Everyone dreads facing a tax examiner. But audit fears tend to be much greater than audit realities. The overall risk of audit remains small. In recent years, IRS data show that its audit rate hovers around 1 percent for individuals earning less than $100,000. The agency also has admitted that it is now going after wealthier taxpayers since any filing mistakes there tend to produce a larger return on the audit effort.
The remedy: Statistics don't matter if you're one of the relatively few audited. If that happens, make sure you can show an IRS examiner why you filed as you did. "If you're really doing stupid things on your tax return, expect to get audited. Deservedly so," says Eva Rosenberg, an enrolled agent based in Southern California and the Internet's TaxMama. "But if you're afraid to use a legitimate tax break because you're afraid you're going to be audited, stop it! Stand up for your rights. There's no reason to be afraid."
Keep good records. If you can prove the tax break was valid, you'll be OK. People who work for themselves and file Schedule C do tend to get scrutinized a bit more, so your business record keeping needs to be precise.