Are S Corps More Likely to Be Audited by the IRS?

If you're self-employed and considering switching to an S Corporation (S Corp) to save on taxes, you’ve probably heard a common fear:

“Won’t that increase my chances of getting audited by the IRS?”

It's a valid concern. No one wants extra scrutiny from the IRS. But let’s clear this up: the idea that S Corps are more likely to be audited is a myth—and the data proves it.

What IRS Data Really Says About S Corp Audits

According to the IRS Data Book, here’s the breakdown of audit rates:

• Individual taxpayers (Form 1040): 0.38%
• C Corporations (Form 1120, under $10M): 0.05%
• S Corporations (Form 1120-S): 0.01%

Translation: S Corps are less likely to be audited than individual taxpayers.

In fact, S Corps have among the lowest audit rates of any business entity type. The IRS tends to focus its limited resources on high-risk categories: large corporations, high-income individuals, and returns with obvious red flags. Solos who have created entities for their business appear as serious and conscientious business owners–aka, low-risk taxpayers.

Why the Myth Persists

This fear likely comes from a few places:

• Misunderstanding about payroll: S Corps must pay reasonable wages, which adds complexity. But complexity isn’t the same as risk—especially with automated payroll solutions.
• Feeling like it’s a loophole: Creating an official entity like an S Corp shows the IRS that you’re running a serious business and you’re interested in following the rules. It’s not a loophole that attracts suspicion–it’s a strong strategy that signals maturity in your business.
• Outdated info: Audit rates have fallen dramatically over the past decade across all entity types.

What Actually Triggers an Audit?

Audits don’t come from your business structure. They come from mistakes or red flags, like:

• Underreporting income
• Excessive or suspicious deductions
• Large round numbers (which suggest estimates, not real records)

• Failing to issue or file 1099s or W-2s

Peace of Mind Starts With Lettuce

At Lettuce, we hear this fear all the time:

“I want the tax savings, but I’m scared of screwing something up and getting audited.”

Here’s the good news, Lettuce keeps your compliant by automating it all:

• S Corp formation
  
• Payroll (with reasonable salary built in)
  
• Quarterly and year-end tax filings
  
• Bookkeeping and compliance

All in one place, with zero guesswork. So whether you’re just starting out or switching from a Schedule C, you’ll never be alone in figuring it out—and you’ll never raise red flags for the IRS.

TL;DR: No, S Corps Are Not Audit Magnets 

If you’re considering switching to an S Corp to save on self-employment taxes, don’t let audit myths hold you back. The actual IRS data shows that S Corps are less likely to be audited than individuals. And with Lettuce, you’ll have every compliance box checked—automatically.

If you want to see what you could save with an S Corp, try Lettuce's free tax calculator. Or get started risk-free today.