There is a concern that if a business doesn't make a profit in most years, it might not be a legit business, it might be an improper tax shelter of some kind. (My best friend in high school's dad ran a "catering business" out of his house that was mainly an excuse to buy high end kitchen appliances for personal use.)
However, you can always show, if audited, that your business is a real ongoing business and you either have losses on paper because of depreciation, but you are still making cash flow, or you have been having some down years, but it is still a real business.
I would never let fear of an audit be the main motivator for doing anything. If you are a real ongoing business with a couple of bad years (and not a tax shelter or other dubious arrangement) then file an accurate tax return and deal with an audit if it happens -- if you file an accurate return and have all your documentation in order, you shouldn't have a problem.
