The IRS Tells You how to Reduce your Chances of an Audit
If you’re an independent contractor (aka self-employed or sole proprietor), or in a general partnership, here’s another reason why you should form a separate legal entity.
In its annual Data Book, the IRS has released the percentages of tax returns that were audited in 2015. One of the most heavily audited returns were Schedule C business returns, which are filed by unincorporated businesses (i.e., those that have not formed a business entity). The stats reveal that your chances of audit are at least 4 times higher if your business is not incorporated.
And if you’re not already aware, incorporating your business also offers limited liability protection and lowers taxes by eliminating your self-employment tax.