Common Red Flags That Trigger an IRS Audit (And How to Avoid Them)

Nobody wants to hear from the IRS about an audit. The thought of your tax return being scrutinized can be unsettling. At Straight Talk CPAs, we understand that feeling. While some returns are randomly selected, many audits are triggered by specific red flags.

Understanding these audit triggers can significantly reduce your risk and help you stay in good standing with the IRS.

It may seem difficult with constantly changing tax laws and regulations, but it doesn't have to be! Let's discuss the common mistakes and patterns that raise eyebrows at the IRS, and what you can do to steer clear of unwanted attention.

Being aware of these common issues can also help with tax preparation and tax compliance, making the entire process smoother. Let Straight Talk CPAs guide you through the ins and outs of avoiding an IRS audit.

Income Issues

Not Reporting All of Your Income

This is one of the most easily avoidable yet frequently made mistakes. The IRS receives copies of all income-related documents, such as W-2s, 1099s, and brokerage account statements. If there's a mismatch between what you report and what the IRS has on record, it's a major red flag.



How to Avoid It:

• Track all income sources throughout the year.
• Double-check your tax return against all income documents before filing.
• Watch out for old brokerage accounts, 1099s, and distributions from college savings accounts.

Making Too Much Money

The IRS mostly audits tax returns of those earning more than $200,000 and corporations with more than $10 million in assets. While you can't exactly avoid this one, being prepared is key.

Errors and Inaccuracies

Math Mistakes

Simple as it sounds, mathematical errors are a surprisingly common trigger for IRS audits. Whether it's addition, subtraction, or more complex calculations, mistakes can raise red flags.

How to Avoid It:

• Double-check all calculations before submitting your return.
• Use tax preparation software to minimize errors and ensure accuracy.

Entering Information Inaccurately

Mistakes in entering personal information, such as income or Social Security numbers, can also cause delays and confusion.

How to Avoid It:

• Review all entries carefully, especially income details, filing status, and Social Security numbers.

Unsigned Tax Forms

It might seem like a small detail, but neglecting to sign your return can lead to delays. For joint returns, both spouses' signatures are required.

How to Avoid It:

• Ensure your return is signed and dated.
• If filing electronically, use digital signature verification to avoid this mistake.
  

Deduction and Credit Concerns

Taking Excessive Business Tax Deductions

The IRS keeps a close watch on excessive business deductions. They use occupational codes to measure typical travel and expense amounts by profession. A tax return showing significantly above-average deductions might get a second look.

How to Avoid It:

• Keep thorough and accurate records of all business expenses.
• Ensure that deductions are legitimate and directly related to your business.
• Be prepared to substantiate expenses with receipts and documentation.

Blurring the Lines on Business Expenses

The IRS can be strict about mixing business and personal expenses. While some business meals are allowable, exceeding the occupational norm can invite an audit.

How to Avoid It:

• Document everything.
• Be clear about what is and isn't a personal expense.

Claiming Credits You Clearly Don’t Qualify For

Claiming tax credits without meeting the eligibility requirements is a surefire way to raise red flags.

How to Avoid It:

• Review the requirements carefully before claiming a tax credit.
• Use the IRS Interactive Tax Assistant tool or consult with a tax professional.

Rounding or Estimating Dollar Amounts

While it might seem convenient, rounding off or estimating dollar amounts on your tax return can raise suspicion. The IRS prefers precise figures supported by documentation.

How to Avoid It:

• Keep detailed records of every expense and deduction.
• Report actual figures, not estimates.
  

Other Potential Red Flags

Breaking the Rules on Foreign Accounts

The Foreign Account Tax Compliance Act (FATCA) has strict reporting requirements for foreign bank accounts. Individuals must report foreign assets worth at least $50,000 on Form 8938.

How to Avoid It:

• Comply fully with FATCA regulations.
• Report all foreign assets accurately and transparently.
• Failure to report foreign assets can lead to an audit.

Filing Too Early

Don’t make the mistake of filing your taxes before receiving all your documents.



How to Avoid It:

• Wait until all tax forms are in hand to ensure you don’t miss deductions or leave money on the table.
  

Straight Talk CPAs: Your Partner in Tax Compliance

Navigating the complexities of tax law can be challenging. At Straight Talk CPAs, we're dedicated to helping you stay on the right side of the IRS.

By understanding common audit red flags and taking proactive steps to avoid them, you can minimize your risk and ensure a smooth tax filing experience.

✔ Have concerns about potential audit triggers?
✔ Need assistance with tax preparation?

Contact us today for personalized guidance and support!