The Average S-Corp Owner Isn’t Rich

If you are the sole owner of the average Subchapter S Corporation in manufacturing, finance and insurance, or wholesale trade, the President of the United States thinks you are rich.

According to data from the Internal Revenue Service’s (IRS) Statistics of Income, the average S Corp in these three industry sectors had annual net income of over $250,000 per year in 2008, the latest year data are available.

S Corp Income by Industry Sector

Source: Created from data from the IRS Statistics of Income

Subchapter S Corporations differ substantially from sole proprietorships which comprise 72 percent of small companies. While the owners of sole proprietorships have unlimited liability, S Corp owners have the limited liability granted to all corporation owners. But unlike regular C Corporations, S Corps pass income through to their shareholders, avoiding “double taxation.”

While far from a majority of small businesses or their output, S Corps comprise 13 percent of American businesses and 18 percent of revenues and net income, according to data from the Internal Revenue Service’s (IRS) Statistics of Income.

Like all types of small businesses, the profitability of S Corps varies substantially by industry sector. As the table above shows, the average S Corp generated just over $173,000 in 2008. However, average net income ranged from $75,372 in other services to $546,320 in manufacturing.

Interestingly, across industries, the average annual income of an S corp is not related to income as a percent of sales. Across 76 industries (not shown in the table), the correlation between the fraction of sales that net income comprises and annual net income per business is only 0.09. That means that there is virtually no relationship between the two numbers.

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Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

4 Reactions
  1. This interesting and a bit surprising. Thanks for shedding some light on this. Helps me to put some things into perspective.


  2. Just like those who chose an S corp in the first place when they incorporated chose it for tax purposes, they will have to transition their business over to a new business type for new tax purposes.

    It’s not Obama’s job to change the way taxes work because people are unhappy with the way their revenue breaks down within certain entities.

    This is nothing new… We usually have a change in ‘best ways for small business owners to save money’ every few years.

  3. We’ve all been reaping the benefits of pass-through while individual rates were low. We switched to the S-corp structure from something else to take advantage of that. It’s not like it is some god-given right. As Nikki says, it may be time to adapt again. I can’t believe all the whiners on this topic are actually business-people (likely, they actually aren’t); I don’t know anyone in business who doesn’t realize that the business environment changes and that you’d better be able to change with it if you want to succeed. Are these just a bunch of one-hit wonders?

    Anyway, if you’re NOT bringing in more than $250,000 (in other words, most S-corp owners) then nothing is changing anyway, and the S-corp is still probably going to be the best dodge available.

  4. One other consideration is that net income does not include the salary of the shareholder/officer of the S-corporation. In that case many of these companies’ owners probably make more than is reflected in the statistics provided by the IRS.

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