Tried and True IRS Audit Triggers


By Watson CPA Group ()


irs audit triggers, audit red flags
Mum’s the word when it comes to what exactly provokes the IRS to audit a tax return. Despite the mystery, the IRS has left a trail of clues offering insight into what prompts an audit. From too many zeros to an unforgiving ex, the following are some tried and true IRS audit triggers:

IRS Audit Triggers

Income above $200,000. Making more money and an IRS audit goes hand in hand. Having income above $200,000 automatically triples your audit risk. Based on IRS audit statistics, you have a 3% chance of being audited with incomes above $200,000, as opposed to only 1% with incomes below that amount. Becoming a millionaire boosts your chances of an audit to 12%.


Underreporting income. Taxpayers working for cash based businesses or who are frequently paid on a cash basis, often pocket the cash to avoid income taxes. Not reporting tips and cash payments could backfire if the IRS compares your figures to your co-workers or vendor’s payments. Anything suspicious is a nod to the IRS to investigate further.


Filing Schedule C. Individuals filing Schedule C are simply guilty by association of their self-employed namesake. Excessive deductions and underreporting income are common among the self-employed, but more attention is given to incomes above $100,000. Such scrutiny requires good documentation and record keeping.


Illegitimate deductions. Endless notoriety is given to the home office deduction for its susceptibility to outlandish deductions. From home gyms and swimming pools to lavish landscaping, taxpayers have tried it all. Maintaining the home office with improvements is fine, but leave the rest of the home out of it.


Excess zeros. Having numerous zeros is a sure way to raise an eyebrow or two. Rounding numbers to the nearest zero dollar figure- e.g. $500, $1,500, $2,000 – is the type of guesswork that signals a red flag. Using exact dollar amounts is fine, but standard practice is to round to the nearest whole dollar.


Sweet revenge. A cold and calculated ex, or an enemy seeking revenge, could tip off the IRS. Whether there is truth to the matter or not, an immaculate tax return is the surest way to avoid becoming the next day’s news.


The Watson CPA Group is not a group of tax preparers or number crunchers- we are tax and business consultants, and our firm will take you through the cycles of your personal and business lives. Many accountants are only compliance oriented- and while IRS compliance is critical, being proactive is equally important.