Let's Talk About IRS Audit Triggers
Worried about an IRS audit? Let's make sure you stay in the clear by understanding the most common IRS audit triggers that could put you on their radar.
Nobody wants the IRS knocking on their door. While audit rates have stayed relatively low for most taxpayers in recent years (less than 1% overall), certain things still wave a big red flag saying "look at me!" to the IRS. Knowing these IRS audit triggers doesn't just help you sleep better at night—it can actually keep you off the audit radar altogether.
Here Are the 5 Biggest IRS Audit Triggers (And How to Dodge Them)
1. Missing Income on Your Return
What happens: The IRS gets copies of all those 1099s, W-2s and other income statements sent to you. Their computers automatically match them against what you report. When they don't match up—ding ding ding—that's a problem.
Real-world example: Say you did some freelance work and got a 1099 for $2,000, but you forgot about it when filing. The IRS computer will flag that mismatch in seconds.
How to stay safe:
- Create a simple folder (physical or digital) where you toss ALL income statements as they arrive
- For gig work or side hustles, keep a running total of what you earn
- Double-check your return against your "income folder" before filing
- If you realize you missed something, amend your return ASAP—don't wait for the IRS to find it
2. Deductions That Trigger IRS Scrutiny
What happens: The IRS knows what's "normal" for people at your income level. When your deductions are way higher than average, it catches their attention.
Real-world example: The average charitable giving for someone making $100,000 might be around $3,000-$4,000. If you claim $20,000 in donations on that income, it might raise eyebrows.
How to stay safe:
- Keep detailed records for every deduction you claim
- For bigger deductions (like major donations or a home office), make sure you've got solid documentation
- If you have legitimate but unusual deductions, attach an explanation to your return
- Remember: You should absolutely take every deduction you're entitled to—just be ready to back them up
3. Being in the Higher Income Bracket
What happens: Recent data shows that the IRS has been focusing more attention on higher-income taxpayers, particularly those earning over $400,000 annually. If you're in this income bracket, your chances of being audited are significantly higher than average.
Real-world example: Taxpayers with more than $5 million in income were by far the most likely households to be audited in recent years according to IRS data.
How to stay safe:
- As your income grows, your record-keeping should get even better
- Consider working with a tax pro (that's us!) year-round, not just at tax time
- For complex situations, get things in writing when possible (like an opinion letter for major tax positions)
- Never try to hide income—the risk isn't worth it
4. Self-Employment Schedule C: A Major Audit Trigger
What happens: Self-employed folks have more opportunities for both honest mistakes and... let's call them "creative interpretations" of tax law. The IRS knows this.
Real-world example: Claiming 100% business use for a vehicle or consistently reporting losses year after year when you're still in business can trigger IRS scrutiny.
How to stay safe:
- Keep business and personal expenses strictly separate
- Track mileage in real-time with an app, not guesstimates
- Be realistic about business vs. personal use percentages
- If you have losses, make sure you can show you're trying to make a profit
- Consider an S-Corp election if it makes sense for your situation
5. Foreign Accounts and International Income
What happens: The IRS has expanded enforcement efforts for taxpayers with foreign bank accounts, investments, or business interests, especially under FATCA (Foreign Account Tax Compliance Act) and FBAR (Foreign Bank Account Report) regulations.
Real-world example: Failure to report a foreign bank account can lead to severe penalties. If your foreign accounts combined total more than $10,000 at any time during the year, you must file FinCEN Report 114 (FBAR) by the due date.
How to stay safe:
- Report ALL foreign accounts, even small ones
- File FBAR forms on time if your accounts exceed $10,000 combined at any point
- Disclose foreign assets on Form 8938 if required
- Consider the Streamlined Filing Compliance Procedures if you've previously failed to report foreign assets
- Get professional help for complex international tax situations
The Bottom Line: How to Avoid IRS Audit Triggers
Here's the deal: Even with increased IRS funding through the Inflation Reduction Act, audit rates for most Americans remain relatively low. About three-quarters of all audits are simple correspondence audits where the IRS sends a letter about one or two specific issues.
The best way to avoid audit stress isn't through clever schemes or flying under the radar. It's about:
- Reporting everything honestly
- Keeping good records
- Understanding what triggers extra attention
- Getting help when you need it
Got questions about your specific situation or worried about potential IRS audit triggers? That's what we're here for. Reach out anytime, and let's keep your tax life drama-free.
You can reach us by one of the contact methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can review your specific issues and solve them. You can also click here to book a free consultation.
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