $0.47 $4.62 $22.71
Bad debts 1,176,324c 2.8c 0.02e 0.05c 0.50c 4.47c 25.42
Car/truck 47,351,940 4.5 0.04 0.31 2.48 10.02 32.31
Commissions 12,130,077 10.5 0.02 0.10 1.19b 17.14c 164.89
Depletion 693,669b 7.8b 0.00e 0.08d 1.36c 11.91d 111.06
Depreciation 33,425,567 5.2 0.03 0.21 1.83 12.02 46.13
Employee benefit 2,040,639 6.4 0.08 0.46c 3.45b 13.53b 37.16
programs
Insurance 14,367,018 2.6 0.03 0.19 1.01 5.97 24.08
Interest on mortgage 5,456,226 6.6 0.02d 0.45 2.86 14.31b 55.44
Interest on other 7,053,321 3.6 0.01 0.11 1.10 7.48 31.88
business debt
Legal/professional 7,482,619 1.1 0.02 0.07 0.25 1.87 12.37
services
Office 10,604,805 1.4 0.01 0.06 0.45 3.27 15.90
Pension/profit sharing 991,892b 6.0 0.00e 0.34d 3.15b 13.10b 43.73
plans
Rent on 3.8 0.02 0.13 1.35b 8.31b 37.53
machinery/equipment 8,522,008
Rent on other business property 25,119,124 8.6 0.04 0.43 4.16 20.05 64.49
Repairs 12,129,756 2.7 0.02 0.09 0.77 6.28 27.65 Supplies 23,074,836 2.8
0.02c 0.11 0.78 5.49 32.11 Taxes 14,214,082 2.4 0.01 0.04 0.35 5.65 29.96
Travel 8,657,266 2.2 0.02 0.11 0.83 4.98 20.22 Meals/entertainment
4,735,312 0.9 0.01 0.04 0.34 2.19 7.14 Utilities 20,482,680 2.6 0.03 0.19
1.15 5.97 21.07 Wages 63,826,020 42.5 0.10d 0.90c 17.52 99.16 349.47 Other
94,612,276 8.8 0.02 0.19 1.71 14.81 105.22 Home office 5,981,403 2.5 0.06
0.38 1.54 5.55 13.10 All categories $434,902,937f $29.3 $0.10e $1.04 $8.97
$62.05 $318.88
Source: GAO analysis of IRS data.
Note: Estimates in the first, second, fifth, and sixth columns have
sampling errors of (+/-) 10 percent or less of the value of the estimates
unless otherwise noted. Estimates in the third column have sampling errors
of (+/-) 50 percent or less of the value of the estimates unless otherwise
noted. Estimates in the fourth column have sampling errors of (+/-) 20
percent or less of the value of the estimates unless otherwise noted.
aFor these estimates we are more than 95 percent confident that the actual
percentile is at least 80 percent of the estimate shown.
bSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
Appendix III Information on the Amounts and Ranges of Expenses Reported on
Schedule C and Schedule F
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
fTotal may not add due to rounding.
Appendix III Information on the Amounts and Ranges of Expenses Reported on
Schedule C and Schedule F
Table 5: Information on Expense Categories on Schedule F Compiled by SOI by
Amount and Range, Tax Year 2000
Dollars in thousands
2000
Expense category Total Mean 1st 10th Median 90th 99tha
Custom hire $2,763,207 $4.4 $0.05 $0.18 $1.21 $10.30 $43.22
Depreciation 16,074,177 10.1 0.05 0.37 3.76 24.62 79.77
Employee benefit 296,282c 6.6c 0.20f 0.81e 5.54d 12.21 35.87
programs
Gasoline/oil 3,843,670 2.9 0.02 0.10 1.00 7.22 29.39
Interest on 4,072,378 8.3 0.10e 0.62 3.87 18.52 70.24
mortgage
Interest on other 4,381,129 7.2 0.03e 0.32 2.22 16.70 65.41
business debt
Labor hired 4,977,414 9.8 0.03 0.11e 1.50d 19.72d 114.68
Pension/profit 30,525f 7.7f 0.16f 0.31f 1.48e 15.94e 66.76
sharing plans
Repairs 6,651,168 4.4 0.02e 0.20 1.47 10.70 41.68
Seeds/plants 3,848,517 4.9 0.01e 0.10 1.09d 11.60 53.24
Supplies 3,425,979 2.7 0.01e 0.11 0.81 5.89 24.70
Other expensesb 51,903,473 26.2 0.07e 0.73 5.61 58.54 290.44
All categories $102,267,920 $50.3 $0.11e $1.66 $12.77 $120.19 $535.15
Source: GAO analysis of IRS data.
Note: Estimates in the first and second columns have sampling errors of
(+/-) 10 percent or less of the value of the estimates unless otherwise
noted. Estimates in the third and fourth columns have sampling errors of
(+/-) 50 percent or less of the value of the estimates unless otherwise
noted. Estimates in the fifth and sixth columns have sampling errors of
(+/-) 20 percent or less of the value of the estimates unless otherwise
noted.
aFor these estimates we are more than 95 percent confident that the actual
percentile is at least 80 percent of the estimate shown.
bIncludes: Car/truck, Chemicals, Conservation, Feed purchased,
Fertilizers/lime, Freight/trucking, Insurance, Rent on
machinery/equipment, Rent on other business property, Storage/warehousing,
Taxes, Utilities, and Veterinary/medicine as well as any expenses
taxpayers included in the Other expenses category.
cSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
dSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
eSampling error exceeds (+/-) 50 percent of the value of the estimate.
fReliable confidence intervals could not be computed for estimates.
Appendix III Information on the Amounts and Ranges of Expenses Reported on
Schedule C and Schedule F
Table 6: Information on Expense Categories on Schedule F Compiled by SOI by
Amount and Range, Tax Year 2001
Dollars in thousands
2001
Expense category Total Mean 1st 10th Median 90th 99tha
Custom hire $2,754,246 $4.4 $0.04 $0.18 $1.35 $10.02 $49.11
Depreciation 17,173,495 11.0 0.06f 0.40 4.28 29.44 86.14
Employee benefit 321,002d 6.5c 0.07f 0.63e 4.96d 12.38d 26.81
programs
Gasoline/oil 3,937,424 3.0 0.02 0.10 0.97 7.73 29.29
Interest on 4,407,472 8.7 0.07e 0.52 4.02 20.73 68.43
mortgage
Interest on other 4,420,903 7.3 0.04e 0.27 2.21 17.72 67.17
business debt
Labor hired 5,235,195 10.4 0.02f 0.15 1.41d 22.31d 118.32
Pension/profit 11,593d 2.9d 0.11f 0.27e 1.12e 5.78e 32.29
sharing plans
Repairs 6,893,101 4.8 0.03 0.22 1.63 11.64 43.88
Seeds/plants 4,076,730 5.5 0.02e 0.10 1.30d 13.25 59.03
Supplies 3,335,593 2.7 0.02e 0.12 0.88 6.17 26.63
Other expensesb 54,241,466 28.0 0.10 0.84 6.02 61.90 307.07
All categories $106,808,219 $53.6 $0.10e $1.70 $13.41 $128.29 $561.95
Source: GAO analysis of IRS data.
Note: Estimates in first and second columns have sampling errors of (+/-)
10 percent or less of the value of the estimates unless otherwise noted.
Estimates in the third and fourth columns have sampling errors of (+/-) 50
percent or less of the value of the estimates unless otherwise noted.
Estimates in the fifth and sixth columns have sampling errors of (+/-) 20
percent or less of the value of the estimates unless otherwise noted.
aFor the estimates in the seventh column, we are more than 95 percent
confident that the actual percentile is at least 80 percent of the
estimate shown.
bIncludes: Car/truck, Chemicals, Conservation, Feed purchased,
Fertilizers/lime, Freight/trucking, Insurance, Rent on
machinery/equipment, Rent on other business property, Storage/warehousing,
Taxes, Utilities, and Veterinary/medicine as well as any expenses
taxpayers included in the Other expenses category.
cSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
dSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
eSampling error exceeds (+/-) 50 percent of the value of the estimate.
fReliable confidence intervals could not be computed for estimates.
Appendix IV
Information on the Expenses Reported on Schedule C by Selected Business
Characteristics
As discussed previously, the data showed wide variability in the expenses
of sole proprietorships based on business characteristics such as size
(measured in gross receipts), industry category, businesses with
inventories, and businesses with home offices. This appendix provides
detailed information on Schedule C expenses by these business
characteristics. Comparable data on Schedule F expenses were not
available.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Table 7: Percentage of Taxpayers Who Claimed Expense Categories on
Schedule C by Size Based on Business Gross Receipts, Tax Year 2000
Business gross receipts
Under $25,000 $25,000 to $100,000 Over $100,000
Expense Expense Expense
Percentage category Percentage category Percentage category
as as as
of of of
taxpayers percentage taxpayers percentage taxpayers percentage
who of total who of total who of total
claimed claimed claimed
Expense category expense expenses expense expenses expense expenses
Advertising 24.3 1.9 44.7 2.5 66.4
Bad debts 1.7 0.4c 3.0 0.2b 6.3 0.2a
Car/truck 65.1 21.7 81.2 18.5 81.6
Commissions 5.6 1.4b 9.8 1.9a 14.5
Depletion 0.7 0.2c 0.4 0.1c 0.6 0.2b
Depreciation 33.8 9.3 53.7 9.0 74.2
Employee benefit 0.3 0.1c 1.3 0.1b 12.7
programs
Insurance 21.3 2.3 54.4 3.2 80.0
Interest on 2.4 1.0b 7.1 1.1a 17.8
mortgage
Interest on other 5.7 1.7b 18.6 1.4a 38.9
business debt
Legal/professional 35.8 2.1 60.4 1.7 78.7
services
Office 39.5 3.3 59.9 3.0 75.7
Pension/profit 0.2 0.1c 0.5 0.1c 6.0
sharing plans
Rent on machinery/equipment 7.9 2.2a 21.5 2.7a 35.7
Rent on other business property 11.9 4.9 26.5 6.4 46.7 5.8
Repairs 19.4 2.5a 41.4 3.5 64.1 2.8
Supplies 52.4 8.6 60.8 6.6 63.3 4.0
Taxes 27.8 1.3 51.5 2.0 78.8 4.3
Travel 21.4 3.8 31.2 2.7 40.8 1.4
Meals/entertainment 27.8 2.0 44.7 1.7 54.4 0.7
Utilities 40.0 5.1 70.0 5.5 85.6 4.2
Wages 2.3 1.5b 11.8 4.5a 46.0 22.2
Other 63.2 19.0 84.3 19.1 93.5 21.9
Home office 13.2 3.5 21.3 2.6 15.5 0.4a
Totald 100% 100% 100%
Source: GAO analysis of IRS data.
Note: Estimates in the first, third, and fifth columns have sampling
errors of (+/-) 2 percentage points or less. Estimates in the second,
fourth, and sixth columns have sampling errors of (+/-) 10 percent or less
of the value of the estimates unless otherwise noted.
aSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
CSampling errors exceeds (+/-) 50 percent of the value of the estimate.
dTotals may not add to 100 percent due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Table 8: Percentage of Taxpayers Who Claimed Expense Categories on
Schedule C by Size Based on Business Gross Receipts, Tax Year 2001
Business gross receipts amount
Under $25,000 $25,000 to $100,000 Over $100,000
Percentage Expense as Percentage Expense as Percentage Expense as
of
of of
taxpayers percentage taxpayers percentage taxpayers percentage
who of total who of total who of total
claimed claimed claimed
Expense
category expense expenses expense expenses expense expenses
Advertising 25.1 2.0 43.1 2.6 64.9
Bad debts 2.0 0.5b 2.6 0.1b 6.8 0.3b
Car/truck 64.7 21.5 80.9 18.8 80.5
Commissions 5.3 1.2b 10.1 2.0a 14.6
Depletion 0.6 0.1b 0.5 0.1c 0.7 0.2a
Depreciation 32.7 9.5 51.6 8.5 73.9
Employee benefit programs 0.3 0.1b 1.3 0.1b 12.3
Insurance 20.6 2.3 54.1 3.2 79.2
Interest on mortgage 2.3 1.1b 6.9 1.1a 17.8
Interest on other business debt 5.7 1.4b 17.7 1.3a 38.1
Legal/professional services 36.2 2.1 59.5 1.6 78.8
Office 39.5 3.2 59.7 2.9 75.3
Pension/profit sharing plans 0.2 0.0c 0.6 0.1c 6.2
Rent on machinery/equipment 8.2 2.1a 20.7 2.5a 35.3
Rent on other business property 11.4 4.6 26.0 6.3 45.3
Repairs 19.7 2.6 39.5 3.3 62.5 2.6
Supplies 53.3 8.4 60.3 7.0 63.2 4.0
Taxes 27.4 1.4 50.7 1.9 76.9 4.2
Travel 21.9 3.9 31.1 2.7 41.1 1.3
Meals/entertainment 27.8 1.8 46.5 1.7 54.4 0.7
Utilities 40.2 5.3 68.4 5.6 85.7 4.3
Wages 2.3 1.5b 10.9 4.4a 43.8 21.5
Other 63.1 19.7 83.0 19.8 93.7 22.9
Home office 14.2 3.6 21.2 2.4 17.5 0.5a
Totald 100% 100% 100%
Source: GAO analysis of IRS data.
Note: Estimates in the first, third, and fifth columns have sampling
errors of (+/-) 2 percentage points or less. Estimates in the second,
fourth, and sixth columns have sampling errors of (+/-) 10 percent or less
of the value of the estimates unless otherwise noted.
aSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
CSampling errors exceeds (+/-) 50 percent of the value of the estimate.
dTotals may not add to 100 percent due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Table 9: Information on Expense Categories on Schedule C by Size Based on
Business Gross Receipts, Tax Years 2000 and 2001
Dollars in thousands
Business gross receipts total
Under $25,000 $25,000 to Over $100,000
$100,000
Expense category 2000 2001 2000 2001 2000
Advertising $1,115,436 $2,387,850 $6,645,329
$1,267,229 $2,591,984 $6,914,866
Bad debts 217,234b 170,641b 595,992a
303,444b 145,056b 727,824b
Car/truck 12,662,766 18,047,208 15,001,240
13,516,802 18,616,606 15,218,532
Commissions 815,056b 1,857,395a 8,938,100
763,945b 1,981,873a 9,384,259
Depletion 88,207b 78,953b 95,628b 501,139a
116,199b 498,517a
Depreciation 5,419,350 8,794,872 17,981,931
6,001,607 8,451,676 18,972,284
Employee benefit programs 74,362c 57,738b 138,365b 1,659,148
131,358b 1,851,542
Insurance 1,330,836 3,118,389 9,174,522
1,449,294 3,190,042 9,727,682
Interest on mortgage 566,888a 1,060,497a 3,623,511
689,164b 1,073,733a 3,693,329
Interest on other business 978,781b 1,360,883a 4,642,285
debt 910,187b 1,278,587a 4,864,547
Legal/professional 1,232,327 1,622,574 4,457,689
services 1,316,971 1,559,789 4,605,859
Office 1,933,877 2,900,183 5,622,354
2,000,186 2,909,072 5,695,547
Pension/profit sharing
plans 38,274c 27,496c 50,457c 70,066c 804,142 894,330
Rent on machinery/equipment 1,290,642a 1,307,168a 2,612,902a 2,431,023a
4,976,723 4,783,816 Rent on other business property 2,832,479 2,922,305
6,188,327 6,240,658 15,321,295 15,956,161 Repairs 1,471,137a 1,622,908
3,401,489 3,306,118 7,407,896 7,200,730 Supplies 5,013,068 5,323,414
6,405,253 6,945,572 10,375,621 10,805,850 Taxes 778,489 906,450 1,950,810
1,904,286 11,226,616 11,403,346 Travel 2,238,733 2,434,854 2,658,219
2,660,376 3,560,357 3,562,036 Meals/entertainment 1,158,258 1,134,275
1,669,707 1,725,173 1,836,726 1,875,864 Utilities 2,976,362 3,327,822
5,334,535 5,514,404 11,070,973 11,640,455 Wages 871,086b 918,960b
4,425,092a 4,340,403a 58,189,304 58,566,657 Other 11,081,586 12,432,885
18,606,347 19,608,587 57,337,994 62,570,804 Home office 2,064,635
2,294,004 2,498,346 2,396,990 1,079,562a 1,290,409a Totald $58,249,869
$63,008,061 $97,355,972 $99,189,633 $262,030,451 $272,705,243
Source: GAO analysis of IRS data.
Note: Estimates in all columns have sampling errors of (+/-) 10 percent or
less of the value of the estimates unless otherwise noted.
aSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cSampling error exceeds (+/-) 50 percent of the value of the estimate.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
dTotals may not add due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
Business gross receipts under $25,000
Table 10: Range Information on Expense Categories on Schedule C by Size
Based on Businesses Gross Receipts, Tax Year 2000
Employee Interest Interest
Expense Total Mean 1st 10th Median 90th 99tha Advertising $1,115,436 $0.52 $0.01 $0.04 $0.22 $1.26 Bad 217,234c 1.48c 0.01d 0.04d 0.24d 2.47d 19.88e Car/truck 12,662,766 2.22 0.03 0.18 1.29 5.28 13.26 Commissions 815,056c 1.66c 0.01 0.04d 0.42c 3.22c 15.86 Depletion 88,207c 1.55c 0.01 0.05d 0.46d 2.99d 20.30 Depreciation 5,419,350 1.83 0.02 0.13 0.93 4.19 12.77 benefit 74,362d 2.70c b 0.16e 1.37d 5.43d 41.80 Insurance 1,330,836 0.71 0.02 0.10 0.43 1.56 on 566,888 2.71 0.03e 0.15d 1.51c 5.50c 26.40 on other 978,781c 1.97c 0.01d 0.07c 0.54 2.55c 12.01 Legal/professional 1,232,327 0.39 0.02 0.05 0.15 0.70 Office 1,933,877 0.56 0.01f 0.04 0.25 1.35 Pension/profit 38,274e 2.81d b 0.04d 0.42d 6.60d 25.08e 1.87 0.02d 0.10c 0.78c 4.78 13.00
category debts programs mortgage business services sharing plans Rent on
debt machinery/equipment 1,290,642
Rent on other business 2,832,479 2.72 0.03d 0.19c 1.80 6.12 15.11
property
Repairs 1,471,137 0.86 0.02 0.06 0.37 1.85 6.67
Supplies 5,013,068 1.09 0.01 0.07 0.50 2.75 7.97
Taxes 778,489 0.32 0.01 0.02 0.13 0.75 2.50
Travel 2,238,733 1.19 0.01d 0.10 0.55 2.67 8.42
Meals/entertainment 1,158,258 0.47 0.01 0.03 0.19 1.12 4.27
Utilities 2,976,362 0.85 0.01 0.10 0.53 1.93 4.87
Wages 871,086c 4.39c 0.03d 0.20d 1.42c 7.61c 36.23
Other 11,081,586 2.00 0.02 0.10 0.78 4.22 14.74
Home office 2,064,635 1.78 0.04d 0.28 1.17 3.92 9.60
All categories $58,249,869f $6.64 $0.06 $0.60 $4.20 $14.52 $32.42
Source: GAO analysis of
IRS data.
Note: Estimates in the first, second, and fourth through sixth columns
have sampling errors of (+/-) 20 percent or less of the value of the
estimates unless otherwise noted. Estimates in the third column have
sampling errors of (+/-) 50 percent or less of the value of the estimates
unless otherwise noted.
aFor these estimates we are more than 95 percent confident that the actual
percentile is at least 80 percent of the estimate shown, unless otherwise
noted.
bPopulation estimates could not be developed.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
fTotal may not add due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
Business gross receipts $25,000 to $100,000
Table 11: Range Information on Expense Categories on Schedule C by Size
Based on Businesses Gross Receipts, Tax Year 2000
Employee Interest Interest
Expense Total Mean 1st 10th Median 90th 99tha Advertising $2,387,850 $1.43 $0.02f $0.08 $0.58 $3.72 $10.97 Bad 170,641d 1.53d 0.01f 0.05e 0.40e 3.00e 11.24f Car/truck 18,047,208 5.92 0.13 0.86 4.11 12.76 30.94 Commissions 1,857,395c 5.06c 0.02f 0.17e 1.66d 15.18d 36.45 Depletion 95,628d 6.03d 0.06f 0.16e 4.67d 14.52d 31.01 Depreciation 8,794,872 4.37 0.04 0.32 2.42 10.70 27.28 benefit 138,365d 2.79d 0.10f 0.43e 1.96d 5.68e 12.28f Insurance 3,118,389 1.53 0.05 0.21 0.91 3.64 on 1,060,497c 3.99c 0.04f 0.43d 2.27d 9.28d 27.65 on other 1,360,883c 1.95c 0.01e 0.13d 0.92 4.41 13.75 Legal/professional 1,622,574 0.72 0.04 0.09 0.26 1.32 Office 2,900,183 1.29 0.02 0.09 0.58 3.19 Pension/profit 50,457e 2.48d b 0.32f 1.47e 6.00d 9.08f 3.23 0.02 0.12d 1.40 8.17d 21.82
category debts programs mortgage business services sharing plans Rent on
debt machinery/equipment 2,612,902c
Rent on other business property 6,188,327 6.22 0.07 0.53d 4.75 14.00 25.40
Repairs 3,401,489 2.19 0.02 0.12 0.99 5.73 16.13 Supplies 6,405,253 2.81
0.02 0.18 1.21 6.73 22.83 Taxes 1,950,810 1.01 0.01 0.05 0.42 2.60 7.38
Travel 2,658,219 2.27 0.02 0.13 1.03 5.52 16.42 Meals/entertainment
1,669,707 1.00 0.01e 0.07 0.44 2.54 6.62 Utilities 5,334,535 2.03 0.06
0.33 1.40 4.34 10.60 Wages 4,425,092c 9.96 0.15e 0.77e 6.36d 23.68 48.29
Other 18,606,347 5.89 0.05 0.39 2.62 14.38 48.09 Home office 2,498,346
3.13 0.12e 0.56 2.00 6.95 15.16 All categories $97,355,972g $25.95 $1.40
$7.03 $21.13 $50.09 $90.35
Source: GAO analysis of IRS data.
Note: Estimates in first and second columns have sampling errors of (+/-)
10 percent or less of the value of the estimates unless otherwise noted.
Estimates in the third column have sampling errors of (+/-) 50 percent or
less of the value of the estimates unless otherwise noted. Estimates in
the fourth, fifth, and sixth columns have sampling errors of (+/-) 20
percent or less of the value of the estimates unless otherwise noted.
aFor these estimates we are more than 95 percent confident that the actual
percentile is at least 80 percent of the estimate shown, unless otherwise
noted.
bPopulation estimates could not be developed.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
cSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
dSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
eSampling error exceeds (+/-) 50 percent of the value of the estimate.
fReliable confidence intervals could not be computed for estimates.
gTotal may not add due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
Business gross receipts over $100,000
Table 12: Range Information on Expense Categories on Schedule C by Size
Based on Businesses Gross Receipts, Tax Year 2000
Employee Interest Interest
Expense Total Mean 1st 10th Median 90th 99tha Advertising $6,645,329 $5.04 $0.03 $0.19 $1.72 $11.41 $47.45 Bad 595,992b 4.76b 0.01e 0.10d 1.07c 6.35c 67.16 Car/truck 15,001,240 9.26 0.16 1.16 5.14 17.88 63.58 Commissions 8,938,100 31.03 0.02e 0.21c 5.70c 67.27c 382.23 Depletion 501,139b 41.69c 0.03d 0.45d 13.47d 84.54c 408.86 Depreciation 17,981,931 12.21 0.10e 0.85 5.46 27.40 90.85 benefit 1,659,148 6.57 0.05d 0.50c 3.70b 13.65 40.12 Insurance 9,174,522 5.77 0.13 0.65 3.17 12.76 40.82 on 3,623,511 10.26 0.10d 0.80c 4.80b 21.93 86.74 on other 4,642,285 6.01 0.01d 0.22c 2.17b 12.03 51.52 Legal/professional 4,457,689 2.85 0.06 0.18 0.92 5.37 27.03 Office 5,622,354 3.74 0.03 0.21 1.63 8.88 29.80 Pension/profit 804,142 6.76 0.05e 0.69c 4.25b 14.32 43.01 7.02 0.04 0.23 2.75b 15.44 64.97
category debts programs mortgage business services sharing plans Rent on
debt machinery/equipment 4,976,723
Rent on other business property 15,321,295 16.53 0.10d 1.38c 10.20 35.20
99.43 Repairs 7,407,896 5.82 0.03 0.21 2.14 14.12 53.38 Supplies
10,375,621 8.26 0.04 0.35 2.49 18.03 99.32 Taxes 11,226,616 7.18 0.03 0.24
3.30 16.54 55.62 Travel 3,560,357 4.39 0.03 0.20 1.69 10.02 40.85
Meals/entertainment 1,836,726 1.70 0.01 0.09 0.74b 4.50 11.45 Utilities
11,070,973 6.52 0.20 1.00 4.40 13.38 36.51 Wages 58,189,304 63.77 0.61d
5.55c 35.68 132.72 427.62 Other 57,337,994 30.89 0.12 1.01 8.56 58.00
311.15 Home office 1,079,562b 3.51 0.14e 0.68 2.42b 7.44 19.26 All
categories $262,030,451f $131.94 $5.20 $22.56 $81.16 $259.67 $838.39
Source: GAO analysis of IRS data.
Note: Estimates in the first, second, and fifth columns have sampling
errors of (+/-) 10 percent or less of the value of the estimates unless
otherwise noted. Estimates in the third column have sampling errors of
(+/-) 50 percent or less of the value of the estimates unless otherwise
noted. Estimates in the fourth and sixth columns have sampling errors of
(+/-) 20 percent or less of the value of the estimates unless otherwise
noted.
aFor these estimates we are more than 95 percent confident that the actual
percentile is at least 80 percent of the estimate shown.
bSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
fTotal may not add due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
Business gross receipts under $25,000
Table 13: Range Information on Expense Categories on Schedule C by Size
Based on Businesses Gross Receipts, Tax Year 2001
Employee Interest Interest
Expense Total Mean 1st 10th Median 90th 99tha Advertising $1,267,229 $0.6 $0.01 $0.04 $0.22 $1.20 $5.29 Bad 303,444c 1.7c 0.01e 0.05c 0.30c 2.02d 18.48e Car/truck 13,516,802 2.3 0.03 0.19 1.42 5.48 12.53 Commissions 763,945c 1.6b 0.01d 0.06c 0.44 3.28c 14.06 Depletion 78,953c 1.4c 0.00d 0.07d 0.77d 2.85d 6.06 Depreciation 6,001,607 2.0 0.02 0.13 0.95 4.56 17.15 benefit 57,738c 2.3c 0.18e 0.31d 1.54d 4.46c 7.30e Insurance 1,449,294 0.8 0.02 0.10 0.46 1.78 4.83 on 689,164c 3.4b 0.01e 0.32d 1.84c 7.21c 25.96e on other 910,187c 1.8c 0.01d 0.07c 0.48 2.83c 11.77 Legal/professional 1,316,971 0.4 0.02 0.05 0.16 0.68 3.79 Office 2,000,186 0.6 0.01 0.04 0.25 1.36 4.51 Pension/profit 27,496d 1.5c 0.00e 0.01d 0.80d 3.48e 6.95e 1.8 0.01d 0.10 0.75c 4.81 9.12
category debts programs mortgage business services sharing plans Rent on
debt machinery/equipment 1,307,168b
Rent on other business property 2,922,305 2.8 0.03d 0.20c 1.99 6.17 13.97
Repairs 1,622,908 0.9 0.01e 0.06 0.37 2.33 7.11 Supplies 5,323,414 1.1
0.01 0.07 0.50 2.71 8.41 Taxes 906,450 0.4 0.01e 0.03 0.14 0.86 2.96
Travel 2,434,854 1.2 0.02 0.08 0.56 2.80 8.52 Meals/entertainment
1,134,275 0.5 0.01 0.03 0.20 1.14 3.56 Utilities 3,327,822 0.9 0.01 0.11
0.58 2.03 5.37 Wages 918,960c 4.5c 0.03e 0.19d 1.19c 8.00c 29.94 Other
12,432,885 2.2 0.01 0.11 0.86 4.48 16.32 Home office 2,294,004 1.8 0.04d
0.28 1.12 3.90 10.13 All categories $63,008,061f $7.0 $0.06 $0.59 $4.40
$14.97 $36.26
Source: GAO analysis of IRS data.
Note: Estimates in the first and second columns have sampling errors of
(+/-) 10 percent or less of the value of the estimates unless otherwise
noted. Estimates in the third column have sampling errors of (+/-) 50
percent or less of the value of the estimates unless otherwise noted.
Estimates in the fourth, fifth, and six columns have sampling errors of
(+/-) 20 percent or less of the value of the estimates unless otherwise
noted.
aFor these estimates we are more than 95 percent confident that the actual
percentile is at least 80 percent of the estimate shown, unless otherwise
noted.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
bSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
fTotal may not add due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
Business gross receipts $25,000 to $100,000
Table 14: Range Information on Expense Categories on Schedule C by Size
Based on Businesses Gross Receipts, Tax Year 2001
Employee Interest Interest
Expense Total Mean 1st 10th Median 90th 99tha Advertising $2,591,984 $1.6 $0.02 $0.08 $0.68 $4.29 $10.92 Bad 145,056d 1.5d 0.02f 0.07d 0.58e 2.68d 15.53f Car/truck 18,616,606 6.1 0.10 0.88 4.20 12.99 30.91 Commissions 1,981,873c 5.2c 0.02e 0.14d 1.67d 13.91d 51.33 Depletion 116,199d 6.0d 0.04f 0.28e 4.96d 13.78d 24.49f Depreciation 8,451,676 4.3 0.05 0.33 2.40 9.90 27.87 benefit 131,358d 2.7d 0.09f 0.16e 1.83e 6.89d 10.50f Insurance 3,190,042 1.6 0.06 0.25 0.99 3.61 8.06 on 1,073,733c 4.1c 0.03f 0.41d 2.19d 9.02d 32.40 on other 1,278,587c 1.9 0.01e 0.14d 0.97 4.75 11.91 Legal/professional 1,559,789 0.7 0.04 0.09 0.25 1.29 7.82 Office 2,909,072 1.3 0.02 0.10 0.58 3.02 10.15 Pension/profit 70,066e 3.1e b 0.10f 1.17e 9.02e 10.44f 3.1c 0.02 0.13 1.26d 7.60 21.95
category debts programs mortgage business services sharing plans Rent on
debt machinery/equipment 2,431,023c
Rent on other business property 6,240,658 6.4 0.04e 0.60 4.79 14.40 26.61
Repairs 3,306,118 2.2 0.03 0.11 0.90 5.70 18.25 Supplies 6,945,572 3.0
0.03 0.18 1.25 7.11 26.84 Taxes 1,904,286 1.0 0.01f 0.05 0.40 2.54 7.52
Travel 2,660,376 2.3 0.03 0.14 1.07 5.49 17.93 Meals/entertainment
1,725,173 1.0 0.02 0.07 0.50 2.44 6.07 Utilities 5,514,404 2.1 0.06 0.37
1.50 4.40 11.69 Wages 4,340,403c 10.5 0.10e 0.75d 6.64d 26.16 48.09 Other
19,608,587 6.2 0.04 0.41 2.88 15.11 45.53 Home office 2,396,990 3.0 0.11
0.55 2.06 6.91 12.96 All categories $99,189,633g $26.2 $1.56 $7.24 $21.42
$51.14 $90.10
Source: GAO analysis of IRS data.
Note: Estimates in the first and second columns have sampling errors of
(+/-) 10 percent or less of the value of the estimates unless otherwise
noted. Estimates in the third column have sampling errors of (+/-) 50
percent or less of the value of the estimates unless otherwise noted.
Estimates in the fourth, fifth, and sixth columns have sampling errors of
(+/-) 20 percent or less of the value of the estimates unless otherwise
noted.
aFor these estimates we are more than 95 percent confident that the actual
percentile is at least 80 percent of the estimate shown, unless otherwise
noted.
bPopulation estimates could not be developed.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
cSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
dSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
eSampling error exceeds (+/-) 50 percent of the value of the estimate.
fReliable confidence intervals could not be computed for estimates.
gTotal may not add due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
Business gross receipts over $100,000
Table 15: Range Information on Expense Categories on Schedule C by Size
Based on Businesses Gross Receipts, Tax Year 2001
Employee Interest Interest
Expense Total Mean 1st 10th Median 90th 99tha Advertising $6,914,866 $5.3 $0.03 $0.14c $1.69 $11.92 $51.66 Bad 727,824c 5.3c 0.02d 0.08d 1.08c 8.20c 46.24 Car/truck 15,218,532 9.4 0.11 1.15 5.33 18.90 67.81 Commissions 9,384,259 31.8 0.04 0.30c 4.81c 71.93c 396.84 Depletion 498,517b 34.7c 0.03e 0.45d 7.68d 74.56c 377.74 Depreciation 18,972,284 12.7 0.09 0.75 5.76 28.88 90.13 benefit 1,851,542 7.5 0.08 0.51c 4.40 15.69 42.76 Insurance 9,727,682 6.1 0.13 0.63 3.22 13.32 44.65 on 3,693,329 10.3 0.02d 0.67c 4.41 22.01 91.50 on other 4,864,547 6.3 0.01d 0.21c 2.45 12.70 53.25 Legal/professional 4,605,859 2.9 0.06 0.17 0.90 5.31 31.46 Office 5,695,547 3.7 0.03 0.19 1.57 8.87 31.64 Pension/profit 894,330 7.2 0.06e 0.66c 3.94 15.24 52.70 6.7 0.04 0.22 2.51 14.96 61.39
category debts programs mortgage business services sharing plans Rent on
debt machinery/equipment 4,783,816
Rent on other business property 15,956,161 17.5 0.10d 1.35 10.98 36.49
114.58 Repairs 7,200,730 5.7 0.04 0.22 2.14 13.73 51.01 Supplies
10,805,850 8.5 0.04 0.32 2.56 17.80 96.02 Taxes 11,403,346 7.4 0.03 0.20
3.29 16.97 60.74 Travel 3,562,036 4.3 0.03 0.21 1.64 9.56 40.90
Meals/entertainment 1,875,864 1.7 0.01 0.09 0.80 4.45 11.81 Utilities
11,640,455 6.7 0.24 1.04 4.25 13.69 39.82 Wages 58,566,657 66.3 0.58d 6.56
37.44 136.71 453.02 Other 62,570,804 33.1 0.14 1.05 8.78 62.93 330.17 Home
office 1,290,409b 3.7 0.16 0.66 2.46 7.93 16.96 All categories
$272,705,243f $135.2 $5.38 $23.13 $82.28 $267.14 $876.72
Source: GAO analysis of IRS data.
Note: Estimates in the first and second columns have sampling errors of
(+/-) 10 percent or less of the value of the estimates unless otherwise
noted. Estimates in the third column have sampling errors of (+/-) 50
percent or less of the value of the estimates unless otherwise noted.
Estimates in the fourth, fifth, and sixth columns have sampling errors of
(+/-) 20 percent or less of the value of the estimates unless otherwise
noted.
aFor these estimates we are more than 95 percent confident that the actual
percentile is at least 80 percent of the estimate shown.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
bSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
fTotal may not add due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Table 16: Information on Expense Categories on Schedule C by Total Business
Gross Receipts, Tax Years 2000 and 2001
Dollars in thousands
Expenses as a percentage of business gross receipts
Expense category 2000
Advertising 1.7
Bad debts 1.2a 1.4b
Car/truck 6.1
Commissions 7.8a
Depletion 7.8b 7.6a
Depreciation 4.7
Employee benefit programs 1.3
Insurance 1.9
Interest on mortgage 3.2
Interest on other business debt 1.8
Legal/professional services 1.0
Office 1.5
Pension/profit sharing plans 1.3
Rent on machinery/equipment 2.7
Rent on other business property 5.6
Repairs 2.1 2.1 Supplies 3.6 3.8 Taxes 2.0 2.0 Travel 2.1 2.2
Meals/entertainment 0.9 0.9 Utilities 2.5 2.6 Wages 15.1 15.2 Other 9.8
10.7 Home office 4.1 4.3
Source: GAO analysis of IRS data.
Note: Estimates in all columns have sampling errors of (+/-) 10 percent or
less of the value of the estimates unless otherwise noted.
aSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Table 17: Information by Industry Categories for Schedule C Expenses by Business
Gross Receipts, Tax Years 2000 and 2001
Dollars in thousands
2000 2001 Industry category
Business gross receipts totala
Expenses as a percentage of business gross receipts
Business gross receipts totala
Expenses as a percentage of business gross receipts
Accommodation/food services $36,068,000 55.3 $35,827,892
Administrative/waste management 36,977,755 54.0 36,552,989
Agriculture/forestry 15,965,777 62.5 15,496,089
Arts/recreation 19,544,201 67.8 19,818,497
Construction 154,732,186 37.4 159,253,760
Education services 4,085,152b 63.9 4,357,558
Finance/insurance 99,457,478 26.3 77,723,180 34.8b
Health care/social assistance 83,758,190 53.9 89,449,901
Information 6,509,562 60.4 7,053,158
Manufacturing 27,580,129 40.8 23,976,663
Mining 5,344,455 79.6 6,200,506
Other services 62,924,792 50.0 66,224,392
Professional/technical 108,778,286 46.4 112,906,070
Real estate/leasing 47,217,865 48.7 47,164,765
Religious/civic 2,639,655b 48.4 2,396,712b
Retail trade 174,136,958 26.5 179,437,743 26.8 Transportation/warehousing
50,852,835 76.5 50,676,326 76.3 Utilities 256,908c 71.0b 250,610c 66.0b
Wholesale trade 41,078,866 20.8 38,099,169 22.4 Unclassified 2,390,234b
57.0 1,612,332b 50.0b
Source: GAO analysis of IRS data.
Note: Estimates in all columns have sampling errors of (+/-) 20 percent or
less of the value of the estimates unless otherwise noted.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall in different industry categories; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cSampling error exceeds (+/-) 50 percent of the value of the estimate.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
2000 2001
Table 18: Information by Industry Categories for Schedule C Expenses, Tax
Years 2000 and 2001
Expense Health
Expense Expense percentage percentage Industry totala Expense total Accommodation/food $19,951,050 $20,690,429 Administrative/waste 19,928,104 19,914,615 Agriculture/forestry 9,973,723 9,288,614 Arts/recreation 13,221,156 14,266,382 Construction 57,618,909 60,783,362 Education 2,570,439b 2,734,030 Finance/insurance 25,687,067 26,388,126 care/social 45,096,357 48,249,135 Information 3,920,292 4,120,542 Manufacturing 11,254,726 10,345,963 Mining 4,247,335 4,941,103 Other 31,434,173 33,479,849 Professional/technical 50,302,594 54,340,816
as as of of category total totala expenses services 4.8 management 4.8 2.4 3.2 13.9 services 0.6b 6.2 assistance 10.9 0.9 2.7 1.0 services 7.6 12.1 Real 22,904,868
expenses estate/leasing 5.5 24,233,205
Religious/civic 1,250,739b 0.3b 1,264,084b 0.3b Retail trade 46,102,269
11.1 48,013,853 11.1 Transportation/warehousing 38,885,750 9.4 38,648,317
9.0 Utilities 181,741c 0.0c 165,375c 0.0c Wholesale trade 8,528,371 2.1
8,510,788 2.0 Unclassified 1,327,310b 0.3b 786,364b 0.2b Totald 100% 100%
Source: GAO analysis of IRS data.
Note: Estimates in all columns have sampling errors of (+/-) 20 percent or
less of the value of the estimates unless otherwise noted.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall into a different industry category; only those amounts that
could be associated with a specific industry category are included in the
table.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cSampling error exceeds (+/-) 50 percent of the value of the estimate.
dTotals may not add to 100 percent due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
2000 2001
Table 19: Information by Industry Categories for Schedule C Expenses, Tax
Years 2000 and 2001
Industry Accommodation/food Administrative/waste Education Health Other
category Totala Mean Median Totala Mean Median services $19,951,050 $65.8 $22.8b $20,690,429 $63.2 $21.2b management 19,928,104 17.6 5.1 19,914,615 17.1 Agriculture/forestry 9,973,723 37.0 7.9b 9,288,614 34.8 10.2b Arts/recreation 13,221,156 13.0 4.3 14,266,382 14.5 Construction 57,618,909 30.6 12.1 60,783,362 29.7 11.4 services 2,570,439b 10.0 3.8b 2,734,030 9.4 3.7b Finance/insurance 25,687,067 47.5 12.4 26,388,126 48.7 12.8b care/social 45,096,357 36.2 8.8 48,249,135 37.2 Information 3,920,292 15.6 4.6b 4,120,542 16.6 4.5b Manufacturing 11,254,726 34.5 8.7b 10,345,963 35.1 10.0b Mining 4,247,335 36.7 2.7c 4,941,103 43.7 5.8c services 31,434,173 21.1 8.4 33,479,849 21.5 Professional/technical 50,302,594 23.1 6.8 54,340,816 23.6 Real 24.6 11.6 25.2 12.2
assistance estate/leasing 22,904,868 24,233,205
Religious/civic 1,250,739b 7.0 3.1b 1,264,084b 7.1 4.2b Retail trade
46,102,269 20.6 4.6 48,013,853 21.7 5.1 Transportation/warehousing
38,885,750 48.6 22.8 38,648,317 45.8 20.1 Utilities 181,741c 13.9c 6.9c
165,375c 20.4c 9.5c Wholesale trade 8,528,371 24.0 9.1b 8,510,788 26.1 9.4
Unclassified 1,327,310b 10.7b 4.1c 786,364b 8.1b 3.6c
Source: GAO analysis of IRS data.
Note: Estimates in all columns have sampling errors of (+/-) 20 percent or
less of the value of the estimates unless otherwise noted.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall in different industry categories; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cSampling error exceeds (+/-) 50 percent of the value of the estimate.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
2000 2001
Table 20: Information by Industry Categories for Schedule C Expenses by
Businesses With Inventory, Tax Years 2000 and 2001
Percentage Percentage Industry Accommodation/food Administrative/waste Education Health Other
with with category Totala inventory Totala inventory services $120 37.8 $115 management 25 2.0b 33 Agriculture/forestry 13b 4.7b 17b 6.1b Arts/recreation 60 5.7 63 Construction 91 4.6 85 services 5b 1.7b 7b 2.1b 8b 1.4b 6b 1.0b care/social 21 1.5 15 1.1b Information 18 6.7b 21 7.7b Manufacturing 95 28.0 79 Mining 1c 0.5b 0b 0.2b services 228 14.4 242 Professional/technical 87 3.8 87 Real 12 1.3 18 1.8b
Finance/insurance assistance estate/leasing
Religious/civic 0c 0.0b 0c 0.0b Retail trade 1,080 45.7 1,069 46.0
Transportation/warehousing 4b 0.4b 5b 0.6b Utilities 1c 7.1c 1c 10.3c
Wholesale trade 114 30.4 89 26.5 Unclassified 7b 4.4b 6c 4.2b
Source: GAO analysis of IRS data.
Note: Estimates in all columns have sampling errors of (+/-) 50 percent or
less of the value of the estimates unless otherwise noted.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall in different industry categories; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
bSampling error exceeds (+/-) 50 percent of the value of the estimate.
cReliable confidence intervals could not be computed for estimates.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
2000
Table 21: Information by Industry Categories for Schedule C Expenses by
Businesses With and Without Inventory, Tax Year 2000
With Without Industry Totala Totala Mean Accommodation/food $12,242,127 $7,708,923 $65.8 Administrative/waste 1,437,708c 18,490,397 762,692c 9,211,031 37.0 1,440,280c 11,780,876 5,251,889 52,367,020 30.4 Education 97,709d 2,472,730c 9.9 203,872d 25,483,195 46.9 Health 1,718,444c 43,377,913 420,743d 3,499,548 15.5 4,478,146 6,776,580 34.3 121,517d 4,125,818 35.7 Other 9,037,826 22,396,347
inventory inventory Total category Mean Median Mean Median services $102.1 $44.7 $42.0 $22.8c management 56.8c 15.1d 16.4 4.9 17.3 Agriculture/forestry 58.8d 9.7d 35.9 7.8c 7.9c Arts/recreation 25.1c 5.7d 12.1 4.1 12.9 Construction 57.9 27.2 29.1 11.4 12.0 services 20.0d 4.5d 9.7 3.6c 3.7c Finance/insurance 26.2d 10.5d 47.2 12.0 12.0 care/social 82.7c 42.1d 35.1 8.5 35.9 Information 24.8c 8.5d 14.8 4.5c 4.5c Manufacturing 50.6c 10.1d 28.3 8.5c 8.7c Mining 197.0d 44.6e 34.9 2.4d 2.5d services 40.0 16.1 17.5 7.5 20.9 1,970,841c 6.0 48,331,754 22.9
Median $11.4c assistance Professional/technical 22.9c 22.9 6.8
Real estate/leasing 933,538c 75.7c 20.2d 21,971,330 23.8 11.3 24.4 11.4
Religious/civic 34,025e 843.2 b 1,216,714c 6.6 2.9c 6.8 2.9c Retail trade
32,881,146 31.4 7.1 13,221,123 10.8 3.3 20.3 4.5
Transportation/warehousing 465,983c 133.1d 34.5d 38,419,768 48.2 22.7 48.5
22.7 Utilities 32,090e 34.4 b 149,652d 12.3d 6.5d 13.9d 6.9d Wholesale
trade 3,614,394 32.4 9.3 4,913,977 20.0 8.8c 23.9 9.1c Unclassified
201,270d 30.3d 12.5d 1,126,040c 9.1c 3.7c 10.2c 3.7d
Source: GAO analysis of IRS data.
Note: Estimates in the first, second, and fourth through eighth columns
have sampling errors of (+/-) 20 percent or less of the value of the
estimates unless otherwise noted. Estimates in the third column have
sampling errors of (+/-) 50 percent or less of the value of the estimates
unless otherwise noted.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall in different industry categories; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
bPopulation estimates could not be developed.
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
2001
Table 22: Information by Industry Categories for Schedule C Expenses by
Businesses With and Without Inventory, Tax Year 2001
With Without Industry Totala Totala Mean Accommodation/food $11,456,070 $9,234,359 $62.8 Administrative/waste 1,108,773c 18,805,841 843,814c 8,444,800 34.5 1,473,398c 12,792,984 5,235,774 55,547,588 29.5 Education 72,049e 2,661,981 174,454d 26,213,673 48.2 Health 1,664,222c 71.6 46,584,913 548,821 3,571,722 16.6 3,838,574 6,507,389 34.7 152,257d 4,788,846 43.4 Other 9,647,905 23,831,944
inventory inventory Total category Mean Median Mean Median services $99.4 $44.0 $43.1 $20.7 management 34.3c 8.8d 16.3 4.9 16.8 Agriculture/forestry 49.5c 11.6d 33.5 9.4c 9.8c Arts/recreation 24.1c 5.4d 13.7 4.9 14.3 Construction 62.0 26.2 28.1 11.0 11.2 services 10.6d 2.6d 9.2 3.7c 9.2 Finance/insurance 30.3d 6.5d 48.4 12.4c 12.3 care/social 108.8c d 35.8 8.3 36.6 Information 27.7c 11.8d 15.6 4.3c 4.5c Manufacturing 51.9c 10.2d 29.0 9.6c 9.8c Mining 573.1d 220.8d 42.2 5.8d 5.8d services 41.4 16.5 17.9 7.8 21.4 2,530,210c 5.6d 51,810,606
Median $13.1 assistance Professional/technical 29.2c 23.2 6.9 23.4
Real estate/leasing 1,023,394c 57.4c 14.3d 23,209,811 24.5 12.2 25.1 12.2
Religious/civic 38,832e 927.0 b 1,225,252c 6.7 4.1c 6.9 4.1c Retail trade
34,382,362 33.0 7.3 13,631,491 11.5 3.8 21.5 5.0
Transportation/warehousing 578,040 d 117.6d 40.9d 38,070,277 45.2 20.0
45.6 20.1 Utilities 18,836d 20.1 b 146,539d 20.4d 9.3d 20.4d 9.5d
Wholesale trade 4,126,679 46.5 13.2d 4,384,109 18.2 8.4 25.8 9.3
Unclassified 38,198e 6.8d 1.1e 748,166c 7.7c 3.3d 7.6c 3.3d
Source: GAO analysis of IRS data.
Note: Estimates in the first, second, and fourth through eighth columns
have sampling errors of (+/-) 20 percent or less of the value of the
estimates unless otherwise noted. Estimates in the third column have
sampling errors of (+/-) 50 percent or less of the value of the estimates
unless otherwise noted.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall in different industry categories; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
bPopulation estimates could not be developed.
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Table 23: Information on Expense Categories on Schedule C by Businesses
With and Without Home Office Expense, Tax Year 2000
Dollars in thousands
2000
With home office Without home office
Expense category Totala Mean Median Totala Mean Median
Advertising $1,371,577 $1.5 $0.4 $8,777,039 $2.1 $0.5
Bad debts 101,880c 1.6c 0.5d 881,988b 2.7b
Car/truck 8,094,216 4.4 2.6 37,616,997 4.4
Commissions 1,803,729 9.3 1.3c 9,806,822 10.3
Depletion 7,190d 1.9d 0.5e 677,783b 8.4c 1.1d
Depreciation 5,119,981 3.8 1.7 27,076,170 5.3
Employee benefit programs 209,585c 4.1 2.6c 1,662,290 6.0
Insurance 1,488,311 1.9 0.7 12,135,436 2.6
Interest on mortgage 345,804c 4.0 1.7c 4,905,092 6.6
Interest on other business 755,801 2.1 0.9 6,226,148 3.9
debt
Legal/professional services 1,009,482 0.8 0.2 6,303,109 1.1
Office 1,715,990 1.2 0.5 8,740,424 1.5
Pension/profit sharing plans 73,288c 4.1c 3.3c 819,586 6.1
Rent on machinery/equipment 1,111,101 3.3 1.1c 7,769,166 4.2 1.5 Rent on
other business property 1,185,139 4.2 1.6c 23,156,963 8.6 4.4 Repairs
1,231,555 1.8 0.5 11,048,967 2.9 0.9 Supplies 3,482,106 2.3 0.8 18,311,837
2.8 0.8 Taxes 1,237,442 1.4 0.2 12,718,473 2.5 0.4 Travel 1,685,788 2.3
0.9 6,771,521 2.2 0.8 Meals/entertainment 881,931 0.8 0.3 3,782,760 0.9
0.3 Utilities 2,154,350 1.7 1.0 17,227,520 2.6 1.1 Wages 5,265,814 25.1
7.4c 58,219,668 43.3 18.4 Other 12,381,187 6.7 1.8 74,644,740 8.6 1.5 Home
office 5,642,543 2.5 1.5 n/a n/a n/a Totalf $58,355,790 $359,280,501
Source: GAO analysis of IRS data.
Note: Estimates in the first, second, third, and sixth columns have
sampling errors of (+/-) 20 percent or less of the value of the estimates
unless otherwise noted. Estimates in the fourth and fifth columns have
sampling errors of (+/-) 10 percent or less of the value of the estimates
unless otherwise noted.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall in different industry categories; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
bSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
fTotal may not add due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Table 24: Information on Expense Categories on Schedule C by Businesses
With and Without Home Office Expense, Tax Year 2001
Dollars in thousands
2001
With home office Without home office
Expense category Total Mean Median Total Mean Median
Advertising $1,714,740 $1.7 $0.4 $9,059,338 $2.1 $0.5
Bad debts 231,807d 3.1d 0.4b 944,517a 2.8a 0.5b
Car/truck 9,164,442 4.7 2.7 38,187,497 4.4
Commissions 2,107,584 9.0 1.2b 10,022,493 10.9
Depletion 22,478c 2.8c 1.2c 671,191a 8.3a 1.4c
Depreciation 5,521,567 4.0 1.6 27,904,000 5.6
Employee benefit programs 232,760b 4.7b 3.0b 1,807,879 6.7
Insurance 1,714,384 1.9 0.8 12,652,634 2.7
Interest on mortgage 344,775b 3.4 1.7b 5,111,451 7.1
Interest on other business 775,430 2.0 0.9 6,277,891 4.0
debt
Legal/professional services 1,152,437 0.9 0.2 6,330,182 1.1
Office 1,878,875 1.3 0.5 8,725,930 1.5
Pension/profit sharing plans 47,866b 3.2b 1.1c 944,026a 6.2a
Rent on machinery/equipment 1,185,234 3.0 0.8b 7,336,773 4.0 1.4 Rent on
other business property 1,329,368 4.8 1.6c 23,789,756 9.0 4.4 Repairs
1,347,778 1.9 0.4 10,781,978 2.8 0.8 Supplies 4,046,055 2.5 0.8 19,028,780
2.8 0.8 Taxes 1,321,350 1.3 0.2 12,892,731 2.6 0.4 Travel 1,882,599 2.3
0.8 6,774,668 2.1 0.8 Meals/entertainment 972,722 0.8 0.3 3,762,591 0.9
0.3 Utilities 2,465,395 1.8 1.0 18,017,285 2.8 1.2 Wages 5,653,834 26.1
9.3b 58,172,186 45.3 19.5 Other 13,304,153 6.9 1.9 81,308,123 9.2 1.7 Home
office 5,981,403 2.5 1.5 n/a n/a n/a Totale $64,399,036 $370,503,901
Source: GAO analysis of IRS data.
Note: Estimates in the first, second, third and sixth columns have
sampling errors of (+/-) 20 percent or less of the value of the estimates
unless otherwise noted. Estimates in the fourth and fifth columns have
sampling errors of (+/-) 10 percent or less of the value of the estimates
unless otherwise noted.
aSampling error is between (+/-) 10 and (+/-) 20 percent of the value of
the estimate.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cSampling error exceeds (+/-) 50 percent of the value of the estimate.
dReliable confidence intervals could not be computed for estimates.
eTotal may not add due to rounding.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
2000
Table 25: Information by Industry Categories for Schedule C Expenses by
Businesses With Home Office Expense, Tax Year 2000
Percentage claiming Total Health
of home of Industry expenses expenses Mean Median Accommodation/food 5.7 $45,238c $2.6b $1.4c Administrative/waste 14.0 280,282b 1.7 Agriculture/forestry 6.2 21,741c 1.3b 0.8c Arts/recreation 12.9 332,943b 2.5 1.8b Construction 14.4 591,500 2.2 Education 16.9 93,139b 2.1b 1.4b Finance/insurance 16.3 204,671b 2.3 1.6b care/social 27.1 1,239,955 3.6 Information 16.8 101,637b 2.4b 1.4b Manufacturing 15.4 148,105b 2.9b 1.6c Mining 2.0 7,888d 3.3c 3.5d Other 9.0 265,521b 2.0 1.2b Professional/technical 21.1 1,264,367 2.7 11.8 2.5 1.6b
businesses office home category claimed services management services assistance services Real
office estate/leasing 272,712b
Religious/civic 5.2 15,724d 1.6d 0.4d Retail trade 11.6 478,860b 1.8
Transportation/warehousing 6.5 73,700b 1.4b 1.0b Utilities 7.1d 1,761d
1.9d a Wholesale trade 18.8 157,851b 2.4b 1.8b Unclassified 7.1 27,598c
2.9c 1.1c
Source: GAO analysis of IRS data.
Note: Estimates in the first column have sampling errors of (+/-) 10
percent or less of the value of the estimates. Estimates in the second,
third, and fourth columns have sampling errors of (+/-) 20 percent or less
of the value of the estimates unless otherwise noted.
aPopulation estimates could not be developed.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cSampling error exceeds (+/-) 50 percent of the value of the estimate.
dReliable confidence intervals could not be computed for estimates.
Appendix IV Information on the Expenses Reported on Schedule C by Selected
Business Characteristics
Dollars in thousands
2001
Table 26: Information by Industry Categories for Schedule C Expenses by
Businesses With Home Office Expense, Tax Year 2001
Percentage Total claiming home Industry expenses Accommodation/food Administrative/waste Education Health Other
of of home office category expenses claimed Mean Median services 6.6 $44,575 $2.0b $1.8c management 15.7 345,992 1.9 Agriculture/forestry 8.3 30,240c 1.4b 0.9c Arts/recreation 13.2 352,842 2.7 Construction 14.2 636,034 2.2 services 18.0 100,108 1.9b Finance/insurance 13.7 204,760 2.7 care/social 27.2 1,259,834 3.5 Information 19.1 110,585 2.3b 1.7c Manufacturing 18.0 119,709 2.2b 1.4c Mining 3.6 9,644d 2.4c 0.7d services 10.8 363,851 2.1 Professional/technical 21.7 1,347,227 2.7 Real 14.3 2.2
businesses office assistance estate/leasing 302,482
Religious/civic 6.3 18,703c 1.6b 1.6c Retail trade 12.4 460,247 1.7 0.8
Transportation/warehousing 6.5 83,564 1.5b 1.1 Utilities 35.3b 3,085d 1.1b
a Wholesale trade 18.6 160,637 2.6 2.0 Unclassified 3.9 6,942d 1.7c 0.8d
Source: GAO analysis of IRS data.
Note: Estimates in the first column have sampling errors of (+/-) 10
percent or less of the value of the estimates unless otherwise noted.
Estimates in the second and fourth columns have sampling errors of (+/-)
50 percent or less of the value of the estimates unless otherwise noted.
Estimates in the third column have sampling errors of (+/-) 20 percent or
less of the value of the estimates unless otherwise noted.
aPopulation estimates could not be developed.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cSampling error exceeds (+/-) 50 percent of the value of the estimate.
dReliable confidence intervals could not be computed for estimates.
Appendix V
Information on Cost of Goods Sold for Businesses With Inventories and
Depreciation Expenses by Industry Categories
This appendix provides detailed information on the cost of goods sold for
businesses with inventories.1 It also provides information on the
depreciation expense category by industry categories for the Schedule C.
1Generally, businesses in which the production, purchase, or sale of
merchandise was income producing must account for inventories at the
beginning and end of the tax year. Cost of goods sold is the difference
between the inventory at the end of the year and the inventory at the
beginning of the year after adding the cost of merchandise bought for sale
and/or the cost of raw materials, labor, materials, and supplies used to
fabricate a saleable product.
Appendix V Information on Cost of Goods Sold for Businesses With Inventories and
Depreciation Expenses by Industry Categories
Dollars in thousands
2000
Table 27: Information by Industry Categories for Schedule C Expenses by
Cost of Goods Sold for Businesses With and Without Inventory, Tax Year
2000
With Without Industry Totala Totala Mean Accommodation/food $10,372,483 $4,046,147 $69.5 Administrative/waste 1,743,378 6,514,970 24.9c 1,772,783d 3,255,437 61.9c 769,798d 1,302,265 8.4c 12,147,827 62,171,916 70.0 Education 27,931e 344,899d 6.9d 6,385,437 55,154,549 706.5c Health 659,024 3,727,951 17.6 383,863d 843,672d 15.7c 7,464,505 4,933,207 164,599e 678,420 20.8c Other 9,508,833 9,765,939
inventory inventory Total category Mean Median Mean Median services $86.8 $42.5 $46.0 $31.7 management 71.5d 4.2d 21.2 1.0d 1.1d Agriculture/forestry 167.8d 12.6d 46.1 1.9e 3.5d Arts/recreation 14.9d 1.3d 6.7 0.4e 0.7d Construction 139.0 38.6 63.9 16.9 18.0 services 5.7e 0.5e 7.0d b b Finance/insurance 825.8d 4.4d 694.8 b b care/social 33.5 11.2d 16.2 0.3e 0.6d Information 22.6d 2.5d 13.8d b 0.3e Manufacturing 88.2 10.3d 42.3 7.8 61.6 Mining 266.9d 89.8e 17.0 b b services 42.8 9.5 21.4 4.4 28.4 2,457,226 4.2d 12,205,477
Median $15.9d assistance Professional/technical 31.3 29.6 1.9d 29.8
Real estate/leasing 1,496,405 128.6 31.3d 3,518,578 26.1 b 34.2c b
Religious/civic 185,249e 4,591.0 b 52,902d 1.5d b 6.8e b
Retail trade 105,808,928 102.8 7.5 16,187,306 26.6 2.7 74.5
Transportation/warehousing 459,085d 131.2d 47.4d 5,363,752 51.3 5.1d 53.9c 8.8d
Utilities 31,343e 33.6 b 9e 0.0e b 16.0e b
Wholesale trade 17,236,104 164.5 12.6d 10,850,304 104.9 10.7d 134.9 11.1d
Unclassified 320,376d 48.2d 4.0d 131,019d 3.4d b 10.0d 0.5e
Source: GAO analysis of IRS data.
Note: Estimates in the first through sixth and eighth columns have
sampling errors of (+/-) 50 percent or less of the value of the estimates
unless otherwise noted. Estimates in the seventh column have sampling
errors of (+/-) 20 percent or less of the value of the estimates unless
otherwise noted.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall in different industry categories; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
bPopulation estimates could not be developed.
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
Appendix V Information on Cost of Goods Sold for Businesses With Inventories and
Depreciation Expenses by Industry Categories
Dollars in thousands
2001
Table 28: Information by Industry Categories for Schedule C Expenses by
Cost of Goods Sold for Businesses With and Without Inventory, Tax Year
2001
With Without Industry Totala Totala Mean Accommodation/food $9,522,474 $4,735,444 $65.7 Administrative/waste 1,273,743 6,347,815 1,835,940 3,729,339 62.6c 668,514 1,004,029 6.8c 11,233,582 62,303,236 69.0 Education 71,740e 267,392d 4.9d 5,344,847 34,664,644 531.2c Health 720,115 3,822,110 18.5 375,140d 1,435,823d 24.5c 6,257,623 4,460,457 60.1 290,406e 677,036 29.1c
inventory inventory Total category Mean Median Mean Median services $82.8 $37.9 $46.5 $24.4 management 42.2d 5.1d 21.0 0.9d 22.9c Agriculture/forestry 113.7d 9.1d 51.3 3.6d 5.3d Arts/recreation 12.4d 1.1d 5.3 b 0.4d Construction 137.3 32.0d 63.3 16.6 17.6 services 10.5e 2.8d 4.2d b b Finance/insurance 927.9d 4.8e 498.3 b b care/social 47.2 17.6d 16.6 0.2e 0.4e Information 19.1 3.8d 26.4d 0.1e 1.3d Manufacturing 88.1 8.8d 41.6 7.7d 7.9d Mining 1,097.2d 426.0d 20.5 b b Other 9,986,625 10,253,868
Median $14.2d assistance services 43.6 7.8 22.7 4.3 29.7
Professional/technical 2,201,470 26.4 2.6d 12,104,715 29.9 1.8d 29.3
Real estate/leasing 1,487,003 106.7d 12.2d 2,441,076 21.4 b 30.7c b
Religious/civic 52,547e 1,254.4 b 85,370d 2.5d b 4.1d b Retail trade
108,304,195 105.7 8.0 16,809,689 28.3 2.4 77.2 Transportation/warehousing
452,784d 99.3d 29.1d 5,011,826 47.8 5.2d 50.0c 5.9d Utilities 21,858e 23.3
b 1,658e 47.5e b 24.2 11.4e Wholesale trade 17,331,067 207.5 20.5d
8,807,787 76.3 8.9d 131.4 11.9d Unclassified 16,282e 5.4e b 222,783e 10.9e
b 10.2e b
Source: GAO analysis of IRS data.
Note: Estimates in the first through sixth and eighth columns have
sampling errors of (+/-) 50 percent or less of the value of the estimates
unless otherwise noted. Estimates in the seventh column have sampling
errors of (+/-) 20 percent or less of the value of the estimates unless
otherwise noted.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall in different industry categories; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
bPopulation estimates could not be developed.
cSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
dSampling error exceeds (+/-) 50 percent of the value of the estimate.
eReliable confidence intervals could not be computed for estimates.
Appendix V Information on Cost of Goods Sold for Businesses With Inventories and
Depreciation Expenses by Industry Categories
Dollars in thousands
2000
Table 29: Depreciation Expense Reported on Schedule C by Industry, Tax
Year 2000
Percentage Industry Accommodation/food Administrative/waste Education Health Other
of category Totala Mean Median total services $1,362,847 $6.8 $2.8b management 1,773,549 3.9 1.6 Agriculture/forestry 1,551,461 8.6 3.1b Arts/recreation 1,332,323 3.2 1.3 Construction 5,567,136 6.1 2.6 services 161,559b 1.7b 0.9c 0.5b Finance/insurance 737,642 3.5 1.8b care/social 1,995,423 4.3 1.4b Information 312,506b 3.3b 1.8b 1.0b Manufacturing 954,184 5.5 1.8b Mining 385,456b 9.5b 1.5c 1.2b services 2,324,806 3.8 1.6 Professional/technical 2,942,314 2.9 1.5 Real 5.2 2.0
assistance estate/leasing 2,070,830
Religious/civic 79,147c 2.2c 0.6c 0.2c Retail trade 2,613,567 3.2 1.1 8.2
Transportation/warehousing 5,141,384 13.8 7.3 16.1 Utilities 9,805d 3.2c
2.3c 0.0c Wholesale trade 561,459 4.1 1.8b 1.8b Unclassified 53,225c 2.1c
0.5c 0.2c Totale 100%
Source: GAO analysis of IRS's data.
Note: Estimates in all columns have sampling errors of (+/-) 20 percent or
less of the value of the estimates unless otherwise noted.
Note: This table shows the total depreciation expenses claimed by sole
proprietors in tax year 2000 for all property depreciation
classifications. Depreciation classification depends on the type of
property being depreciated. For example IRS classifies automobiles, light
trucks, copiers, and computers as 5year property; office furniture,
railroad track, and property not otherwise classified as 7-year property;
and vessels, barges, and fruit-bearing trees as 10-year property.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall into a different industry category; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cSampling error exceeds (+/-) 50 percent of the value of the estimate.
dReliable confidence intervals could not be computed for estimates.
Appendix V Information on Cost of Goods Sold for Businesses With
Inventories and Depreciation Expenses by Industry Categories
eTotals may not add to 100 percent due to rounding.
Appendix V Information on Cost of Goods Sold for Businesses With Inventories and
Depreciation Expenses by Industry Categories
Dollars in thousands
2001
Table 30: Depreciation Expense Reported on Schedule C by Industry, Tax
Year 2001
Percentage Industry Accommodation/food Administrative/waste Education Health Other
of category Totala Mean Median total services $1,381,432 $7.1 $2.9 management 1,804,973 4.0 1.5 Agriculture/forestry 1,498,533 9.0 2.8b Arts/recreation 1,461,440 3.7 1.4 Construction 5,693,640 6.3 2.7 services 148,570b 1.6b 1.0b 0.4b Finance/insurance 734,191 3.7 2.0b care/social 2,122,563 4.5 1.7 Information 403,100b 3.4b 1.1c 1.2b Manufacturing 862,046 6.0 1.8b Mining 434,656b 9.0b 1.8b 1.3b services 2,574,589 3.9 1.7 Professional/technical 3,120,335 3.1 1.5 Real 5.7 2.0
assistance estate/leasing 2,312,717
Religious/civic 83,271c 2.2c 0.9c 0.3c Retail trade 2,900,314 3.7 1.3 8.8
Transportation/warehousing 4,967,507 13.4 7.0 15.0 Utilities 21,231c 5.3c
2.9b 0.1c Wholesale trade 568,985 4.1 1.6b 1.7b Unclassified 32,931c 3.1c
1.2c 0.1c Totald 100%
Source: GAO analysis of IRS data.
Note: Estimates in all columns have sampling errors of (+/-) 20 percent or
less of the value of the estimates unless otherwise noted.
Note: This table shows the total depreciation expenses claimed by sole
proprietors in tax year 2001 for all property depreciation
classifications. Depreciation classification depends on the type of
property being depreciated. For example IRS classifies automobiles, light
trucks, copiers, and computers as 5year property; office furniture,
railroad track, and property not otherwise classified as 7-year property;
and vessels, barges, and fruit-bearing trees as 10-year property.
aSome sole proprietors may claim expenses for multiple businesses, each of
which may fall into a different industry category; only those amounts that
could clearly be associated with a specific industry category are included
in the table.
bSampling error is between (+/-) 20 and (+/-) 50 percent of the value of
the estimate.
cSampling error exceeds (+/-) 50 percent of the value of the estimate.
dTotals may not add to 100 percent due to rounding.
Appendix VI
Comments from the Internal Revenue Service
Appendix VII
GAO Contacts and Staff Acknowledgments
GAO Contacts Michael Brostek (202) 512-9110 Charlie W. Daniel (202)
512-9110
Acknowledgments In addition to those named above, Jennifer Gravelle,
Samuel Scrutchins, Wendy Turenne, and Elwood D. White made key
contributions to this report.
Glossary
Information in this glossary was derived from various IRS publications,
tax forms, and instructions.
Accommodation/food services (Industry category) - includes accommodation,
food services, and drinking places.
Administrative/waste management (Industry category) - includes
administrative services, support services, and waste management and
remediation services.
Agriculture/forestry (Industry category) - includes animal production,
forestry, logging, hunting, trapping, fishing, and support activities for
agriculture and forestry.
Arts/recreation (Industry category) - includes amusement, gambling and
recreation industries; museums, historical sites, and similar
institutions; and performing arts, spectator sports, and related
industries.
Bad debts (Schedule C expense) - accounts receivable that the business
cannot collect.
Car/truck (Schedule C and Schedule F expense) - costs of operating and
maintaining a vehicle used in a business.
Construction (Industry category) - includes land development, construction
of residential and nonresidential buildings, heavy construction, and
specialty trade contractors.
Custom hire (Schedule F expense) - includes machine work where the machine
operator furnished the equipment.
Depletion (Schedule C expense) - allows an owner or operator to account
for the reduction of a natural resource's reserves used up by mining,
quarrying, drilling, or felling.
Depreciation (Schedule C and Schedule F expense) - property acquired by a
business that has a useful life of more than 1 year must have its cost
capitalized and deducted over more than 1 year.
Education services (Industry category) - educational activities including
schools, colleges, and universities.
Glossary
Employee benefit programs (Schedule C and Schedule F expense) -
compensation to employees in the form of a benefit such as accident and
health plans, dependent care assistance, educational assistance, and group
life insurance coverage.
Farming (Industry category) - includes crop production, animal production,
and forestry and logging.
Finance/insurance (Industry category) - includes credit intermediation and
related activities; insurance agents, brokers, and related activities; and
securities, commodity contracts, and other financial investments, and
related activities.
Health care/social assistance (Industry category) - includes ambulatory
health care services, hospitals, nursing and residential care facilities,
and social assistance.
Home office (Schedule C expense) - expenses related to the part of home
used exclusively for business.
Information (Industry category) - includes publishing industries,
broadcasting, telecommunications, data processing and information
services, and motion picture and sound recording.
Insurance (Schedule C expense) - premiums paid for insurance plans related
to the business providing coverage for such things as fire, theft, flood,
liability, malpractice, car, worker's compensation, group hospitalization
and medical for employees.
Legal/professional (Schedule C expense) - fees paid to accountants or
lawyers directly related to operating the business.
Manufacturing (Industry category) - includes general manufacturing,
chemical manufacturing, food manufacturing, leather and allied product
manufacturing, and nonmetallic mineral product manufacturing.
Meals/entertainment (Schedule C expense) - business-related entertainment
expenses for entertaining a client, customer, or employee.
Mining (Industry category) - includes coal mining, metal ore mining, oil
and gas extraction, and support activities for mining.
Glossary
Other (Schedule C and Schedule F expense) - any ordinary and necessary
business expenses not deducted elsewhere on the schedules.
Other services (Industry category) - includes personal and laundry
services, and repair and maintenance.
Pension/profit sharing plans (Schedule C and Schedule F expense)
- contributions made to retirement plans.
Professional/technical (Industry category) - includes legal services,
accountants, tax preparation services, architectural, engineering,
computer systems design, specialized design services, and other
professional, scientific, and technical services.
Real estate/leasing (Industry category) - includes real estate and rental
and leasing services.
Religious/civic (Industry category) - includes religious, grant making,
civic, professional, and similar organizations.
Retail trade (Industry category) - includes building material, garden
equipment and supplies dealers; clothing and accessories stores;
electronic and appliance stores; food and beverage stores; furniture and
home furnishing stores; gasoline stations; general merchandise stores;
health and personal care stores; motor vehicle and parts dealers; sporting
goods, hobby, book, and music stores; miscellaneous store retailers; and
nonstore retailers.
Supplies (Schedule C and Schedule F expense) - cost of materials and
supplies actually used and consumed during the tax year.
Transportation/warehousing (Industry category) - includes air
transportation, bus transportation, freight trucking, pipeline
transportation, rail transportation, taxi and limousine service, urban
transit systems, water transportation, support activities for
transportation, couriers and messengers, and warehousing and storage
facilities.
Travel (Schedule C expense) - expenses of traveling away from home for
business reasons.
Wholesale trade (Industry category) - includes wholesalers in durable and
nondurable goods.
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