Tax season is stressful enough without worrying about whether the IRS will take a second look at your return. While audits are relatively rare for most taxpayers, certain patterns and inconsistencies are more likely to catch the government’s attention. Understanding what triggers a tax audit can help you avoid common missteps that lead to closer scrutiny.
Large Deductions That Don’t Match Your Income
Claiming large charitable donations, business losses, or itemized deductions that seem high for your income bracket can raise eyebrows. For example, if your adjusted gross income is $60,000 and you donate $20,000 to charity, the IRS may want supporting documentation. The same goes for unusually high medical deductions or business expenses for sole proprietors.
Mismatched or Missing Forms
The IRS gets copies of W-2s, 1099s, and other income reporting forms. These are automatically cross-checked against your return. If your return is missing a form or reports a different number than the one the IRS received, you could be flagged. It’s a simple but common reason taxpayers get audited, especially those with multiple income streams.
Home Office and Business Vehicle Claims
Self-employed taxpayers often write off part of their home or vehicle for business use. But these deductions must follow strict guidelines. The home office space must be used exclusively for business, and business mileage should be documented thoroughly. Vague or inflated claims are one of the classic examples of what triggers a tax audit for small businesses.
Reporting Round Numbers or Inconsistencies
If your numbers are filled with neat, rounded figures like $500 in office expenses or $1,000 in supplies, it may raise red flags. The IRS knows that real-life bookkeeping rarely results in perfect numbers. Inconsistencies across years (e.g., drastically fluctuating income without explanation) can also prompt a second look.
Foreign Assets and Cryptocurrency
Foreign income, overseas bank accounts, and virtual currency transactions are areas of increasing IRS focus. Failing to report foreign holdings over certain thresholds, or omitting cryptocurrency trades, is a major audit trigger. The IRS has ramped up enforcement in both categories in recent years.
The Bottom Line: Document Clearly to Avoid What Triggers a Tax Audit
If you’re concerned about what triggers a tax audit, the best defense is solid, well-organized records. Keep receipts, mileage logs, bank statements, and notes on any unusual deductions or business activity.
If your year has been more complex than usual, or if you just want peace of mind, our team at MeredithCPAs can help. We’ll review your return, flag anything risky, and help you file with confidence. Contact us today to get started.