Wednesday, January 14, 2009

How to Avoid an IRS Tax Audit: Incorporate Your Small Business

One tip for Dodging a Tax Audit, per the Wall Street Journal's reporting: Incorporate. The WSJ reports that the IRS continues to target Schedule C filers for tax audits and additionally notes that the IRS will sometimes act on an anoymous tip regarding a taxpayer's non-compliance with U.S. tax law.
[T]he overall audit rate this year is likely to remain about the same as last year, says Linda Stiff, IRS deputy commissioner for services and enforcement. But officials are likely to continue their emphasis on high-income taxpayers. Your chances of getting audited are especially high if you work for yourself, file what's known as a Schedule C form for sole proprietors and deal in large amounts of cash. IRS research has shown especially large amounts of noncompliance among this group.

"Like Willie Sutton said about banks, the IRS is looking at high-income, self-employed Schedule C filers because that's where the money is," says Martin Laffer, a certified public accountant at Laffer & Gottlieb in Beverly Hills, Calif. For example, he says one of his clients being audited owns several retail stores and also is a consultant.
See also:

Time to Incorporate?
California incorporation

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