The IRS has quietly stepped up audits of small businesses and pass-through entities this year, especially targeting aggressive expense write-offs and owner distributions.

Here are the top five areas:

• Meals and entertainment deductions are under sharper scrutiny—too many “business dinners” with no clear documentation are being denied.
• Vehicle expenses (especially SUVs and trucks) are a hot audit trigger, particularly when 100% business use isn’t well-documented.
• Owner draws vs. salary for S-Corps are being reviewed more closely. Paying yourself “too little” can raise red flags.
• Inconsistent patterns and round numbers the IRS’s analytics software flags returns showing unusual patterns—such as multiple years of losses, overly round figures ($5,000, $10,000 etc.), or inconsistent income-expense ratios.
• Aggressive deductions and large expense claims the IRS is flagging businesses with high deductions relative to income, especially on Schedule C, travel, meals, and entertainment without clear documentation.

Why does this matter?

The IRS is investing heavily in enforcement with new funding, and small businesses are a key target. A lack of receipts, mileage logs, or formal payroll for owners could cost you thousands in back taxes and penalties.

What you can do today:

• Review your 2025 bookkeeping for accuracy.
• Keep detailed logs for vehicle and travel expenses.
• Ensure S-Corp owners are paying “reasonable compensation” via payroll.
• Spot and fix inconsistent patterns. If your expense or income numbers look unusually “round” or repetitive (e.g., all $1,000 or $5,000), double-check for errors or missing detail. These stand out to IRS analytics.
• Make sure any big write-offs (like equipment purchases, travel, or meals) are backed by proper receipts, invoices, and business purpose notes to withstand audit scrutiny.