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If you are a sole proprietor--a person who runs a business that has not been incorporated---the IRS is targeting you.

If you are a sole proprietor--a person who runs a business that has not been incorporated---the IRS is targeting you.

You are a sole proprietor if you operate your business without forming a corporation or an LLC.

IRS form Schedule C is used by sole proprietors to deduct business expenses against business income. The two biggest problems for the IRS are fears that income will be under reported and personal expenses will be written off as business deductions.

In addition, the IRS has found that many schedule C businesses are fictional and reported only to reduce the taxpayers tax liability and/or make the taxpayer eligible for the earned income credit (which translates to FREE MONEY!)

That's why schedule C is the IRS' most audited form. Simply having a schedule C in your return results in more scrutiny by the IRS.

For that reason, you don't want a schedule C in your tax return.

Service businesses, such as hair salons, and repair services along with professionals like doctors, lawyers and insurance agents are IRS targets.

Changing the method used to report business activity is the answer for service businesses and professionals.

This means you should AVOID SCHEDULE C LIKE THE PLAGUE!

You can incorporate or form an LLC to combat this problem.

Forming an S-corporation is a great way to avoid schedule C. Among the many benefits is the fact that S-corporations escape self employment tax---the additional 15.3% tax due on the profit from business.

If you form an LLC to get away from schedule C, you must have other members (partners) in the organization. A single member LLC must file a schedule C, so you would be back in the same boat. Or you could elect to file as an S-corporation, or a partnership by filing a form 8832 (Entity Classification Election) to be classified as another entity.

Please consult a tax professional to help you make the right decision regarding your entity choice. You may have extenuating circumstances which may call for a different plan of action.

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