The Internal Revenue Service (IRS) uses a variety of criteria and data analysis techniques to identify tax returns that may require closer examination, commonly referred to as audits. IRS audit triggers are specific characteristics or anomalies within your tax return or related financial information that raise red flags during IRS screening processes. Understanding these triggers can help taxpayers file more accurately and reduce the likelihood of an audit.
Common IRS audit triggers include:
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Unreported Income: The IRS receives copies of forms such as W-2s and 1099s from employers, banks, and other payers. If your tax return does not report income that matches these forms, it can trigger an audit.
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High Deductions Relative to Income: Claiming unusually large deductions, such as charitable donations that far exceed your income or business expenses disproportionate to revenue, can raise suspicion.
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Earned Income Tax Credit (EITC) Claims: Since the EITC is refundable and widely claimed, it is frequently audited. Incorrect or inconsistent information related to eligibility criteria can trigger reviews.
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Mathematical Errors or Mismatches: Errors in math calculations or discrepancies between tax forms can lead the IRS to review your return more closely.
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Self-Employment Income and Expenses: Self-employed taxpayers who claim business expenses must maintain accurate records. Excessive or vague expenses can trigger audits.
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Large Cash Transactions: Reporting large cash deposits without clear documentation or legitimate explanations can be an audit red flag.
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Home Office Deduction: Claiming this deduction improperly or without substantiation is a common audit trigger.
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Rental Losses: Reporting significant rental property losses consistently might attract IRS attention.
The IRS uses sophisticated computer programs like the Discriminant Information Function (DIF) score to evaluate returns and flag those with unusual patterns compared to similar returns. Despite this automated system, many audits result from random selection or specific concerns.
How to Avoid IRS Audit Triggers:
- Keep Accurate Records: Document all income, deductions, and credits thoroughly.
- Report All Income: Ensure every income source matches IRS records.
- Be Reasonable with Deductions: Avoid unusually large or unverifiable deductions.
- File Accurately and Timely: Submit tax returns on time and review carefully for errors.
- Consult Professionals: When in doubt, seek advice from tax professionals.
For more detailed guidance, the IRS provides resources and publications, including IRS Publication 556 (Audit Process) and Publication 334 (Tax Guide for Small Businesses). Understanding the audit process and what triggers IRS attention empowers taxpayers to maintain compliance and peace of mind.
For official information, you can visit the IRS website on audits: https://www.irs.gov/compliance/enforcement/audits
Additionally, check out our articles on Tax Audit Process and Filing Taxes Accurately to further improve your tax filing practices.