Overview

Tax audits are uncommon for most taxpayers, but certain behaviors raise the odds. The IRS compares filed returns against information it receives (W‑2s, 1099s and other third‑party reports) and statistical norms. Returns that deviate from those patterns or lack documentation are more likely to be selected for review (IRS: “Understanding Your Audit”: https://www.irs.gov/individuals/understanding-your-audit).

Top audit triggers — and what to do about them

  • Income discrepancies and missing 1099/W-2 matches

  • Why it flags: The IRS matches your reported income against employer and payer reports. Any gap typically triggers an automated inquiry.

  • How to reduce risk: Report all income, reconcile annual statements before filing, and correct any payroll or 1099 errors with the issuer promptly.

  • Unusually high deductions for your industry or income level

  • Why it flags: Deductions that are far above typical patterns attract algorithmic attention.

  • How to reduce risk: Keep contemporaneous receipts, categorize expenses, and document business purpose. If a deduction is large for a single year, be prepared to explain why (e.g., one‑time capital expense).

  • Home‑office deduction claims

  • Why it flags: The home‑office deduction is often abused or misapplied. The IRS looks for clear exclusive and regular business use of the space. (See IRS Pub. 587: Business Use of Your Home: https://www.irs.gov/publications/p587)

  • How to reduce risk: Maintain floor‑plan sketches, a written business use policy, and consistent mileage logs or time records. Use the simplified safe harbor only when appropriate and document how you calculated the deduction.

  • Large or unusual charitable contribution claims

  • Why it flags: High contribution amounts without receipts or valuation support trigger review.

  • How to reduce risk: Keep written acknowledgments from charities for donations $250+ and appraisals for noncash gifts over IRS thresholds (see IRS guidance on charitable contributions: https://www.irs.gov/charities-non-profits/charitable-organizations).

  • Repeated losses from a business or hobby classification issues

  • Why it flags: Multiple years of losses may cause the IRS to test whether the activity is a hobby rather than a business.

  • How to reduce risk: Document efforts to generate profit, maintain separate business accounts, and follow business formalities.

  • Cash‑intensive businesses and inconsistent self‑employment reporting

  • Why it flags: Businesses that deal largely in cash (restaurants, salons, trades) historically receive more scrutiny.

  • How to reduce risk: Use point‑of‑sale systems, keep daily sales records, and reconcile bank deposits to reported income.

How the IRS selects returns

The IRS uses automated systems to compare returns against reported third‑party information and statistical norms. Some returns are chosen randomly, some by algorithms (discrepancy or anomaly detection), and others by related investigations or referrals. The Automated Underreporter process and information‑return matching make accurate reporting essential (IRS: “Understanding Your Audit”).

Practical, prioritized steps to reduce audit risk

  1. Keep receipts and organized records for at least three years—seven years when you file a claim for a loss or bad debt. See [document retention best practices] for audit‑ready systems.
  2. Reconcile income statements before filing—confirm W‑2s and 1099s match your records.
  3. Apply consistent accounting methods year to year and disclose any changes correctly.
  4. Use written logs for mileage, home‑office use, and business travel; automated tracking apps can help but preserve source receipts.
  5. If you take an uncommon deduction, attach a clear explanation and supporting documentation.
  6. Consider professional review—CPAs and enrolled agents reduce filing errors and can advise on documentation strategies (IRS: “Choosing a Tax Professional”: https://www.irs.gov/tax-professionals).

What to do if you’re audited

  • Respond promptly and completely to IRS notices. Ignoring correspondence increases penalties and enforcement risk.
  • Assemble a concise audit packet (organized by year and category). See our guide on how to prepare an audit response for templates and organization.
  • Consider representation: authorize a CPA, attorney, or enrolled agent to speak for you using IRS Form 2848 if you want professional handling (see IRS guidance on representation).

Real‑world example

In my practice I’ve seen single‑year spikes cause audits—one client claimed unusually large vehicle expenses after buying multiple cars for a seasonal business. We provided purchase invoices, mileage logs, and a trip sheet showing business use and resolved the audit with modest adjustments. The key: contemporaneous documentation and a clear business rationale.

Further reading and internal resources

Authoritative sources

Professional disclaimer

This article is educational only and not individualized tax advice. For guidance specific to your situation, consult a qualified tax professional or CPA.

Author note

With 15+ years advising clients on tax preparedness, I emphasize simple recordkeeping and upfront professional review as the most effective ways to reduce audit risk.