Audit-Proofing in 2025: What the IRS Is Watching (and How to Document)

Tax savings aren’t real unless they survive an audit.

And in 2025, with new IRS enforcement funding, tech-powered flagging systems, and the changes ushered in by the Big Beautiful Bill, high-income entrepreneurs are facing tighter scrutiny — especially if you’re claiming aggressive deductions.

At Washington & Co. Inc — Strategic Tax & Advisory, we help seven-figure founders stay compliant and aggressive by building bulletproof documentation systems that work whether you’re scaling, selling, or just sleeping well at night.

This post breaks down the audit red flags the IRS is targeting — and what documentation you need to defend every deduction you take.

The IRS Is Coming — But Not for Everyone

Enforcement efforts are increasing — but they’re not evenly distributed. The IRS is focusing its audits on:

• Taxpayers earning $400,000+
• S Corps with low W-2 salaries
• High Schedule C income with net losses
• Returns with large write-offs in meals, travel, and vehicle expenses
• Businesses with hobby-like income or inconsistent records

It’s not about scaring founders into paying more. It’s about ensuring your return tells the same story as your bank statements, receipts, and logs.

Areas Most Likely to Trigger an Audit in 2025

Here are the most common deduction categories the IRS is laser-focused on this year:

1. Meals and Entertainment
   • Must be directly tied to business
   • Documentation must include names, dates, locations, and purpose
   • Entertainment is still nondeductible (except sponsorships with exposure)
2. Travel and Mixed-Purpose Trips
   • You must prove the trip was primarily business
   • Keep agendas, receipts, and notes showing business meetings
   • Days must be classified correctly (business vs personal)
3. Home Office Deduction
   • Must be used exclusively and regularly for business
   • Document square footage and business use
   • Especially scrutinized if you also have a commercial office
4. Vehicle Deductions
   • Personal vs business mileage must be logged
   • Standard mileage rate or actual expenses — not both
   • IRS expects a written log with dates, destinations, and business purpose
5. Low or Missing S Corp Wages
   • If you’re taking all income as distributions, it’s a red flag
   • Reasonable compensation must match your role, industry, and business size

Audit-Proofing = Documentation, Not Guesswork

The IRS doesn’t expect perfection — but they do expect consistency and substantiation.

Here’s what we recommend clients implement:

• A mileage app (like MileIQ or Everlance) that logs every trip
• A monthly meals and travel log with business purposes listed
• A cloud folder for receipts, invoices, and bank statements
• A formal Accountable Plan for reimbursing home office, cell phone, internet
• W-2 wages documented with industry benchmarking (RCReports, etc.)

If it’s not written down — it didn’t happen (at least in the IRS’s eyes).

Real Example: $0 Change Audit with the Right Documentation

A coaching client we worked with was audited on $38,000 of meals and travel deductions — the IRS assumed it was excessive.

But we had:

• Categorized monthly reports
• Receipts with names and purposes
• A consistent mileage log
• A documented reimbursement plan for home office

Outcome? No adjustments. No penalties. No problem.
The IRS closed the case in two weeks, and the client kept every dollar.

When Documentation Fails (And What to Do About It)

Here’s where clients get into trouble:

• Expenses paid in cash without receipts
• No record of who attended a dinner or meeting
• Mixing personal and business use without clear logs
• Winging it at year-end with vague numbers and no backup

If you know your documentation is weak, don’t panic. But don’t wait until the IRS comes knocking either.
You can still clean up 2025 while there’s time.

Audit-Proofing Action Plan

• Review your last 90 days of meals, travel, and home office expenses
• Start using a digital log system for mileage and receipts
• Update your Accountable Plan if you’re reimbursing yourself
• Benchmark your salary if you’re an S Corp owner
• Set up a simple system for monthly documentation going forward

Book an Audit-Proofing Strategy Session

The best time to prepare for an audit is before it happens.
The second-best time? Now.

Let us help you build a deduction strategy that’s aggressive, accurate, and 100% defensible.

Book your Audit-Proofing Session with Washington & Co. Inc — Strategic Tax & Advisory today.