Ad Share of Aggregate Receipts: Sole Proprietorship Returns 2023

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The ratio the IRS table does not print

For tax year 2023, the Internal Revenue Service’s Statistics of Income division published an income statement for nonfarm sole proprietorships, by industrial sector, built from a sample of Schedule C returns. The table carries a line for “Advertising expenses” and a line for “Business receipts, total [1]”. Dividing one by the other gives the share of the sector’s receipts that went to advertising. That share is the number this article is about. It is simple arithmetic on two published lines, and the IRS does not publish it.

For tax year 2023, across all nonfarm sectors, advertising expenses were 1.18% of aggregate estimated business receipts on sample-weighted sole proprietorship returns, a receipts-weighted ratio in which the largest filers carry most of the weight: about 1.2 cents per aggregate receipts dollar. The table note says what the figures are: “[All figures are estimates based on samples–money amounts are in thousands of dollars]”.

Advertising by sector, and three other bought-in costs

Source: IRS, Statistics of Income Division, Sole Proprietorship Returns 2023, Table 2 “Nonfarm Sole Proprietorships: Income Statements, by Industrial Sectors, Tax Year 2023”, released March 2026, downloaded October 4, 2026. Shares are the sector’s aggregate deduction divided by the sector’s aggregate receipts. The all-industries row includes 521,885 unclassified returns that are not assigned to one of the 18 matched sector rows. Receipts are rounded to the nearest million.

Three other patterns in that table stand beside the advertising column. First, in every sector but retail trade, sole proprietors reported more contract labor than advertising, and in construction the gap is more than twenty to one: 11.89 cents of each receipts dollar to contract labor, 0.51 to advertising. Second, the two sectors with the heaviest wage bills, accommodation and food services (15.73%) and health care (13.13%), sit in the middle of the advertising ranking. Third, legal and professional services ran between 0.50 and 2.57 cents on the dollar, and in six sectors (agriculture, mining, utilities, transportation and warehousing, professional, scientific and technical services, and health care and social assistance) it exceeded the advertising share.

The registered comparison: a near-zero rank correlation

The study fixed one question in the frozen protocol before the IRS advertising values were read and before the registered comparison was computed: across sectors, does the 2023 advertising share rank the way employer-firm job growth ranks? Growth is the Census Bureau’s net job creation rate for 2021 to 2023, from the Business Dynamics Statistics, recomputed as 100 times net job creation summed over those years divided by the Census DHS denominator summed over the same years, for the same 18 sectors. Because both numerator and denominator are sums of three annual values, the result is the denominator-weighted mean of the three annual rates, a rate per year, not a three-year cumulative change. One IRS column, administrative and support and waste services, includes management of companies among its subsectors, so its Census counterpart is sectors 55 and 56 combined. That correction was made after the first result was seen and is recorded as Amendment 1 to the protocol: under the earlier, wrong mapping the coefficient was minus 0.10. The year 2020 was left out, as registered, as a pandemic outlier.

With 2020 excluded as registered, the Spearman rank correlation across 18 sectors between the 2023 advertising share on sole proprietorship tax returns and the 2021 to 2023 net job creation rate at employer firms was minus 0.09, and because the growth window largely precedes the tax year in which advertising is measured, the correlation carries no temporal direction. That is a near-zero descriptive rank correlation: in these matched sector rows, the sectors where sole proprietors put the largest share of receipts into advertising were not, as a group, the sectors where employer firms added jobs faster. No inferential test was run, so this is not a statistical null, and it is not evidence that advertising has no effect. Information had the highest advertising share and a job growth rate of 0.41% a year, the fourth-lowest. Transportation and warehousing had the second-lowest advertising share and the highest job growth, 4.16% a year. Construction, with the third-lowest advertising share, grew at 2.05%.

The advertising measure covers sole proprietorship tax returns, while the growth measure covers jobs at employer firms. The growth window, 2021 to 2023, largely precedes the tax year in which advertising is measured, so the correlation carries no temporal direction, and no causal reading is available either way. The result is reported because the comparison was registered. Two values are reported: minus 0.10 under the crosswalk as originally registered, and minus 0.09 under the crosswalk corrected by Amendment 1 after the first result was seen. The correction rests on a fact visible in the IRS table’s own column headers (the administrative column lists management of companies as a subsector), not on the coefficient, which it barely moved.

Source for the growth column: U.S. Census Bureau, Business Dynamics Statistics, sector by year, variables NET_JOB_CREATION and DENOM, 2021 to 2023, retrieved October 4, 2026.

What the share is, and is not

The advertising share is advertising dollars per dollar of aggregate estimated receipts on sample-weighted returns. It is receipts-weighted, which means the largest sole proprietorships in a sector carry most of the weight. It is not the mean or median return’s share, not a benchmark for a business of any particular size, and the table does not classify returns by whether the business has employees. IRS estimates are based on a sample and may differ from a full count. No coefficient of variation table accompanies this income statement on the IRS site, so no interval is shown and the shares should be read as sector-level descriptions, not precise constants.

Two descriptive companions. The first was registered as the advertising share by sector and subsector, and its extension to the detail tier is recorded in Amendment 1, made after results were seen. The second was registered as written. First, Appendix A, available as a downloadable CSV at Appendix A (CSV), reports the advertising share for every labelled column of the IRS table, 153 rows at the sector, subsector and detail tiers (two detail rows, formal wear and costume rental and video tape and disc rental, are suppressed in the IRS file). Second, computed from the published return counts in the IRS’s Table 1 rather than printed by the IRS, the share of returns with net income:

What the numbers mean for an owner deciding what to spend

These are descriptive aggregates for the stated federal-data population. They do not identify causal effects, diagnose an individual company, or estimate the result of adopting a practice. The guidance that follows is operating judgment, not a finding from the data.

The useful fact in this table is not the 1.18 cents. It is that aggregate contract labor exceeded aggregate advertising in 17 of the 18 sectors, that the all-industries legal and professional services share was 1.01% against 1.18% for advertising, and that the sectors buying the most advertising per receipts dollar did not rank higher on employer-firm job growth in the registered comparison. An owner setting a marketing budget by asking “what does my sector spend” is asking a question this table can answer only in aggregate, and this study found no rank alignment between that aggregate and employer-firm job growth.

How to handle it: budget from the funnel, not from the sector

The steps below are an operating recommendation. This study did not test them, and the Internal Revenue Service and the Census Bureau do not endorse them.

1. Start from cost per acquired customer, not from a percentage of receipts. A share of receipts is a reporting category. A budget is the number of customers the business needs, times what it has cost to acquire one, measured on the business’s own last twelve months.

2. Put contract labor and advertising on the same page. In most sectors in this table, aggregate contract labor exceeds aggregate advertising. If outside labor is doing work that wins customers (referral partners, subcontracted sales, agency retainers booked as contract labor), the real marketing spend is larger than the advertising line shows, and the budget review should count it.

3. Treat a sector average as a prior, not a target. The information sector’s 3.26 cents and construction’s 0.51 cents describe what those businesses reported in aggregate. Neither number says what a given firm should spend, and the near-zero rank correlation above is a reason not to copy a heavy-advertising sector on the assumption that it grows faster.

4. Review the deduction categories with an accountant before comparing across years. Where a cost is booked (advertising, contract labor, commissions, other expenses) changes the shares. Whether a particular outlay is deductible, and in which category, depends on the taxpayer’s facts and applicable law, so a qualified tax professional should review the classification.

What this data does not tell you

• It does not say what a typical sole proprietor spends on advertising. The shares are aggregate and receipts-weighted.
• The IRS advertising table does not cover corporations or partnerships, and it does not say whether a sole proprietorship return has employees.
• It does not connect advertising to growth: the growth measure is a different population (employer firms) over an earlier window, and the registered comparison found no alignment.
• IRS figures are sample estimates without a published coefficient-of-variation table for this income statement.
• Deduction categories reflect how taxpayers classified costs, not a marketing accounting standard.

Method

Already published by the agency: the IRS publishes advertising expenses and business receipts by sector as dollar totals (Table 2) and return counts with and without net income by sector (Table 1). Census publishes net job creation by sector in the Business Dynamics Statistics. New here: the advertising, contract labor, legal and professional, and wage shares of receipts by sector, the advertising share for every subsector and detail column (Appendix A), the share of returns with net income computed from the published counts, and the registered rank comparison with Census job growth.

Sources. IRS, Statistics of Income, Nonfarm Sole Proprietorship Returns, Tax Year 2023: Table 2 (file 23sp02is.xls) and Table 1 (file 23sp01br.xls), both released March 2026 and downloaded October 4, 2026. U.S. Census Bureau, Business Dynamics Statistics, sector by year, retrieved October 4, 2026 and archived before the protocol was frozen.

Crosswalk. Sixteen of the IRS’s 18 sector columns correspond directly to one NAICS sector each. The IRS nonfarm agriculture column is paired with Census sector 11, but the coverage is not identical: the IRS table is for nonfarm returns and excludes farm proprietorship activity, while Census sector 11 covers the full employer-firm agriculture sector. That row stays in the comparison as registered, with this difference disclosed. The administrative and support and waste services column includes management of companies among its subsectors, so it corresponds to NAICS 55 and 56 together, and its Census rate is computed from the two sectors’ summed counts (Amendment 1, made after the first result was seen). The IRS unclassified establishments column has no counterpart and is excluded from the comparison. For each matched row, the Census rate is 100 times net job creation summed over 2021 to 2023, divided by the Census denominator summed over the same years.

Comparison. Spearman rank correlation across the 18 matched sectors between the 2023 advertising share and the 2021 to 2023 net job creation rate: minus 0.09 (minus 0.10 under the pre-amendment crosswalk). Coefficient and count only, with no probability value and no causal reading.

Protocol. The sources, share formulas, growth window, crosswalk and comparison were frozen in a dated protocol on October 4, 2026, after the source files and responses had been archived with hashes and before the registered comparison was computed. Before freezing, the IRS file’s labels and the Census API’s structure had been inspected, and some Census rows had been seen (national rows by firm age, the all-sector net job creation row, and the agriculture and mining sector rows). No IRS value had been read. The crosswalk was corrected after the first result was seen (Amendment 1, above). The protocol (wave 3 section) and its dated amendments are at https://kamyarshah.com/public-data-protocol/

Check. A second program, written separately from the registered definitions by a different author from the analysis code and run against the raw files without access to this study’s code or results, recomputed the 9 claim groups of the original analysis and, after Amendment 1, all 12 amended claim groups, including every row of Appendix A. Every figure in the tables and text was compared and matched. The programs, archived inputs, manifests and hashes are kept with the protocol record.

The agencies did not review or endorse this analysis. Kamyar Shah sells fractional COO and CMO services.

Questions about this analysis can be sent through https://kamyarshah.com/contact/.

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