What Triggers an IRS Audit? Red Flags & How to Avoid Them

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Nothing sends a chill down a taxpayer’s spine quite like the word “audit.” But do you know what actually triggers an IRS audit? More importantly, how can you avoid common IRS audit red flags that could lead to unwanted scrutiny?

At The Accounting Doctor, we specialize in helping individuals and businesses stay compliant and reduce their chances of triggering IRS audit red flags. In this guide, we’ll break down:

What an IRS audit is and why they happen
The biggest IRS audit red flags that can lead to further review
How to protect yourself from IRS inquiries and what to do if you’re audited

Let’s get started!

What Is an IRS Audit?

An IRS audit is when the IRS reviews your tax return to verify that everything is accurate and properly reported. Audits don’t always mean you did something wrong—but they do mean the IRS wants proof of your numbers.

Audits can vary in intensity:

• Correspondence Audit: The IRS requests documents via mail.
• Office Audit: You meet with an IRS agent to go over specific issues.
• Field Audit: An IRS agent visits your home or business for a full review.

Most audits start as a simple letter request, but ignoring them can lead to serious consequences.

What Triggers an IRS Audit?

The IRS has automated systems that scan tax returns for red flags. If something doesn’t add up, you could be next in line for an audit.

1. High Income

The more money you make, the higher your audit risk. Taxpayers earning over $500,000 per year face higher IRS scrutiny than those in lower tax brackets.

2. Underreporting Income

The IRS receives copies of your W-2s, 1099s, and other tax forms. If your tax return doesn’t match their records, expect a notice—or worse, an audit.

3. Large or Unusual Deductions

Claiming big deductions for business expenses, charitable donations, or medical bills—especially if they seem too high compared to your income—raises IRS suspicion.

4. Rounded Numbers

Tax deductions rarely end in perfect zeros. If your return is full of $500 or $1,000 deductions, the IRS may flag your return for closer review.

5. Incorrect Home Office Deduction

Your “home office” must be exclusively used for business—not your kitchen table. The IRS strictly enforces this rule, so be sure you qualify before claiming it.

6. Large Cash Transactions or Cryptocurrency Activity

Depositing over $10,000 in cash or making unreported cryptocurrency transactions can trigger an audit. The IRS is cracking down on crypto—so report it accurately.

Key Takeaway: The IRS automatically scans tax returns for unusual activity. If something looks suspicious, they may dig deeper.

How to Reduce Your IRS Audit Risk

While you can’t guarantee avoiding an audit, following these best practices can lower your chances of IRS scrutiny.

✔ Report All Income Accurately

The IRS already has copies of your W-2s and 1099s—so make sure your tax return matches their records.

✔ Keep Detailed Records

Save receipts, invoices, and documentation for all deductions and expenses in case the IRS asks for proof.

✔ Don’t Exaggerate Deductions

Claim only what you’re entitled to—padding numbers is a red flag that could land you in audit territory.

✔ Work with a Tax Professional

DIY tax software won’t defend you in an audit. A tax expert ensures accuracy and helps protect you from IRS scrutiny.

What to Do If You Get Audited

Even if you follow all the rules, you can still be audited. If that happens, here’s what to do:

Step 1: Respond Quickly
Most audits start with a letter requesting specific documents. Ignoring it only makes things worse.

Step 2: Gather Your Records
The IRS wants proof—be prepared to show income statements, deduction receipts, and expense records.

Step 3: Don’t Face the IRS Alone
The IRS isn’t on your side. Having a tax professional represent you can mean the difference between a minor correction and a huge tax bill.

Final Thoughts

The best way to avoid an IRS audit is to file an accurate return and keep good records.

But if the IRS does come knocking, don’t handle it alone. We’re here to help.

Call us today at 833-TAX-DEBT or visit theaccountingdoctor.com to schedule a consultation.

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Until next time, stay calm, stay informed, and let The Accounting Doctor handle the stress for you!