No one wants to receive a letter from the IRS announcing an audit. While audits are
relatively rare, certain red flags can increase the likelihood of scrutiny. Understanding
these triggers can help taxpayers stay compliant and avoid unnecessary stress.
đźš© 1. High Income Levels
The IRS uses a statistical model to flag returns that deviate from the norm. Earning
significantly more than average—especially over $200,000—can increase audit risk
simply because higher-income returns tend to be more complex and have more
opportunities for error or evasion.
📉 2. Large Deductions Relative to Income
Claiming unusually high deductions compared to your reported income—especially for
charitable contributions, business expenses, or home office use—can raise
eyebrows. The IRS may question whether these deductions are legitimate or inflated.
🧾 3. Self-Employment and Cash Businesses
Self-employed individuals and those in cash-heavy industries (like salons,
restaurants, or repair services) are more likely to be audited. The IRS pays close
attention to Schedule C filings, especially when expenses seem disproportionate or
income appears underreported.
🏠4. Home Office Deductions
While legitimate home office deductions are allowed, they must meet strict criteria.
Vague or overly generous claims—like writing off your entire living room—can trigger an
audit.
đź’¸ 5. Foreign Accounts and Assets
Failing to report foreign bank accounts, income, or assets can lead to serious penalties.
The IRS has increased enforcement around international compliance, especially under
FATCA (Foreign Account Tax Compliance Act).
🧾 6. Math Errors and Inconsistent Information
Simple mistakes—like transposing numbers or mismatching reported income with W-2s
or 1099s—can prompt a review. Always double-check your return for accuracy and
consistency.🏢 7. Business Losses Year After Year
If your business reports losses for multiple consecutive years, the IRS may question
whether it’s a legitimate for-profit enterprise or a hobby. Hobby losses are not
deductible.
🧾♂️ 8. Claiming Dependents Incorrectly
Claiming dependents who don’t meet IRS criteria—such as non-relatives or individuals
who file their own returns—can lead to audits and denied credits.
🧾 9. Excessive Itemized Deductions
While itemizing can be beneficial, excessive deductions for medical expenses,
unreimbursed employee costs, or miscellaneous items can stand out. The IRS
compares your deductions to statistical norms for your income bracket.
🛑 10. Failing to Report All Income
The IRS receives copies of your W-2s, 1099s, and other income documents. If your
return omits income that’s been reported to them, expect a notice or audit.
Final Thoughts
While you can’t guarantee audit-proof returns, you can reduce your risk by filing
accurately, documenting thoroughly, and working with a trusted tax professional. If you
do receive an audit notice, don’t panic—respond promptly and seek expert guidance.