Avoid These Common IRS Audit Triggers and Keep Your Tax Return Safe

Filing taxes can be stressful, and the possibility of an IRS audit only adds to that anxiety. While audits are relatively rare, certain mistakes and red flags can increase your chances of being selected for review. The IRS looks for discrepancies in income reports, excessive deductions, and other common filing errors. Understanding these risks and maintaining proper documentation can help safeguard your tax return and minimize scrutiny.

IRS Audits: What You Need to Know

The likelihood of being audited remains low, but increased funding for the IRS has led to heightened scrutiny, particularly for high-income earners. A 2022 bill aimed to double audit rates for the wealthiest taxpayers, fuelling concerns about enforcement. However, IRS enforcement priorities can change due to political and legislative shifts, making future audit trends uncertain.

In fiscal year 2023, only 0.44% of tax returns were audited, covering tax years from 2013 to 2021. The majority of these audits, around 77%, were conducted via mail rather than in-person visits. While audits are not common, certain errors can significantly increase your chances of being selected for review.

Common IRS Audit Triggers to Watch For

Income That Does Not Match IRS Records

Underreporting income is one of the biggest red flags for an audit. The IRS cross-checks tax returns against third-party reports from employers, banks, and investment firms. If your reported income does not match their records, the system flags the discrepancy. For example, failing to include earnings from a 1099-NEC or overlooking stock sales recorded on a 1099-B could trigger an audit.

Unusually High Tax Deductions

The IRS uses automated systems to compare tax deductions with similar filers in the same income bracket. If your deductions are much higher than others in your financial range, the IRS may take a closer look. Some common red flags include:

Charitable donations that amount to 30% or more of your adjusted gross income may be questioned, especially without receipts or documentation.

Self-employed business expenses for travel, meals, or home office deductions that seem excessive in relation to income can also attract attention. Proper record-keeping and supporting receipts are essential.

Errors in Earned Income Tax Credit Claims

The Earned Income Tax Credit (EITC) is designed to assist low- and moderate-income workers but is frequently flagged for errors. Strict eligibility requirements related to income, residency, and family size often lead to mistakes.

Those claiming the EITC are audited over five times more often than the average taxpayer. The IRS closely monitors these claims to prevent misuse, so it is crucial to double-check eligibility and keep proper documentation to avoid audits.

How to Reduce Your Risk of an IRS Audit

While no one can completely eliminate the possibility of an audit, following best practices can lower the risk significantly.

Report all income accurately, including freelance earnings, investment gains, and side jobs. The IRS receives these details from third parties and will flag mismatches.

Avoid rounded-off or estimated numbers on your tax return. Claiming exactly $5,000 for home office expenses, for example, can appear suspicious. Use precise figures backed by receipts or documentation.

Keep thorough financial records, including bank statements, invoices, and receipts for deductions and tax credits. Proper documentation can justify any claims you make and prevent disputes if the IRS asks for proof.

Final Thoughts

Although IRS audits are uncommon, certain mistakes can increase scrutiny. Underreporting income, excessive deductions, and EITC filing errors are common audit triggers. Filing an accurate return and maintaining proper documentation can reduce your chances of facing an audit.

Staying proactive and mindful of IRS warning signs can help keep your tax return safe. For complex tax situations, consulting a tax professional ensures compliance and reduces audit risks. Taking these precautions helps create a smoother filing experience with minimal stress.