1. Taking excessively large deductions
If the deductions, losses, or credits on your Form 1040 are disproportionately large compared with your income, the IRS may want to take a second look at your return. The same is true with deductions taken on Schedule C.

2. Making a lot of money
While overall individual audit rates are low, your audit odds go up as your income goes up, especially if you have business income reported on Schedule C.

3. Writing off a hobby loss
Not every business ends up in the black every year, but too many years of losses can make the IRS think you're not really taking your business seriously enough—that it's just a hobby.

4. Claiming 100% business use of a vehicle
When you depreciate a car, you must list on Form 4562 the percentage of its use during the year that was for business. Claiming 100% business use of an automobile is red meat for IRS agents. They know it's rare for someone to use a vehicle 100% of the time for business, especially if no other vehicle is available for personal use.

5. Trading vs. investing in securities
People who trade in securities have significant tax advantages compared with investors. The expenses of traders are fully deductible and reported on Schedule C (expenses of investors aren't deductible), and traders' profits are exempt from self-employment tax. Losses of traders who make a special section 475(f) election are treated as ordinary losses that aren't subject to the $3,000 cap on capital losses. And there are other tax benefits.

6. Claiming rental losses
The IRS actively scrutinizes rental real-estate losses, especially those written off by taxpayers who say they are real-estate professionals.

Normally, the passive loss rules prevent the deduction of rental real-estate losses. But there are two important exceptions.

- If you actively participate in the renting of your property, you can deduct up to $25,000 of loss against your other income.
- This $25,000 allowance phases out as adjusted gross income exceeds $100,000 and disappears entirely once your AGI reaches $150,000.

7. Taking the R&D credit
The research and development (R&D) credit is one of the most popular business tax breaks, but it's also one that IRS agents have found is prime for abuse.

The IRS is on the lookout for taxpayers who fraudulently claim R&D credits and promoters who aggressively market R&D credit schemes. These promoters are pushing certain businesses to claim the credit for routine day-to-day activities and to overinflate wages and expenses in the calculation of the credit.

8. Operating a marijuana business
Marijuana businesses have an income tax problem. They're prohibited from claiming business write-offs, other than for the cost of the weed, even in the ever-growing number of states where it's legal to sell, grow, and use marijuana for medical or other purposes. That's because a federal statute bars tax deductions for sellers of controlled substances that are illegal under federal law, such as marijuana.

9. Big deductions for meals and travel
Is it business or pleasure? A large write-off on Schedule C for restaurant tabs and hotel stays will set off alarm bells, especially if the amount seems too high for the business or profession.

10. Claiming home-office deductions
Entrepreneurs can deduct on Schedule C a percentage of rent, real-estate taxes, utilities, phone bills, insurance and other costs that are properly allocated to a home office. That's a great deal.

Reasons why the self-employed get audited

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