Scared of being audited by the Internal Revenue Service or your state taxing authority? That’s what they want! They hope the fear of an audit will keep you honest. And although the average taxpayer has a very low chance of getting audited, the potential is always there.

So people are often wondering about some of the most common audit red flags. Well, the IRS is smart. They know that if they told everyone what the red flags are, taxpayers would all avoid those items and cheat elsewhere.

Fortunately, your trusty tax preparers have noticed some of the more common audit issues:

• Secret Formula – It’s known among professionals that the IRS has a “secret formula” of sorts. Based upon the zillions of tax returns they’ve looked at, they’ve developed some parameters that are “normal.” If enough items on your tax return fall outside these secret parameters, you can be flagged for an audit. We don’t know specifically what goes into this formula, but we do know that if you end up with very unusual income or deductions, you could be on the hit list.
• Small Business Losses – Small businesses with losses year after year can raise suspicions. If you’re filling out a Schedule C, you should know that if you don’t show a profit for at least three out of the last five years, you’re in danger of the IRS disallowing your deductions. A business is supposed to be for-profit, and if you’re chronically losing money, the IRS sees that as more of a hobby.
• Meals, entertainment, auto expenses – These items are often abused by taxpayers, and the IRS knows it. Most taxpayers keep poor records when it comes to mileage on their car, and many taxpayers pretend that personal meals are actually business meetings. If your expenses in these areas get too high, you could be running a higher risk of being audited. And if you don’t have proper documentation, these are some of the first expenses an IRS auditor will be happy to disallow.