Sole proprietors, did you know that changing your business entity type may minimize the risk of an IRS audit? You can, for example, incorporate and use S corporation status. The audit rates on S corporations, even if they are one-owner entities, are dramatically lower than the rates on sole proprietorships.

During the government’s fiscal year 2008 (ending September 30), sole proprietors with gross receipts of between $100,000 and $200,000 had audit rates of 3.9%. The audit rate on all S corporations was only 0.4%.

There are many substantive business reasons to convert a sole proprietorship to another business entity type. Minimizing your risk of audit is just a collateral benefit.