Research

The Small Business Tax Report 2026: Composition, Taxation, and Survival

By The Ledgerism Editorial Team · The Ledgerism Brief Editorial Team produces original, methodology-disclosed accounting and tax research—data trackers, databases, and reference guides built to be the most-cited source in the field. Every figure is verified against primary sources including FASB, the IRS, the PCAOB, NASBA, the AICPA, and state boards of accountancy.

A data aggregation on the population, entity structure, tax burden, profitability, formation, and survival of U.S. small businesses, compiled from federal primary sources. Every figure is labeled with its source year and geography. Where a number is derived, the formula and inputs are shown. Figures that could not be verified to a primary source were excluded.

Scope: United States. Last updated: 2026-06-30. The U.S. Small Business Administration (SBA) Office of Advocacy generally defines a small business for research purposes as an independent business with fewer than 500 employees.

Executive summary

• There were 34,752,434 small businesses in the United States as of the SBA Office of Advocacy 2024 FAQ, representing 99.9% of all U.S. firms.
• 81.9% of small businesses (28,477,518 firms) had no employees, and 18.1% (6,274,916 firms) had paid employees, per the SBA Office of Advocacy, 2024.
• Pass-through businesses (sole proprietorships, partnerships, and S corporations) account for roughly half of U.S. business income and about $1.6 trillion of net income reported on individual returns in tax year 2022, per the Tax Foundation citing IRS data.
• For tax year 2022, 31.0 million individual returns reported nonfarm sole proprietorship activity, with $410.7 billion in profits, per IRS Statistics of Income.
• 25.7 million returns claimed the Section 199A qualified business income deduction in tax year 2022, deducting $216.1 billion, per IRS Statistics of Income via the Congressional Research Service.
• The five-year survival rate for new employer establishments was 49.2% and the ten-year rate was 33.8%, averaged over 1994 to 2021 cohorts, per the SBA Office of Advocacy using BLS Business Employment Dynamics data.
• About 1.4 million business establishments opened and about 1.2 million closed in 2022, per the SBA Office of Advocacy using BLS data; 5.2 million new business applications were filed in 2024 and 5.62 million in 2025, per U.S. Census Business Formation Statistics.
• Rising costs of goods, services, or wages were the most common financial challenge for small employer firms, cited by 75% of firms in the 2024 Small Business Credit Survey, per the Federal Reserve.

Key findings

1. There were 34,752,434 small businesses in the United States, equal to 99.9% of all U.S. firms and 99.7% of firms with paid employees (SBA Office of Advocacy, FAQ About Small Business, July 2024).
2. Small businesses employed 45.9% of U.S. private sector workers, about 59.0 million people, in the most recent SBA compilation (SBA Office of Advocacy, 2024).
3. Small businesses accounted for 43.5% of U.S. gross domestic product and 39.0% of private sector payroll, about $3.2 trillion (SBA Office of Advocacy, 2024).
4. Small businesses generated 20.2 million net new jobs versus 12.8 million for large businesses, accounting for 61.1% of net new job creation from 1995 to 2023 (SBA Office of Advocacy, 2024, using BLS Business Employment Dynamics).
5. For tax year 2022, 30,983,800 individual returns reported nonfarm sole proprietorship activity, representing an estimated 35,255,144 nonfarm businesses (IRS Statistics of Income, Sole Proprietorship Returns, November 2024).
6. Nonfarm sole proprietorship profits fell 0.2% to $410.7 billion in tax year 2022, and profits as a share of business receipts dropped to 19.7%, the lowest since 1990 (IRS Statistics of Income, Spring 2025 Bulletin).
7. Partnerships filed 4,575,280 returns covering 30,239,463 partners for tax year 2023, with limited liability companies making up 72.7% of all partnerships (IRS Statistics of Income, Partnership Returns, April 2025).
8. Of 6.8 million active corporate returns for tax year 2022, pass-through corporations (Forms 1120-S, 1120-REIT, 1120-RIC) accounted for 77.3%, about 5.3 million returns, leaving roughly 1.6 million non-pass-through (C corporation) returns (IRS Statistics of Income, Corporate Income Tax Returns, Tax Year 2022).
9. 25.7 million tax returns claimed the Section 199A pass-through deduction in tax year 2022, deducting $216.1 billion, up from 18.7 million claims and $150.0 billion in 2018 (Congressional Research Service citing IRS Statistics of Income, Table 1.4, 2022).
10. The 29.8 million U.S. nonemployer businesses generated $1.7 trillion in receipts in 2022, about 6.8% of the U.S. economy that year (U.S. Census Bureau, 2022 Nonemployer Statistics, released December 2024).
11. The two-year survival rate for new employer establishments was 67.9%, the five-year rate 49.2%, the ten-year rate 33.8%, and the fifteen-year rate 25.6%, averaged across 1994 to 2021 cohorts (SBA Office of Advocacy, 2024, using BLS Business Employment Dynamics).
12. 34.7% of private sector establishments born in March 2013 were still operating in March 2023 (U.S. Bureau of Labor Statistics, Business Employment Dynamics, The Economics Daily, 2024).
13. About 1.4 million establishments opened and 1.2 million closed in 2022, with startups making up 15.7% of all establishments versus 12.5% in 2019 (SBA Office of Advocacy, 2024, using BLS data).
14. 5.2 million new business applications were filed in 2024 and 5.62 million in 2025 (U.S. Census Bureau, Business Formation Statistics).
15. 75% of small employer firms cited rising costs of goods, services, or wages as a financial challenge, and 39% carried more than $100,000 in outstanding debt, in the 2024 Small Business Credit Survey (Federal Reserve, 2025 Report on Employer Firms).

Section 1: Number and composition of small businesses

The U.S. small business population is dominated by businesses with no employees. The SBA Office of Advocacy compiles its headline counts from the U.S. Census Bureau Statistics of U.S. Businesses (SUSB, employer firms) and Nonemployer Statistics (NES, nonemployer firms).

There were 34,752,434 small businesses in the United States in the SBA Office of Advocacy 2024 FAQ. Of these, 81.9% (28,477,518 firms) had no employees and 18.1% (6,274,916 firms) had paid employees. Small businesses were 99.9% of all U.S. firms and 99.7% of all firms with paid employees in 2024.

By contribution to the economy, small businesses represented 45.9% of private sector employees (59.0 million workers), 43.5% of gross domestic product, 39.0% of private sector payroll ($3.2 trillion), and 38.9% of private sector receipts ($14.6 trillion) in the 2024 compilation. Small businesses were 97.4% of exporters (271,241 businesses) and accounted for 34.9% of known export value ($541.6 billion).

The number of small employer firms has increased each year since 2011, and the number of nonemployer firms has increased 84% since 1997 (SBA Office of Advocacy, 2024).

Nonemployer detail: the U.S. Census Bureau counted 29.8 million nonemployer businesses generating $1.7 trillion in receipts in 2022, equal to about 6.8% of the U.S. economy that year. Note the slight definitional difference from the SBA figure: NES counts all nonemployer businesses subject to federal income tax with receipts of $1,000 or more (lower for construction), while the SBA “small business” tally applies the under-500-employee research definition. Both are United States totals.

Average firm size: in 2021, the average employer firm had 24 employees; small firms averaged 11 employees and large firms averaged 3,302 employees; new firms under two years old averaged 6 employees, and firms older than 20 years averaged 58 employees (SBA Office of Advocacy, 2024, using Census data).

Limitation: the SBA headline count of 34.75 million combines Census employer-firm data (SUSB) and nonemployer data (NES) of different vintages and is not a single-survey number. The 2022 SUSB and 2022/2023 NES are the most recent underlying releases.

Section 2: Entity-choice distribution

No single current IRS table reports all four business forms together; the IRS Integrated Business Data table lags to tax year 2015. The counts below are assembled from separate IRS Statistics of Income (SOI) series of different vintages and labeled accordingly. They count tax returns or businesses, not the SBA “small business” universe, but the overwhelming majority of each form is small.

Reading the table: sole proprietorships are by far the most numerous business form, and the four forms cannot be summed to a clean “number of businesses” because the IRS counts returns (and one Schedule C filer can run several businesses) while a single owner may file multiple forms across years.

Entity composition is heavily weighted toward pass-throughs. Pass-through businesses (partnerships, S corporations, and sole proprietorships) account for about half of U.S. business income and reported about $1.6 trillion of net income on individual tax returns in tax year 2022, more than 10% of all income and almost a third of income for high earners (Tax Foundation, “Tax Treatment of the Pass-Through Business Sector,” February 2026, citing IRS data).

Partnerships are increasingly organized as LLCs: LLCs made up 72.7% of all partnerships for tax year 2023, surpassing all other entity types for more than two decades, while limited partnerships were 9.7% (IRS SOI, Partnership Returns, April 2025).

Limitation: because the four series carry different tax years (2022 for sole proprietorships and corporations, 2023 for partnerships), the composition is a close approximation rather than a single-year snapshot. The Tax Foundation 2011/2013 distribution often cited elsewhere (sole proprietorships about 73% of all businesses) is older and is not used here as a current figure.

Section 3: Effective tax burden by entity type

U.S. business income is taxed under two regimes. Pass-through businesses (sole proprietorships, partnerships, S corporations) do not pay an entity-level tax; income flows to owners and is taxed at individual rates of 10% to 37%. C corporations pay a flat 21% corporate tax on income, and shareholders pay additional tax on dividends and capital gains, producing a two-layer “integrated” rate (Congressional Budget Office; Congressional Research Service).

The Section 199A deduction lets eligible pass-through owners deduct up to 20% of qualified business income. With the 199A deduction, the average pass-through entity faces an effective rate of about 27.4%, compared with a minimum integrated C corporation rate of about 24.8%; without 199A, the average pass-through effective rate rises to about 32.9% (Tax Foundation, “Tax Treatment of the Pass-Through Business Sector,” February 2026).

The 199A deduction is widely used: 25.7 million returns claimed it in tax year 2022, deducting $216.1 billion, up from 18.7 million claims and $150.0 billion in 2018. Pass-through owners with adjusted gross income under $1 million were 97.7% of claimants in 2022; the average claim was about $2,909 for filers under $200,000 of AGI and about $741,436 for filers at $5 million and above (Congressional Research Service citing IRS SOI, Table 1.4, 2022).

Limitation: there is no single official “effective federal tax rate by entity type” published by one agency. The rates above blend statutory law, CBO methodology descriptions, and Tax Foundation modeling. The “small C corporation” rate is not cleanly separated in published data; the 21% statutory rate applies to all C corporations regardless of size after the 2017 repeal of graduated corporate rates. Self-employment tax materially raises the burden on sole proprietors relative to S corporation owners who pay payroll tax only on reasonable wages, a structural difference not captured by income-tax rates alone.

Section 4: Payroll, profits, and deductions usage

Profits: nonfarm sole proprietorship profits were $410.7 billion in tax year 2022, down 0.2% from 2021, on $2,080.7 billion of total business receipts (up 11.4%) and $1,671.9 billion of total deductions (up 14.7%). Profit margin fell to 19.7% of receipts, the lowest since 1990. The professional, scientific, and technical services sector had the largest share of sole proprietorship profits at 24.7% ($101.6 billion) in 2022 (IRS SOI, Spring 2025 Bulletin).

Partnership income: partnerships passed through $2,099.4 billion in total income (loss) less deductions for tax year 2023, down 17.9% from $2,558.0 billion in 2022, on $12.0 trillion of receipts and $57.3 trillion of total assets. The finance and insurance sector reported 63.5% of pass-through income, while real estate and rental and leasing was half of all partnerships (50.7%) (IRS SOI, Partnership Returns, April 2025).

Corporate scale: active corporations reported $143.3 trillion in total assets, $45.3 trillion in total receipts (up 13.9%), and $41.3 trillion in total deductions for tax year 2022 (IRS SOI, Corporate Income Tax Returns, Tax Year 2022).

Payroll: small businesses paid 39.0% of private sector payroll, about $3.2 trillion, in the SBA 2024 compilation.

Deductions usage: the dominant small business deduction in dollar terms is Section 199A, claimed on 25.7 million returns for $216.1 billion in tax year 2022. The Tax Foundation estimates pass-through tax compliance alone costs more than $100 billion per year, part of an estimated $536 billion total annual federal tax compliance cost (Tax Foundation, August 2025 and February 2026).

Section 5: Business formation, closure, and survival

Formation: 5.2 million new business applications were filed in 2024 and 5.62 million in 2025 (U.S. Census Bureau, Business Formation Statistics). The Census BFS distinguishes high-propensity business applications (corporate applications, those with planned hiring, and select industries) from total applications. The number of U.S. nonemployer businesses grew faster than employer businesses in nearly every year from 2012 to 2023 (U.S. Census Bureau, 2025).

Openings and closures: about 1.4 million establishments opened for the first time and about 1.2 million closed permanently in 2022; startups were 15.7% of all establishments in 2022, up from 12.5% in 2019 (SBA Office of Advocacy, 2024, using BLS Business Employment Dynamics).

Survival (employer establishments, 1994 to 2021 cohorts, SBA compilation of BLS data):
– Two-year survival: 67.9%
– Five-year survival: 49.2%
– Ten-year survival: 33.8%
– Fifteen-year survival: 25.6%

The SBA notes that conditional survival improves with age: more than two-thirds (69.5%) of firms that reach five years go on to reach ten years, and 76.5% of those that reach a later milestone survive further.

A separate BLS cohort cut shows 34.7% of private sector establishments born in March 2013 were still operating in March 2023, consistent with the roughly one-third ten-year survival figure. By sector, the agriculture, forestry, fishing, and hunting industry had the highest ten-year survival (50.5%), followed by utilities (45.7%) and manufacturing (43.6%); mining, quarrying, and oil and gas extraction was lowest (24.5%) (BLS, The Economics Daily, 2024).

Section 6: Small business finances and credit (2024 to 2025)

The Federal Reserve Small Business Credit Survey (SBCS) surveys small employer firms with 1 to 499 employees. The 2025 Report (2024 survey, fielded September to November 2024, 7,600+ firms) and the 2026 Report (2025 survey, fielded September to November 2025, 6,525 firms) are the two most recent.

From the 2024 survey (2025 Report): rising costs of goods, services, or wages was the most common financial challenge, cited by 75% of firms; 56% cited paying operating expenses and 51% cited uneven cash flows. 39% of firms carried more than $100,000 in outstanding debt, above prepandemic levels. 59% of firms sought new financing in the prior 12 months, and 37% applied for loans, lines of credit, or merchant cash advances; elevated existing debt increasingly factored into denials (Federal Reserve, 2025 Report on Employer Firms).

From the 2025 survey (2026 Report): revenue and employment growth held steady but remained below prepandemic levels; expectations for future revenue and employment growth fell to their lowest since the 2020 survey, with the revenue expectations index dropping from 39 to 33 and the employment expectations index from 26 to 23 (Federal Reserve, 2026 Report on Employer Firms).

Limitation: the SBCS uses a nationwide convenience sample, not a probability sample, so its shares describe responding firms rather than a strict population estimate.

Original synthesis: derived insights

Derived insight 1: Effective federal tax burden gap by entity type (the “pass-through advantage index”)

Logic: compare the average effective federal tax rate on a dollar of business income across forms, using Tax Foundation modeling for pass-through and integrated C corporation rates, and isolate the role of the 199A deduction.

Derived figure: the 199A deduction narrows the pass-through penalty from 8.1 points to 2.6 points, a 5.5-point swing. Inputs: Tax Foundation, “Tax Treatment of the Pass-Through Business Sector,” February 2026. Limitation: these are modeled averages; actual rates vary widely by owner income, the 21% C corporation rate is flat regardless of size, and self-employment tax (15.3%) on sole proprietors is not folded into these income-tax rates, so the true gap for unincorporated owners is understated.

Derived insight 2: The small business survival curve and conditional survival

Logic: convert the SBA-compiled cumulative survival rates into a single curve and compute conditional (year-over-prior-milestone) survival, which shows that the highest mortality is early.

Derived figure: a business that survives to year 5 has already cleared the steepest part of the curve; conditional survival rises from about 72% (years 2 to 5) and stays near or above 69% to 76% thereafter. Inputs: SBA Office of Advocacy 2024 FAQ cumulative rates (BLS Business Employment Dynamics, 1994 to 2021 cohorts). Limitation: the SBA conditional figures (69.5%, 76.5%) are reported for specific milestones and the ratios above are computed from the cumulative rates, which average many birth cohorts and may not match any single year.

Derived insight 3: Formation-to-closure ratio and the net business birth rate

Logic: compare establishment openings to closures to derive a net formation measure, and compare application volume to actual employer formations.

• 2022 establishment openings: about 1.4 million; closures: about 1.2 million (SBA/BLS).
• Derived net openings 2022: about +0.2 million establishments, a formation-to-closure ratio of about 1.17 to 1.
• Startups were 15.7% of all establishments in 2022 versus 12.5% in 2019, a 3.2-point (about 26% relative) increase in the startup share of the establishment base.
• Application volume far exceeds employer formation: 5.2 million applications were filed in 2024 (Census BFS), while only a fraction become employer firms, since most applications are for nonemployer or never-activated ventures.

Derived figure: the post-2019 surge left startups a markedly larger share of the establishment base (15.7% vs 12.5%), and openings outran closures by roughly 1.17 to 1 in 2022. Inputs: SBA Office of Advocacy 2024 (BLS), Census Business Formation Statistics. Limitation: establishment counts (BLS) and business applications (Census BFS) use different units and definitions and cannot be directly divided; the ratio is establishment-to-establishment only.

Charts to create

1. Title: “U.S. small business composition, 2024.” Data: 28.48M nonemployer vs 6.27M employer firms. Source: SBA Office of Advocacy 2024. Insight: 82% of small businesses have zero employees. Citation-worthy because it corrects the common assumption that small business means a storefront with staff.
2. Title: “The small business survival curve, 2-to-15 years.” Data: 67.9%, 49.2%, 33.8%, 25.6%. Source: SBA/BLS Business Employment Dynamics. Insight: half are gone by year 5; the curve flattens after. Highly citable single-image summary of survival.
3. Title: “Effective federal tax rate by entity type.” Data: pass-through 27.4% with 199A, 32.9% without, C corp 24.8%. Source: Tax Foundation, February 2026. Insight: the 199A deduction is what keeps pass-throughs roughly tax-neutral with C corporations.
4. Title: “Section 199A deduction growth, 2018 to 2022.” Data: 18.7M claims/$150.0B to 25.7M claims/$216.1B. Source: CRS/IRS SOI. Insight: the deduction’s scale makes its 2025 extension debate consequential.
5. Title: “Business applications, 2024 to 2025.” Data: 5.2M then 5.62M. Source: Census BFS. Insight: formation remains historically elevated post-2020.
6. Title: “Ten-year establishment survival by sector.” Data: agriculture 50.5%, utilities 45.7%, manufacturing 43.6%, mining 24.5%. Source: BLS. Insight: survival varies nearly 2-to-1 by industry.

Methodology

Source selection: Tier-1 U.S. federal primary sources were prioritized: SBA Office of Advocacy, U.S. Census Bureau (SUSB, Nonemployer Statistics, Business Formation Statistics), Bureau of Labor Statistics (Business Employment Dynamics), IRS Statistics of Income, U.S. Treasury, and the Federal Reserve Small Business Credit Survey, plus the Congressional Research Service and Joint Committee on Taxation for tax analysis. One Tier-2 source, the Tax Foundation, is used only for effective-rate modeling and the pass-through income share, both of which cite primary IRS data.

Inclusion and exclusion: every statistic required a primary source, a year, and U.S. geography. Figures that could not be traced to a primary source were excluded. The frequently cited 2011/2013 Tax Foundation entity-distribution percentages were excluded as current figures because they are outdated; only the February 2026 Tax Foundation paper and its 2022 income data are used.

Handling conflicts: the SBA small business count (34.75M) and the Census nonemployer count (29.8M) differ because of different definitions (under-500-employee research definition vs all federally taxed nonemployers); both are reported with their definitions rather than reconciled into one number. Sole proprietorship “returns” (30.98M) and “businesses” (35.26M) differ because one filer can run several businesses; both are shown.

Derived figures: the three original insights are computed from the primary inputs cited inline, with formulas shown. They are labeled as derived and are not presented as official statistics.

Data limitations: the IRS Integrated Business Data cross-entity table lags to tax year 2015, so the entity-composition table is assembled from separate SOI series of tax years 2022 and 2023. No agency publishes a single official effective federal tax rate by entity type. The SBCS uses a convenience sample. BLS survival rates blend many birth cohorts. Self-employment and payroll tax differences across forms are noted but not modeled into a single combined rate.

Date of last update: 2026-06-30.

Source quality ranking

Tier 1 (primary government and official bodies):
– U.S. SBA Office of Advocacy, Frequently Asked Questions About Small Business, July 2024.
– U.S. Census Bureau: Statistics of U.S. Businesses (2022), Nonemployer Statistics (2022/2023), Business Formation Statistics (2024/2025).
– U.S. Bureau of Labor Statistics, Business Employment Dynamics (Establishment Age and Survival, The Economics Daily 2024).
– IRS Statistics of Income: Sole Proprietorship Returns TY2022, Partnership Returns TY2023, Corporate Income Tax Returns TY2022, Individual Income Tax Returns Table 1.4 (199A).
– U.S. Treasury and Congressional Budget Office (effective-rate methodology, pass-through definitions).
– Congressional Research Service and Joint Committee on Taxation (199A analysis).
– Federal Reserve Small Business Credit Survey (2025 and 2026 Reports on Employer Firms).

Tier 2 (credible research citing primary data):
– Tax Foundation, “Tax Treatment of the Pass-Through Business Sector: A Primer,” February 2026 (effective rates and pass-through income share, citing IRS data).

Excluded and why:
– IRS Integrated Business Data combined table: most recent year is 2015, too old to present as current entity composition.
– Older Tax Foundation 2011/2013 entity-distribution percentages: outdated as a current snapshot.
– Secondary commercial “small business statistics” roundups (NerdWallet, vendor blogs): not used because primary sources were available; excluded to avoid circular or unverifiable figures.

Citation format (per major statistic)

• Source: U.S. SBA Office of Advocacy, Frequently Asked Questions About Small Business, July 2024.
• Source: IRS, Statistics of Income Division, Sole Proprietorship Returns, Tax Year 2022 (Spring 2025 Bulletin), published November 2024.
• Source: IRS, Statistics of Income Division, Partnership Returns, Tax Year 2023, April 2025.
• Source: IRS, Statistics of Income Division, Corporate Income Tax Returns, Tax Year 2022.
• Source: Congressional Research Service citing IRS Statistics of Income, Individual Income Tax Returns Complete Report, Table 1.4, Tax Year 2022 (Section 199A).
• Source: U.S. Census Bureau, 2022 Nonemployer Statistics, released December 2024.
• Source: U.S. Census Bureau, Business Formation Statistics, 2024 to 2025.
• Source: U.S. Bureau of Labor Statistics, Business Employment Dynamics, Establishment Age and Survival Data, March 2023 cohort, 2024.
• Source: Federal Reserve Banks, 2025 Report on Employer Firms (2024 Small Business Credit Survey).
• Source: Tax Foundation, Tax Treatment of the Pass-Through Business Sector: A Primer, February 2026.

Journalist-friendly additions

Most quotable statistics

• 99.9% of U.S. firms are small businesses, and 81.9% of small businesses have no employees at all (SBA, 2024).
• Half of new employer businesses do not survive past five years (49.2% five-year survival, SBA/BLS, 1994 to 2021).
• Small businesses created 61.1% of net new jobs from 1995 to 2023 (SBA/BLS).
• 25.7 million returns claimed the pass-through 199A deduction worth $216.1 billion in 2022 (CRS/IRS).
• Sole proprietorship profit margins hit 19.7% in 2022, the lowest since 1990 (IRS SOI).
• 75% of small employer firms cited rising costs as their top financial challenge in the 2024 Small Business Credit Survey (Federal Reserve).

Data limitations

The 34.75 million small business count blends Census employer and nonemployer data of different years and definitions. Entity-composition counts come from separate IRS series spanning tax years 2022 and 2023. No agency publishes one official effective tax rate by entity type. The Small Business Credit Survey is a convenience sample. Survival rates average many birth cohorts.

Downloadable dataset, recommended fields

metric_name, value, unit, entity_type, tax_or_reference_year, geography, source_agency, source_series, source_url, is_derived (Y/N), derivation_formula, limitations, last_verified_date.

Press summary (about 150 words)

The United States had 34,752,434 small businesses in the 2024 SBA Office of Advocacy compilation, 99.9% of all firms, and 82% of them had no employees. Small businesses employed 45.9% of private sector workers, produced 43.5% of GDP, and created 61.1% of net new jobs from 1995 to 2023. Most are pass-through entities taxed on owners’ individual returns: 31.0 million sole proprietorships (tax year 2022), 4.6 million partnerships (2023), and about 5.3 million S corporations (2022). The Section 199A deduction, claimed on 25.7 million returns for $216.1 billion in 2022, keeps the average pass-through effective tax rate (27.4%) close to the integrated C corporation rate (24.8%). Survival is hard: 49.2% of new employer firms reach five years and 33.8% reach ten. Formation stayed elevated, with 5.2 million business applications in 2024 and 5.62 million in 2025.

Suggested headlines

1. “82% of America’s small businesses have no employees, federal data show”
2. “Half of new U.S. businesses do not survive five years”
3. “The $216 billion deduction keeping small business taxes near the corporate rate”
4. “Small businesses made 61% of net new jobs since 1995, but employ under half the workforce”
5. “Business formation stayed historically high in 2025 with 5.62 million applications”

FAQs (answered with verified statistics)

1. How many small businesses are in the U.S.? 34,752,434 in the SBA Office of Advocacy 2024 FAQ, 99.9% of all firms.
2. How many have employees? 6,274,916 (18.1%) had paid employees; 28,477,518 (81.9%) had none (SBA, 2024).
3. What is the most common business form? Sole proprietorships: 31.0 million returns reported nonfarm sole proprietorship activity in tax year 2022 (IRS SOI).
4. How are small businesses taxed? Most are pass-throughs taxed at owners’ individual rates of 10% to 37%; C corporations pay a flat 21% plus shareholder tax (CBO; IRS).
5. What is the effective tax rate gap? Pass-throughs average about 27.4% with the 199A deduction versus about 24.8% for an integrated C corporation (Tax Foundation, 2026).
6. How many use the 199A deduction? 25.7 million returns claimed $216.1 billion in tax year 2022 (CRS/IRS).
7. What share of jobs and GDP do small businesses provide? 45.9% of private sector employment and 43.5% of GDP (SBA, 2024).
8. What is the small business survival rate? 67.9% at two years, 49.2% at five, 33.8% at ten, 25.6% at fifteen (SBA/BLS, 1994 to 2021).
9. How many businesses form and close each year? About 1.4 million establishments opened and 1.2 million closed in 2022; 5.2 million applications were filed in 2024 (SBA/BLS; Census).
10. What is the biggest financial challenge for small businesses? Rising costs of goods, services, or wages, cited by 75% of employer firms in the 2024 Small Business Credit Survey (Federal Reserve).

Sources

1. U.S. SBA Office of Advocacy, Frequently Asked Questions About Small Business, July 2024. https://advocacy.sba.gov/2024/07/23/frequently-asked-questions-about-small-business-2024/ and PDF https://advocacy.sba.gov/wp-content/uploads/2024/12/Frequently-Asked-Questions-About-Small-Business_2024-508.pdf
2. U.S. Census Bureau, Statistics of U.S. Businesses (SUSB), 2022. https://www.census.gov/programs-surveys/susb.html
3. U.S. Census Bureau, 2022 Nonemployer Statistics (released December 2024). https://www.census.gov/newsroom/press-releases/2024/2022-nonemployer-statistics.html
4. U.S. Census Bureau, Nonemployer business growth 2012 to 2023. https://www.census.gov/library/stories/2025/07/nonemployer-business-growth.html
5. U.S. Census Bureau, Business Formation Statistics. https://www.census.gov/econ/bfs/index.html
6. U.S. Bureau of Labor Statistics, Establishment Age and Survival Data (Business Employment Dynamics). https://www.bls.gov/bdm/bdmage.htm
7. U.S. Bureau of Labor Statistics, The Economics Daily, “34.7 percent of business establishments born in 2013 were still operating in 2023,” 2024. https://www.bls.gov/opub/ted/2024/34-7-percent-of-business-establishments-born-in-2013-were-still-operating-in-2023.htm
8. IRS, Statistics of Income, Nonfarm Sole Proprietorship Statistics. https://www.irs.gov/statistics/soi-tax-stats-nonfarm-sole-proprietorship-statistics ; Sole Proprietorship Returns Tax Year 2022 PDF https://www.irs.gov/pub/irs-soi/soi-a-insp-id2502.pdf
9. IRS, Statistics of Income, Partnership Returns Tax Year 2023. https://www.irs.gov/pub/irs-soi/soi-a-copa-id2505.pdf
10. IRS, Statistics of Income, Corporate Income Tax Returns Tax Year 2022. https://www.irs.gov/pub/irs-pdf/p5655.pdf
11. IRS, Statistics of Income, Integrated Business Data. https://www.irs.gov/statistics/soi-tax-stats-integrated-business-data
12. Congressional Research Service, Section 199A Deduction analysis (citing IRS SOI Table 1.4). https://www.congress.gov/crs-product/IF12838
13. Congressional Budget Office, Tax Rates. https://www.cbo.gov/topics/taxes/tax-rates
14. Federal Reserve Banks, 2025 Report on Employer Firms (2024 Small Business Credit Survey). https://www.fedsmallbusiness.org/reports/survey/2025/2025-report-on-employer-firms ; PDF https://www.fedsmallbusiness.org/-/media/project/clevelandfedtenant/fsbsite/reports/2025/2025-report-on-employer-firms.pdf
15. Federal Reserve Banks, 2026 Report on Employer Firms (2025 Small Business Credit Survey). https://www.fedsmallbusiness.org/reports/survey/2026/2026-report-on-employer-firms
16. Tax Foundation, “Tax Treatment of the Pass-Through Business Sector: A Primer,” February 2026. https://taxfoundation.org/wp-content/uploads/2026/02/FF877-Pass-Through.pdf
17. Tax Foundation, “An Overview of Pass-through Businesses in the United States.” https://taxfoundation.org/research/all/federal/overview-pass-through-businesses-united-states/

Related research

More original, sourced datasets from The Ledgerism Brief:

• Business Entity Comparison — LLC vs S-corp vs C-corp vs partnership vs sole prop.
• The Pass-Through Economy Report — How U.S. business income left the corporate form.
• S Corporation Report — 5.27M S corps: income, industry, and shareholders.
• Partnership Report — 4.58M partnerships covering 30.24M partners.
• Corporate Tax Rate Database — Worldwide statutory and effective rates.