The scoring system compares your deductions to peers at similar income in similar industries. Legitimate outliers exist — a launch year, a build-out, a bad year — but outliers without documentation are indefensible. Take every deduction you're entitled to; keep every record that proves it.
Vehicle use claimed at 100% business, meals and travel without logs, and home office claims without a genuinely exclusive space draw disproportionate attention because they are disproportionately abused. Contemporaneous records — mileage logs, receipts annotated with business purpose — turn these from vulnerabilities into non-events.
Restaurants, salons, retail, and trades face structural skepticism because cash income is easy to underreport. Lifestyle-versus-reported-income analysis is a standard examination technique. Rigorous daily recording is both the compliance answer and, notably, the valuation answer — unreported cash suppresses what your business is worth on exit.
Multiple consecutive loss years trigger hobby-loss scrutiny, which examines whether you operate with genuine profit motive: business plans, separate accounts, professional records, adaptation over time. The documentation of intent matters as much as the numbers.
Worker misclassification — treating employees as contractors — is a persistent enforcement priority with back-tax and penalty exposure. The tests concern control and independence, not what the contract page says.
Audit risk management is not about small returns; it's about defensible ones. Clean books, contemporaneous documentation, and consistent reporting make an examination a correspondence exercise instead of an ordeal.
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