Written by: Thomas Brooks
Published: April 28, 2025
Why The IRS Will Audit You: Common Triggers and How to Avoid Them
When you file your taxes, you might be nervous about the possibility of an IRS audit. However, understanding why audits happen and what triggers them can help you avoid unnecessary stress.
An IRS audit occurs when the Internal Revenue Service examines your tax returns more closely to ensure that the information you’ve reported is accurate and compliant with the law.
Audits are typically triggered by discrepancies or certain red flags in your tax returns. While most taxpayers do not experience an audit, being aware of common audit triggers can help you reduce your risk.
What Are Some Common IRS Audit Triggers
Several factors can increase the likelihood that your tax return will be audited. These triggers generally involve discrepancies or patterns that the IRS algorithm identifies as suspicious. Let’s dive into some of the most common IRS audit triggers.
High Income and Large Discrepancies in Reported Income
The more money you make, the higher the chances of being audited. The IRS closely scrutinizes higher-income individuals because they are more likely to have complex tax situations that could involve underreporting income or inflating deductions. A sudden jump in income or large discrepancies between your reported earnings and expenses might also trigger an audit.
Large Deductions, Business Losses, and Unreported Income
Claiming significant deductions that seem out of proportion to your income can trigger red flags. This includes large charitable donations, excessive business expenses, or a business reporting more losses than profits for consecutive years. The IRS pays close attention to these types of returns to ensure that deductions are legitimate and not exaggerated.
Consistent Red Flags on Tax Returns
If your tax returns display patterns of discrepancies or suspicious behavior year after year, the IRS may look more closely at them. These red flags include inconsistent reporting of income, frequent changes in deductions, or patterns that don’t align with typical taxpayer behavior for your income bracket or occupation.
How the IRS Selects Returns for Audit
Understanding the audit selection process is key to knowing how to minimize your chances of an audit. The IRS uses a combination of automated processes, statistical sampling, and random selections to decide which tax returns to examine further.
Overview of the IRS Audit Selection Process
The IRS uses a system called the Discriminant Function System (DIF) to analyze tax returns. This system assigns a score to each return based on certain risk factors. Taxpayers with high-risk scores are more likely to be selected for an audit. However, it’s important to note that audits can also happen randomly or as a result of specific concerns flagged by IRS examiners.
How Algorithms and Random Sampling Play a Role
Algorithms are used to detect inconsistencies, while random sampling helps ensure the IRS reviews a variety of returns each year. These two methods work together to maintain fairness and transparency in the audit process.
What Raises Red Flags with the IRS?
Certain behaviors or inconsistencies on your tax return can immediately catch the IRS’s attention. Here are some common red flags that increase your likelihood of being audited:
Overstating Deductions
Claiming deductions that are disproportionate to your income or lifestyle is a major red flag. The IRS may question large deductions for things like business expenses, charitable donations, or mortgage interest.
Unreported or Underreported Income
Failing to report all of your income or claiming incorrect amounts can quickly lead to an audit. The IRS receives copies of all W-2s, 1099s, and other forms that report your income, and they compare them to what you’ve reported on your return. Any discrepancies are flagged for further investigation.
Round Numbers or Excessive Claims
Using round numbers for deductions or expenses, such as claiming $500 for donations when the actual amount is $465, can raise suspicions. The IRS prefers to see precise figures that reflect actual costs.
How to Avoid an IRS Audit
While it’s impossible to eliminate the risk of an audit, there are steps you can take to minimize your chances.
Accurate Reporting, Tax Records, and Proper Documentation
Ensure that your tax return is accurate and well-documented. This means keeping detailed records of your income, deductions, and expenses. Receipts, bank statements, and other documentation are crucial if you are ever asked to prove your claims.
Avoiding Common Deductions That Raise Red Flags
Be mindful of claiming deductions that could attract unnecessary attention. While legitimate deductions are perfectly fine, avoid claiming amounts that could seem excessive relative to your income. For example, charitable donations that are too high for your reported income can raise questions.
Seeking Help from Tax Professionals to Minimize Risk
Working with a tax professional can help ensure that your tax return is compliant and free of errors. Tax preparers can also help you identify legitimate deductions and avoid ones that might increase the risk of an audit.
Tax Filing Tips to Lower Your Audit Risk
In addition to working with professionals, other best practices can help you avoid an audit.
Keeping Organized Records
Maintaining organized records is essential for reducing audit risk. Use digital tools or spreadsheets to track your income, expenses, and deductions throughout the year. This will make it easier to file your taxes accurately and respond to IRS inquiries if necessary.
How Professional Tax Services Can Help Prevent Mistakes
Tax services offer valuable assistance in ensuring your return is filed correctly. Experienced professionals can help you avoid common mistakes and ensure that your tax filing is as risk-free as possible.
What to Do if You’re Audited by the IRS
Even if you take all the necessary precautions, you may still end up being audited. If this happens, here’s how to respond.
Step-by-Step Guide to Handling an Audit
- Don’t Panic: An audit doesn’t automatically mean you’ve done something wrong. The IRS just wants to verify your information.
- Review Your Return: Before responding, double-check the areas the IRS is questioning. Make sure you understand why you claimed certain deductions or expenses.
- Respond Promptly: The IRS will usually give you a specific time frame to respond. Ensure that you meet the deadline to avoid additional penalties.
- Provide Requested Documentation: Submit all the documentation the IRS asks for. This includes receipts, bank statements, or anything else supporting your claims.
What Are the Consequences of an IRS Audit?
The consequences of failing an audit can be severe. If the IRS finds discrepancies in your return, you may face penalties, interest charges, or even criminal charges in extreme cases. Here are the potential consequences of an IRS audit:
- Back Taxes: You may owe additional taxes if discrepancies are found.
- Penalties: Failure to comply or report accurately can lead to hefty penalties.
- Interest: You’ll be charged interest on unpaid taxes from the filing date.
- Fines: Fraudulent or incorrect filings can result in substantial fines.
- Legal Actions: In severe cases, criminal charges for tax evasion may apply.
- Audit Adjustments: Incorrect claims could lead to corrections and owed amounts.
Conclusion: Minimizing Audit Risks
The key to minimizing your audit risk is to file accurate, well-documented returns and avoid behaviors that might raise red flags. Be aware of the common IRS audit triggers, maintain organized tax records, and seek help from a professional when necessary.
By following these steps, you can reduce your chances of being audited and ensure that your tax filings are in good standing.
If you find yourself facing an IRS audit, it’s crucial to respond quickly and professionally. Be sure to gather the necessary documentation and work with tax experts to ensure the best possible outcome.