Tax Administration: Information on Expenses Claimed by Small Business Sole Proprietorships

A letter report issued by the General Accounting Office with an abstract that begins "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.