Most small business owners dread the word “audit.” While the IRS doesn’t audit everyone, certain mistakes—or patterns—can put you in the spotlight. These aren’t just minor inconveniences. They can lead to penalties, interest, and the stress of defending your numbers. The good news? By knowing the red flags in advance, you can avoid waving them in the IRS’s face.
Claiming unusually large deductions compared to your reported income can make the IRS suspicious. For example, a $60,000 salary with $40,000 in “business meals” will stand out. While deductions are legal (and powerful when done right), they need to be documented and proportional.
This is one of the IRS’s favorite targets. If you treat workers who act like employees as contractors, you could be hit with back taxes, payroll penalties, and fines. The IRS takes worker classification seriously, especially with today’s gig economy.
Using your business account for vacations, personal vehicles, or family expenses is a classic red flag. Even if some items are legitimate deductions, blurring the line invites extra scrutiny. Clean bookkeeping and clear separation are critical.
Unless you’re running a delivery business or fleet operation, claiming that your vehicle is only used for business is tough to justify. The IRS knows most small business owners use their cars for both personal and professional reasons. Keep a mileage log to back up your claims.
The IRS gets copies of 1099s, W-2s, and other forms you receive. If you “forget” to report even small amounts, it’s an easy way to trigger extra scrutiny. They already know your income; the only question is whether you’re reporting it accurately.
The truth is, you don’t need to fear the IRS when you’re proactive. Smart tax planning ensures deductions are documented, expenses are structured properly, and your entity is optimized. At Shore Financial, we focus on reducing your taxes without raising red flags, so you keep more of your money without inviting an audit.
👉 Want to make sure your business is audit-proof while still cutting taxes? Book a Free 15-Minute Consultation today and learn how proactive planning keeps you safe and saves you money.