With tax season in full swing, many filers worry about the possibility of an IRS audit. While audits remain relatively rare, the IRS employs sophisticated software to flag inconsistencies, and certain red flags can increase the likelihood of scrutiny. Understanding these triggers can help taxpayers file more accurately and avoid unnecessary audits.
Underreported Income: A Mismatch That Raises Eyebrows
One of the most common reasons for an IRS audit is underreported income. Employers and financial institutions issue various tax forms—such as W-2s for wages and 1099-NECs for gig work—both to taxpayers and the IRS. When the IRS software detects a mismatch between these reported figures and an individual’s tax return, it raises a red flag. Ensuring that all sources of income are accurately reported can prevent discrepancies that may prompt an audit.
Unusually High Deductions Compared to Income
Another key area of IRS scrutiny is deductions that seem disproportionately high relative to income. The IRS compares returns to others in similar income brackets, using algorithms to identify unusually large deductions. For instance, a charitable deduction amounting to 30% or more of a filer’s adjusted gross income may draw additional attention. While high deductions are not inherently problematic, having clear documentation is essential to substantiate any claims.
Earned Income Tax Credit: A Frequent Audit Target
The earned income tax credit (EITC), designed to benefit low- to moderate-income workers, is another common focus for IRS audits. Due to complex eligibility criteria based on earnings, residency, and family size, some filers claim the credit incorrectly—whether intentionally or unintentionally. As a result, the audit rate for EITC claimants is significantly higher than for the general taxpayer population. Those who qualify should ensure they meet all requirements and maintain proper records to support their claims.
Staying Audit-Ready with Proper Documentation
Although the IRS does conduct audits, most are handled through correspondence rather than in-person meetings. Taxpayers with well-documented claims should not fear an audit, as proper substantiation can help resolve any issues swiftly. Keeping receipts, records of income, and other supporting documentation can provide the necessary evidence to confirm tax return accuracy.
By understanding common IRS audit triggers and maintaining thorough records, taxpayers can reduce their risk of audit and file with confidence.