The U.S. Has More Individually Owned Businesses than Corporations

What sets the entrepreneurial middle class apart from other taxpayers is that they derive a large share of their overall earnings from pass-through businesses such as S corporations, LLCs, and partnerships. These pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. owners pay their business taxes on their individual taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. returns. Since the 1980s, the number of traditional C corporations has shrunk while the total number of pass-through businesses such as S corporations, partnerships, and sole proprietorships has tripled to over 30 million in total. Today, there are 1.7 million traditional C corporations, compared to 7.4 million partnerships and S corporations, and 23 million sole proprietorships.

For more charts like the one below, see the second edition of our chart book, Putting a Face on America’s Tax Returns.