What is your risk of being audited? Even though contractors are one of the most heavily audited groups, your chance of being audited is slim. The IRS is understaffed these days and random audits are almost nonexistent. Auditors are limited to six hours for most clients. Generally, you'll escape scrutiny if your figures seem plausible and there are no drastic changes in your numbers from one year to another.
An audit is an unpleasant experience. It is your burden to prove figures. If the agent finds problems, he could disallow deductions, impose a fine, and even charge you with fraud. Once you are audited, you are subject to future inspection. Keep accurate records, document your figures, and be reasonable. --Howard Scott is a business writer and small business tax preparer in Pembroke, Mass.