5 Red Flags That Could Trigger an IRS Audit on Your Tax Return

Filing your tax return can be stressful, but nothing adds more anxiety than the possibility of an IRS audit. While most taxpayers will never face an audit, certain red flags can increase the chances of the IRS taking a closer look at your return. Here are five key warning signs that could trigger an audit and how to avoid them.

1. Reporting Extremely High or Low Income

One of the biggest audit triggers is reporting an income that significantly deviates from the norm. If your reported income is far lower or higher than what is typical for your profession or industry, the IRS may flag your return for review. High-income earners, especially those making over $500,000, tend to face more scrutiny. On the other hand, reporting very low income while claiming significant deductions can also raise suspicion.

How to Avoid It: Be honest and accurate when reporting your income. Ensure that all reported earnings match the records provided by your employer, clients, or financial institutions.

2. Excessive Deductions

Claiming unusually large deductions compared to your income can raise red flags. This includes deductions for charitable contributions, medical expenses, home office costs, and business expenses that seem disproportionate.

How to Avoid It: Keep detailed records and receipts for all deductions. Make sure your claimed expenses are reasonable and justifiable within IRS guidelines.

3. Large Cash Transactions or Underreporting Income

Businesses or individuals dealing with large amounts of cash, such as restaurant owners, freelancers, or contractors, are more likely to be audited. The IRS closely monitors cash transactions, especially those over $10,000. Underreporting income, whether intentionally or accidentally, is a major red flag.

How to Avoid It: Keep meticulous records of all cash payments received and reported. If you operate a cash-heavy business, maintain thorough bookkeeping records and deposit all income into a business account to ensure accuracy.

4. Claiming a Home Office Deduction Improperly

The home office deduction is a legitimate way to reduce your taxable income, but it is often misused. The IRS closely scrutinizes returns where taxpayers claim home office expenses for spaces that are not exclusively used for business purposes.

How to Avoid It: Only claim a home office deduction if you use a specific area of your home exclusively for business. Keep records, photos, and documentation to support your claim.

5. Making Mathematical Errors

Simple math errors, while often innocent mistakes, can lead to additional IRS scrutiny. Even small miscalculations can result in an audit if they lead to discrepancies in reported income or deductions.

How to Avoid It: Double-check your calculations before filing. Consider using tax software or working with a professional tax preparer to ensure accuracy.

Final Thoughts

Avoiding an IRS audit starts with being honest, thorough, and meticulous when filing your tax return. While no method guarantees you won’t be audited, staying within reasonable guidelines and maintaining clear documentation can significantly reduce your risk.

At Remote Tax Advocates, we help taxpayers navigate complex tax situations and avoid costly mistakes. If you need assistance with your tax return or audit concerns, reach out to our team today!