audits, IRS

What Triggers an IRS Audit & How to Avoid It

01
Oct

What Triggers an IRS Audit?

The words ‘IRS Audit’ can make anyone’s heart race. But before you panic, it’s important to understand that not all audits happen because you’ve done something wrong. Many are random, and some are triggered by very specific factors the IRS watches closely.

In this article, we’ll break down the most common IRS audit triggers, how the IRS selects tax returns for review, and what you can do to reduce your chances of being audited.

Common IRS Audit Triggers

According to the IRS Publication 556, your return may be selected for review either randomly or because specific items that raise red flags. Some of the most common triggers are:

  1. Unreported Income

The IRS gets copies of your W-2s, 1099s, and other income forms directly from employers and payers. If what you report doesn’t match their records, it’s an immediate red flag (IRS Topic No. 652).

  1. Large Charitable Deductions

Claiming unusually large charitable contributions compared to your income can draw suspicion (IRS Publication 526).

  1. Self-Employment or Cash-Heavy Businesses

Gig workers, independent contractors, and small business – especially cash-heavy industries – are more likely to be audited because unreported income is harder to detect.

  1. High Income Levels

The IRS’s data shows the audit rates increase for taxpayers earning more than $400,000 per year (IRS Data Book).

  1. Claiming Excessive Business Expenses

Especially if your deductions seem disproportionate to your reported income.

  1. Home Office Deductions

The IRS carefully examines these claims to ensure they meet the strict definition of “exclusive and regular use (IRS Publication 587).

How the IRS Chooses Who to Audit

The IRS uses a computer scoring system called the “Discriminant Information Function (DIF)” to rate returns. Higher scores mean a greater likelihood of an audit (IRS Audit Process Overview).

Returns may be chosen:

  • At random
  • Based on related examinations (for example, your return might be reviewed if it’s connected to someone else’s audit)
  • Because of document mismatches or math errors

Common Myths About IRS Audits

  • Myth: Audits only happen to people who cheat on taxes.

Reality: Many are random or triggered by simple errors.

  • Myth: Claiming deductions will automatically cause an audit.

Reality: The IRS allows all legitimate deductions – the key is keeping proof.

How to Reduce Your Audit Risk

  • Report all income accurately
  • Keep thorough documentation of deductions and expenses
  • File on time, and double check for errors
  • Use reputable tax preparation software or a professional CPA.

Even if you’re selected for an audit, it doesn’t have to be a nightmare. Our team helps clients navigate the process, protect their rights, and reach the best possible outcome.

If you have received an audit notice, contact us today to discuss your options.

Sources: