I am an actor and keep diligent records of all my expenses for tax purposes. I am being audited this year because of this. Would incorporating myself be beneficial? My agent said I should and for Social security reasons as well. My accountant is still in the process of trying to have the audit end in my favor!
Incorporating or forming an LLC now won’t help you with your past (or ongoing) tax audit.
Once they have flagged your for audit, the audit is going to carry through.
However, there is some evidence from looking at audit rates that LLCs and corporations are audited less frequently than people who run sole proprietorships and use only a Schedule C.
Therefore, in addition to the other advantages of an LLC such as pass-through taxation, limited liability, and more deductions, it is possible that you would also reduce your chance of an audit.
That said, there is nothing you can do to prevent an audit–only lessen the possibility of one.