Top IRS Audit Triggers to Know

1. Income Mismatches:

A major red flag is when the income reported on your tax return doesn’t match the information from your 1099s or W-2s. It’s essential to report all income, no matter how small, including things like credit card cashback rewards or dividend income.

2. Hobby Losses:

Claiming losses from activities the IRS considers hobbies rather than businesses can draw attention. The IRS expects a business to report a net profit in at least three out of five years. If losses are reported more frequently, it could be viewed as a hobby.

3. Car Deductions:

Claiming 100% business use of a personal car is often scrutinized, especially if it’s your only vehicle. Keeping detailed records of business use is key.

4. Overstating Deductions and Credits:

The IRS compares the deductions and credits on your return to those typical for your income level. Significant deviations can trigger a review.

5. Gambling Losses:

If you claim gambling losses, the IRS will check to see if you’ve reported corresponding gambling income.

6. Stock and Cryptocurrency Gains:

Not reporting income from stocks and cryptocurrencies can raise flags, as most brokerages report these transactions to the IRS.

7. Home Office Deductions:

You need a dedicated space in your home used only for business to claim this deduction. The IRS looks for proof of business use.

8. Digital Currency Transactions:

Failing to report income from digital currencies is a significant red flag.

9. Business Meals, Travel, and Entertainment:

Detailed records of these expenses are necessary, especially since the deductibility rules have changed.