Founder Data ReportThe Biggest Named Cost on 31 Million Tax Returns Isn’t Payroll. It’s the Car.
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IRS income-statement data for every nonfarm sole proprietorship in tax year 2023: $150.2bn deducted for vehicles against $121.8bn for wages, and a $203.0bn line called “other” that is bigger than both.
Quick answer: Across 31.1 million Schedule C returns in tax year 2023, the largest named operating expense was not payroll. It was car and truck expenses at $150.2bn – about 1.23 times the $121.8bn deducted for salaries and wages. A larger line exists, but it is the residual “other business expenses” at $203.0bn, which is a catch-all rather than a cost. Contract labor ran $113.6bn, close to the wage line, while employee benefits and pensions together came to $5.4bn – 4.4% of wages.
- Sole proprietorships reported $2.06 trillion of receipts and $1.69T of deductions in tax year 2023 – 81.8 cents of deduction per dollar of revenue.
- Cost of sales is the biggest block at $560.0bn, 27.1% of receipts. Everything below is the operating stack.
- The largest named operating line is car and truck at $150.2bn, ahead of salaries and wages at $121.8bn. The only larger line, “other business expenses” at $203.0bn, is a residual.
- That vehicle figure is mostly a mileage-rate calculation, not cash out the door: 65.5 cents a mile for 2023, about 28 cents of which is depreciation.
- Labor is bought three ways and mostly not as employment: $121.8bn in wages, $113.6bn in contract labor, $53.2bn inside cost of sales.
- Benefits are a rounding error. Employee benefit programs $3.7bn plus pension and profit-sharing $1.6bn equals 4.4% of the wage line.
Start with the shape of the return
A Schedule C is a short document, and in aggregate it resolves into three numbers. $2.06 trillion of business receipts. $1.69T of business deductions. $377.2bn of net income less deficit.
Deductions consume 81.8% of receipts. The largest single block is cost of sales and operations at $560.0bn, or 27.1% of receipts – inventory, purchases, materials and the labor embedded in producing what gets sold. That block behaves like a different animal from the rest, because it scales with what you sell rather than with how you operate.
What is left is the operating stack, and it is worth looking at line by line, because its ranking is not the one most owners would guess.
Net income less deficit nets profitable returns against unprofitable ones, so the green segment is the whole population’s margin, not a typical business’s.
Source: Internal Revenue Service, Statistics of Income Division, Sole Proprietorship Returns, Tax Year 2023, Table 2 (income statements by industrial sector), all-nonfarm-industries column, published March 2026 and downloaded from irs.gov on September 7, 2026. Figures are SOI estimates based on a sample of Schedule C returns; money amounts are published in thousands of dollars and are converted here. Four cautions apply. First, every figure is an AGGREGATE across all 31.1 million returns, not a per-business average – the table does not report how many returns claimed each line, so no figure here can be divided into an average business’s spending. Second, car and truck expenses are very largely computed at the IRS standard mileage rate, 65.5 cents per mile for 2023 under Notice 2023-03, of which about 28 cents is itself treated as depreciation; this line is a deduction, not a record of cash paid out in the year. Third, ‘other business expenses’ is a residual catch-all rather than a category, and is excluded from any claim about the largest named cost. Fourth, most sole proprietorships have no employees, so the wage line describes the minority that do.
The car outranks the payroll
Rank the operating lines and the top of the list is “other business expenses” at $203.0bn. That is worth naming plainly rather than skipping: the single biggest thing on the American Schedule C is a box marked other. It is a residual, not a category, so it tells you nothing about what was bought.
Below it, the largest line that actually names a cost is car and truck expenses at $150.2bn. Salaries and wages come next at $121.8bn. The vehicle line is 1.23 times the payroll line.
One caveat does most of the work here. Vehicle costs on a Schedule C can be claimed two ways – at the IRS standard mileage rate, 65.5 cents a mile for 2023, or on actual costs – and the SOI table does not report which method produced this total. That matters, because under the standard rate about 28 cents of every mile claimed is itself depreciation rather than cash paid out. If the whole line had been claimed at the standard rate it would represent on the order of 229 billion business miles; the real figure is some mixture of the two methods.
So the honest reading is not “solo businesses spend more on cars than on staff.” It is that the single largest named item on the American small-business tax return is the cost of moving around – and that it is claimed at a rate, which makes it the most estimated number on the form.
Bars are scaled to the largest line shown. The residual “other business expenses” line, at $203.0bn, is larger than every bar here and is deliberately excluded: it is a catch-all, not a named cost. Only car and truck is highlighted, because it is this article’s comparison point, not because it is the largest deduction on the return.
Source: Internal Revenue Service, Statistics of Income Division, Sole Proprietorship Returns, Tax Year 2023, Table 2 (income statements by industrial sector), all-nonfarm-industries column, published March 2026 and downloaded from irs.gov on September 7, 2026. Figures are SOI estimates based on a sample of Schedule C returns; money amounts are published in thousands of dollars and are converted here. Four cautions apply. First, every figure is an AGGREGATE across all 31.1 million returns, not a per-business average – the table does not report how many returns claimed each line, so no figure here can be divided into an average business’s spending. Second, car and truck expenses are very largely computed at the IRS standard mileage rate, 65.5 cents per mile for 2023 under Notice 2023-03, of which about 28 cents is itself treated as depreciation; this line is a deduction, not a record of cash paid out in the year. Third, ‘other business expenses’ is a residual catch-all rather than a category, and is excluded from any claim about the largest named cost. Fourth, most sole proprietorships have no employees, so the wage line describes the minority that do.
The biggest named cost on 31 million tax returns is not people, premises or product. It is the drive.
Labor, bought three ways
The wage line understates how much labor this population buys, because most of it is not bought as employment. Three lines carry it: salaries and wages at $121.8bn, contract labor at $113.6bn, and cost of labor inside cost of sales at $53.2bn. Together, $288.6bn.
Contract labor running at 93% of the wage line is the number to sit with. In dollar terms, this population buys nearly as much labor on contract as it does through employment – which is what you would expect from businesses that mostly cannot carry fixed payroll. The table reports dollars, not how many returns claimed each line, so this is a statement about money rather than about how many owners do which.
And when they do employ people, they buy almost no benefits. Employee benefit programs come to $3.7bn and pension and profit-sharing plans to $1.6bn. Together that is 4.4% of wages. Compensation benchmarks written for employer firms carry a substantial benefits load on top of salary. This population does not.
These are aggregate deduction totals, not per-business figures, and the table does not report how many returns claimed each line. The comparison is between dollars, not between typical employers. No cell is emphasised: the first three are three ways of buying the same thing, and the fourth is on a different scale from all of them.
Source: Internal Revenue Service, Statistics of Income Division, Sole Proprietorship Returns, Tax Year 2023, Table 2 (income statements by industrial sector), all-nonfarm-industries column, published March 2026 and downloaded from irs.gov on September 7, 2026. Figures are SOI estimates based on a sample of Schedule C returns; money amounts are published in thousands of dollars and are converted here. Four cautions apply. First, every figure is an AGGREGATE across all 31.1 million returns, not a per-business average – the table does not report how many returns claimed each line, so no figure here can be divided into an average business’s spending. Second, car and truck expenses are very largely computed at the IRS standard mileage rate, 65.5 cents per mile for 2023 under Notice 2023-03, of which about 28 cents is itself treated as depreciation; this line is a deduction, not a record of cash paid out in the year. Third, ‘other business expenses’ is a residual catch-all rather than a category, and is excluded from any claim about the largest named cost. Fourth, most sole proprietorships have no employees, so the wage line describes the minority that do.
The lines that are smaller than you would think
Three deductions carry far more argument than money. The home office deduction, the one most likely to be discussed as an audit risk, totals $14.4bn – less than travel ($25.9bn) and less than advertising ($24.3bn).
Advertising is $24.3bn, or 1.18% of receipts. Marketing benchmarks written for employer firms routinely start at 5% of revenue. This population is spending about a fifth of that, and it is worth being clear which of those two numbers describes you before treating either as a target.
Interest on business debt – mortgage and other combined – is $15.1bn, 0.73% of receipts. For all the attention small-business credit gets, borrowing costs this population less than it spends on insurance ($30.1bn) and about as much as it deducts for meals ($16.9bn).
Bars are scaled to the largest line in this group, insurance, not to receipts – so the lengths compare these lines with each other, and the printed percentages are the share of total receipts. Nothing is highlighted because the point is that the whole group is small: every line here is under 1.5% of receipts.
Source: Internal Revenue Service, Statistics of Income Division, Sole Proprietorship Returns, Tax Year 2023, Table 2 (income statements by industrial sector), all-nonfarm-industries column, published March 2026 and downloaded from irs.gov on September 7, 2026. Figures are SOI estimates based on a sample of Schedule C returns; money amounts are published in thousands of dollars and are converted here. Four cautions apply. First, every figure is an AGGREGATE across all 31.1 million returns, not a per-business average – the table does not report how many returns claimed each line, so no figure here can be divided into an average business’s spending. Second, car and truck expenses are very largely computed at the IRS standard mileage rate, 65.5 cents per mile for 2023 under Notice 2023-03, of which about 28 cents is itself treated as depreciation; this line is a deduction, not a record of cash paid out in the year. Third, ‘other business expenses’ is a residual catch-all rather than a category, and is excluded from any claim about the largest named cost. Fourth, most sole proprietorships have no employees, so the wage line describes the minority that do.
What to take from the stack
Check your vehicle line before your payroll line. If the aggregate says the drive is the biggest named cost, it is worth knowing what yours actually is, and whether you are claiming it at the standard rate or on actual costs. The two can differ substantially.
Treat “other” as a warning light in your own books. A $203.0bn residual is what a whole population’s uncategorised spending looks like. In one set of books, a large and growing “other” is the line that hides the problem.
Do not import employer-firm ratios. A full benefits load on top of salary, marketing at 5% of revenue – those are real benchmarks for a different population. On this one they describe almost nobody.
Frequently Asked Questions
What is the biggest expense for a sole proprietorship?
By aggregate deduction, cost of sales and operations at $560.0bn is the largest block, followed by the residual "other business expenses" at $203.0bn. The largest line that names a specific cost is car and truck expenses at $150.2bn, ahead of salaries and wages at $121.8bn. These are IRS Statistics of Income totals for tax year 2023 across all filers, not per-business averages.
Do sole proprietors really spend more on vehicles than on staff?
They deduct more. Car and truck expenses run 1.23 times the salaries and wages line. But vehicle costs on a Schedule C may be claimed either at the IRS standard mileage rate – 65.5 cents per mile for 2023, of which about 28 cents is itself depreciation – or on actual costs, and the SOI table does not report which method produced the total. It is a deduction figure, not a record of cash paid out.
How much do sole proprietorships spend on advertising?
Advertising deductions totalled $24.3bn in tax year 2023, about 1.18% of business receipts. That is far below the 5%-of-revenue rule of thumb written for employer firms, which is a reminder that the benchmark and this population do not describe the same kind of business.
How much of a sole proprietorship's revenue goes to deductions?
Total business deductions were $1.69T against $2.06 trillion of receipts, or 81.8%. Net income less deficit was $377.2bn, 18.3% of receipts, netting profitable returns against unprofitable ones.
Do sole proprietors offer benefits?
Very little. Employee benefit programs came to $3.7bn and pension and profit-sharing plans to $1.6bn – together 4.4% of the $121.8bn wage line. Most sole proprietorships have no employees at all, and those that do are buying labor far more often through contract labor, which totalled $113.6bn.
Published by The Lonely Entrepreneur — the community and coaching platform for entrepreneurs who are building alone. lonelyentrepreneur.com
This article is for educational purposes and is not a substitute for professional financial or legal advice.