They say it's random and their computers are programmed to look at differential scores. But there are things that make an audit more likely, like having an office at home. If an auditor finds kids' toys in the office they might challenge that deduction.
If your company is losing money and your books and records easily reflect that, you may not have to pay yourself a salary, but year after year of losses will eventually cause them to initiate an audit and declare it a hobby, not a business.
If you're not incorporated, and you're not separating personal financial records from business activities, that's going to be a big problem in an audit. If you keep separate books and records for your business, the audit will be faster and go smoother.
The IRS looks at expenses such as meals, entertainment and travel. Documentation is required to justify expenses. If you're expensing a meal, you should have an appointment book that shows whom you met, why, a receipt for how much you spent and where.
And lastly, if you sub-contract work to others, the chances of an audit are greater. The IRS wants to know if this is just a way of avoiding payroll taxes. Thousands of new auditors are being added so be prepared and keep your records as clean as your equipment.
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