The word “audit” can send a shiver down any taxpayer’s spine. While the overall chance of being audited is relatively low, certain items on your tax return can raise eyebrows at the IRS and increase your chances of a closer look.
An audit isn’t always a full-scale, in-person investigation; it can often be a simple letter asking for clarification. The key to sleeping soundly is to file an accurate, well-documented return. Here are seven common audit triggers and how you can avoid them.
1. Math Errors and Data Inconsistencies
This is the most common and easily avoidable red flag.
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The Trigger: Simple addition or subtraction mistakes, or numbers that don’t match what the IRS has received from your employers, clients, or banks (e.g., your W-2 says you earned $50,000, but you reported $40,000).
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How to Avoid It: The simplest solution is to file electronically. Tax software automatically calculates the math and significantly reduces errors. Before you file, double-check that all the numbers on your forms (W-2, 1099, etc.) match what you’re entering into your return.
2. Reporting High Income
The likelihood of an audit increases significantly as your income rises.
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The Trigger: While overall audit rates are low, they jump for earners making over $500,000 and are highest for those with incomes exceeding $1 million. The IRS sees a greater potential for recovering additional taxes from complex, high-income returns.
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How to Avoid It: You can’t avoid making money, but you can ensure your return is impeccable. If you have a high income, especially with multiple income streams or complex investments, working with a qualified CPA or tax advisor is highly recommended. They can ensure everything is reported correctly and strategically.
3. Claiming the Home Office Deduction
This is a valuable deduction for freelancers and small business owners, but it’s often misused.
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The Trigger: Claiming a home office deduction without qualifying. The space must be used regularly and exclusively for your business. Your kitchen table or a guest bedroom/office combo generally doesn’t qualify.
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How to Avoid It: Be strict with the rules. Have a dedicated room or a clearly defined, separate area of your home used only for work. Take a photo of the space and keep records of your home-related expenses. Use the simplified method (a standard $5 per square foot, up to 300 square feet) to avoid having to calculate and depreciate actual expenses.
4. Large Charitable Donations
The IRS knows what’s typical for donors at your income level.
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The Trigger: Donations that are disproportionate to your reported income. Claiming $25,000 in cash donations on a $60,000 salary will likely prompt a second look.
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How to Avoid It: Get an appraisal for any non-cash property donation over $5,000. For all donations over $250, you must have a written acknowledgment from the charity that states the amount and whether you received any goods or services in return. Keep detailed records, including bank statements or receipts for all donations.
5. Misclassifying Workers as Independent Contractors
This is a major area of focus for the IRS, as it affects employment taxes.
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The Trigger: A business that pays a worker as a 1099 contractor when the relationship is more like an employee (e.g., you control their hours, provide their equipment, and they perform a core function of your business).
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How to Avoid It: Use the IRS guidelines to determine the correct classification. If you control how and when the work is done, they are likely an employee. When in doubt, err on the side of caution or consult a professional.
6. Excessive Business Expenses, Especially Meals and Travel
The IRS is skeptical of businesses that consistently show a loss or have unusually high deductions.
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The Trigger: Writing off 100% of a luxury car, claiming personal vacations as business travel, or deducting daily lunches as “business meals.” The “Three-Martini Lunch” stereotype is a classic red flag.
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How to Avoid It: Document, document, document. Follow the “Goldilocks Rule”—your deductions should be “just right” for your industry and income level. For meals and travel, keep a log with the date, amount, location, business purpose, and the people involved. Remember, most business meals are now only 50% deductible.
7. Not Reporting All of Your Income
The IRS receives copies of every 1099 and W-2 you get. Their automated system, the Information Returns Processing (IRP) System, cross-references what they receive with what you report.
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The Trigger: Forgetting to report income from a freelance side gig, a savings account, or stock dividends. Even a small, unreported 1099 can trigger a notice.
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How to Avoid It: This is the easiest red flag to avoid. Report every single dollar of income you receive. Gather all your forms before you file and make sure the total on your return matches the total the IRS has on file.
The Golden Rule: Be Reasonable and Document Everything
The common thread running through all these red flags is the need for accuracy and reasonableness. If a deduction seems too good to be true, it might look that way to the IRS, too.
Your best defense is not to avoid legitimate deductions but to:
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Keep impeccable records: Save receipts, logs, and bank statements for at least three years.
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Understand the “why”: Be able to explain the business purpose behind every deduction.
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Be consistent: Report your income and expenses the same way each year.
If you are ever unsure, investing in a consultation with a tax professional is a small price to pay for peace of mind and a bulletproof return.