An IRS audit can be stressful, intimidating, and time-consuming. While audits are relatively rare, certain actions and filing patterns can significantly increase your chances of being selected. Understanding IRS audit red flags helps taxpayers file more confidently and reduce unnecessary risk.
How IRS Audits Work
The IRS uses automated systems to review tax returns and flag unusual or inconsistent information. Some audits are selected by computer algorithms, while others are chosen randomly or based on related returns.
Common IRS Audit Red Flags
Underreporting Income
One of the most common triggers is failing to report all income. The IRS receives copies of W-2s, 1099s, and other income statements. When reported income does not match IRS records, it often leads to follow-up notices or audits.
Unusually High Deductions
Claiming deductions that are significantly higher than average for your income level or profession can raise red flags, especially when:
- Charitable donations are unusually large
- Business expenses exceed reasonable norms
- Home office deductions appear excessive
Self-Employment and Cash Income
Self-employed individuals and cash-based businesses face higher audit risk because income is not withheld or reported by employers. Poor recordkeeping increases exposure even further.
Home Office Deductions
While legitimate, home office deductions must meet strict requirements. Incorrect square footage calculations or claiming personal space as business use can attract scrutiny.
Repeated Losses
Reporting business losses year after year may lead the IRS to question whether the activity is a legitimate business or a hobby.
Random Audits Still Exist
Some audits are selected randomly. Filing accurately and maintaining records protects you even when selection is outside your control.
How to Reduce Audit Risk
- Report all income accurately
- Keep organized documentation
- Avoid aggressive or unsupported deductions
- Work with a tax professional
Professional review significantly lowers the chance of errors that could trigger an audit.