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Red flags for an IRS audit tend to be alike whether you are a business or an individual. You may just get caught with the audit flag of the year. The IRS establishes a type of transaction or form on business and on personal tax filings each year that they will use to check out that year's taxes. If your business uses this tax line item or form, you will be at least considered for an audit. There really is no good way to avoid this type of audit because these flags are kept secret by the IRS. You may also just be unlucky enough to be the victim of the random audits that are pulled for no reason other than your number came up for audit.

The other way to get an audit is to have too much variation in your data from either last year's tax information or from other similar taxpayers' data. For example, if most businesses like yours have about $2,000 in auto expenses each year, and yours is $10,000, you will be a good candidate for an audit. Obviously, if you have good documentation for your deductions, there is little to worry about. However, if you like to walk on the edge with your tax information, you may be need to learn to pray.

Unusual deductions are also a flag. If you work from home in an industry where almost no one does, is will be a flag. Again this is not a problem if you can prove it. Of course, working from home is almost always a red flag for the IRS. Home office deductions are scrutinized about as closely as they can be. This is an area that the IRS knows people and businesses can cheat because it can be hard to prove them wrong.

With a growing business, you are more likely to signal the IRS to audit your taxes. While a steady growth in income is desirable, a huge leap is suspect. If you have been running a business with an income of $100,000 and now have jumped in a single year to $500,000, the IRS may vary well want to know why even if you have paid all of your taxes due.

The idea here is that you may be trying to launder money, or you may have been hiding income in the years before and now were unable to do so. Either way, the IRS wants to know what is going on with your business. The way that they find out is to audit your taxes. If you find yourself in this favorable position of having a large increase in earnings, just make sure that you and your accountant have done everything right. You will be fine.

Of course, if you file an incomplete return, it will make for an automatic audit. However, many times this type of audit is just conducted to get all of your paperwork in order. This type of audit is usually handled by a letter requesting the appropriate forms be forwarded to the IRS>

Finally, your accountant can trigger an audit. If a client of an accountant is audited and found guilty of cheating on taxes, this will cause the IRS to call for audits of other businesses that use this accountant. So, it is a good idea to consult with your accountant about the firm's track record in keeping their customers safe from an audit. If the accountant likes to take risks with your tax filings to make their service look good to customers, it can cost you far more than you save on taxes for many years.

Learn more about this author, Allen Teal.
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