By Garrett Sutton, Esq.
When it comes to businesses, the IRS audits sole proprietors at a five times greater rate than corporations or LLCs.
(This is to your advantage because you are not going to operate as a sole proprietor anyway. If you have any questions about why not to operate as a sole proprietor, read my past blogs.)
Why the greater IRS scrutiny on sole proprietorships? Well, look at it from the IRS point of view. If you are serious about your business you will want the asset protection of an entity. If you aren’t concerned about unlimited personal liability and operate as a sole proprietorship, maybe you aren’t that serious about your business. (Who wouldn’t want to be protected?)
Hence, maybe your business isn’t really a serious business and, if so, maybe it should be audited. Sole proprietors, who report their business income on Schedule C of their Form 1040 individual tax returns and in many cases do not have professional tax help, are prime targets for this reason. Collecting from sole proprietors is easy pickings for the IRS.