If you are self-employed, have a few employees, and most of your business deals with cash (restaurants, bars, groceries) then the chance of you getting audited is very high. Just having these characteristics in a taxpayer means the red flags go up within the IRS. IRS considers self-employment as the hub of tax cheating. They are always looking to round up self-employed individuals with small businesses and audit them. Between the self-employed guy, and the guy who works for a electric company with the exact same taxable income, deductions, and tax credits the chance of the self-employed guy getting audited is higher than the guy who works for the electric company.
Self-employed individuals get audited for obvious reasons. You made a mistake somewhere along the way or they picked you randomly to be audited. Either you reported income less than your expenses or you claimed deductions for expenses that dont qualify. Or in the case of the few, you are really cheating the IRS on purpose. Whatever the reason get ready to get audited and in most cases no one walks away from an audit without owing something. It may be a good idea for self employed individuals to obtain as much tax lawyer information as possible just to be educated on potential IRS pitfalls.
These are some tips to follow if you want to avoid an audit: