WHEN CHUCK VOSBURGH went to check his mail this past Valentine's Day, what awaited him wasn't a love letter from a secret admirer — but a $25,000 bill from the IRS, instead.

"I've been in business for over 20 years and always had a CPA prepare my taxes," says Vosburgh, founder of Pro Techniques, a design firm in Seminole, Fla. "I did it myself one year and then got audited."

Vosburgh is hardly alone. In 2007, the number of audits among individual filers rose by 7% to nearly 1.4 million audits, up from almost 1.3 million in 2006, while audits of small corporations rose 10.7% to more than 20,000. The Internal Revenue Service, meanwhile, has been upping the examination of "flow-through" entities — that is, entities such as partnerships and S Corporations that report income or losses on the owners' personal income-tax returns. Last year, audits of partnerships rose 25% and S corps 26% from 2006.

The added scrutiny of businesses is largely due to the government's mandate to narrow the nation's $290 billion "tax gap," or the difference between what's owed and what gets collected every year. IRS research suggests that self-employed workers, including small-business owners whose income isn't reported separately via third parties, are among the worst tax compliance offenders.

Vosburgh attributes the unwelcome attention to a number of circumstances that probably looked "fishy" to the IRS. For instance, "even though it's a separate building, I work out of my house," he says. "I am self-employed and I use my personal vehicle for business purposes." Plus, he says, "I had a [$20,000] loss that year."

While little is known about what exactly triggers an audit, business owners — especially those who are new to the business-filing process — would do well to extend even more care to their taxes this year. Here are some ways to avoid drawing the ire of the IRS:

Divide and Conquer

The best thing you can do is keep as many things separate as possible, says Victor F. Swyden, an accountant in Overland Park, Kan. For instance, opt for a separate bank account and credit card for business transactions. Such a move, says Swyden, will deter you from commingling personal and business expenses, which can then cut down on making inadvertent mistakes such as deducting personal expenses as business expenses on your return.

Business owners should be extra cautious when reporting items such as entertainment and home-office expenses, says Steven I. Hurok, a tax partner at BDO Seidman in Woodbridge, N.J. The IRS, seeing the potential for abuse, focuses on these oft-commingled categories. For example, "taking your wife to dinner and treating it as a business expense won't fly," Hurok says. (For a list of what you can deduct, click here. Having a more concrete division between personal and business expenses will help in case you do get audited, he adds.

Avoid Red Flags

Other areas flagged by the IRS, according to numerous accountants and tax professionals, include: consecutive business losses, third-party income reports that don't match up and claiming large deductions relative to your income.

In terms of business losses, "if you haven't had income for two of the last five years, the presumption is that you are engaged in a hobby rather than a business," says Mark Luscombe, a principal analyst for the tax and accounting group at CCH, a unit of Wolters Kluwer. Start-ups and businesses that develop products that take years to make profits may be particularly vulnerable to this standard. Luscombe suggests "attaching something [to the return] that explains why this is the fourth consecutive year of losses might be helpful."

Frederick W. Daily, a tax attorney in St. Pete Beach, Fla., and author of Nolo's "Tax Savvy for Small Businesses," adds that "a lot of people get caught because third-party reporting doesn't match up with what you put in your return." For instance, you decide to estimate a payment from a client; that client, in contrast, reports the exact figure to the IRS. (See more on accuracy below.) The discrepancy might trigger a closer examination.

Also, the IRS is generally leery about large deductions relative to a business owner's income. According to Daily, the IRS scores you geographically by your zip code and according to what other people make in your profession or industry. For example, he says, "if you're a restaurant owner, [the IRS] will compare you [and your expenses] to other restaurant owners. If something unusual jumps out, then your chances of being audited increases."

Aim for Accuracy

While some business owners are certainly guilty of claiming fraudulent losses and deductions, chances are, most just make simple mistakes. "Errors such as inserting incorrect identification numbers and columns that don't add up correctly could be telling" and may get you flagged for an audit, says Luscombe. He adds that using tax software and getting an accountant to prepare your return will cut out a lot of mistakes.

Daily urges business owners filing by hand to make sure their returns are legible and add up correctly, as math errors can attract attention. Additionally, says Daily, business owners should also avoid using round numbers. "It is an indication to the IRS that you are estimating rather than keeping records," he says.

Also, business owners need to be mindful of changes in the tax law, says Swyden of Overland Park. "If you don't realize a rule change, or you don't do it the right way, that will get you noticed," he says, which is another good reason to have accounting or tax software. "If you are using the current year's version, [tax software] will be much more knowledgeable than any individual who doesn't prepare returns all day."

Prepare for the Worst

In the event you do get audited, the condition of your records can either save or condemn you. For his part, Vosburgh says, "over the years I got lax with my records. My receipts ended up in a big envelope." That made finding his 2005 records for review in 2008 "a monumental task," he says. "Just getting all of my records together took two days, at least."

To ease this process and to make sure you do in fact have the necessary backup should you get audited, be sure to compile and maintain complete records, says Swyden. "It's not only necessary for filing a correct tax return, but it is also one of those things that establishes whether or not you have a real business."

Keep track of bank statements, canceled checks, expense receipts, vehicle mileage logs, invoices, deposit slips, copies of general ledgers and any notes. It might also help to use accounting software such as Intuit's Quicken, QuickBooks or Microsoft's MS Money.

Keep in mind that even if a professional prepares your return, you are ultimately responsible for the information it contains. Say, for example, you get audited because your accountant fraudulently inflated your personal or business expenses. According to the IRS, the taxpayer — not the return preparer — must pay the additional taxes and interest charges along with possible penalties.