What Will Trigger An IRS Audit? Top IRS Audit Triggers

Latest Facts & News Hook

IRS audit rates for high-income filers ($400,000+) increased by 30% in 2025.
The IRS is using advanced AI to spot unreported income and suspicious deductions.
New rules require more detailed reporting of digital asset transactions.
The IRS’s Discriminant Information Function (DIF) system flags more returns with large charitable deductions and home office claims.
Businesses with repeated losses or excessive expenses are under heightened scrutiny.

Getting audited by the IRS can come as a surprise, but it happens more often than you might think. With new reporting rules, advanced review systems, and a growing focus on digital transactions, even competent taxpayers are asking the same question: Is there something on my return the IRS might question? Or what will trigger an IRS audit?

This guide breaks down what the IRS notices most, how it evaluates returns, and what patterns can raise concern so you can stay one step ahead, not one step behind.

What Is an IRS Audit and Why Does It Happen?

An IRS audit is a detailed review of a tax return to verify income, deductions, and credits to ensure compliance with federal tax laws. The IRS may request documents like bank statements and receipts. The IRS audits to make sure everyone pays the right amount of tax. If your return has mistakes or does not follow the rules, it may trigger an audit.

How does the IRS pick tax returns for audit?

Random selection: Sometimes, the IRS audit selection is just random.
Computer screening: The IRS uses special programs to screen your return by comparing it to others. If your numbers look unusual, your return may be flagged.
Related audits: If someone connected to you, like a partner or employee, is audited, your tax return can also be selected.

If you keep clear records and file correctly, you lower your chances of being audited.

How the IRS Uses Data and Technology to Flag Returns?

The IRS gets millions of tax returns each year. So, they use technology to spot returns that need a second look.

Discriminant Information Function (DIF): This tool gives you a score. It measures how different your tax info is from average returns. If your score is high, it means your return is unusual.
Unreported Income Discriminant Function (UIDIF): This system looks for income that might be missing from your return. It compares what you reported to information from employers, banks, and others. If income doesn’t match, your return might be flagged.

They also use artificial intelligence (AI) and data analysis to find errors or unusual patterns better than before.

The IRS uses these methods to focus its work on returns that need checking. It’s not random; it’s smart and data-driven. If your tax return is honest and clear, your risk is low.

Top IRS Audit Triggers for Individuals

Certain actions on your tax return can get the IRS’s attention, even if you didn’t mean to make a mistake. Knowing these common audit triggers helps you file with confidence, avoid unnecessary stress, and protect your finances.

Let’s look at what will trigger an IRS audit:

Unreported or incomplete income

The IRS receives copies of all your W-2s, 1099s, bank, and investment forms directly from employers and institutions. If you leave out even small amounts from gig jobs or investments, the IRS system will notice the mismatch, and your return may be singled out for review.

Large or unusual deductions

If you claim deductions (like medical costs or donations) that are far bigger than expected for your income, the IRS takes a closer look. This is because unusually large claims could mean you’re lowering your taxes unfairly or by mistake.

Errors and rounded numbers

Simple mistakes like adding numbers wrong, mixing up digits, or using neat round amounts (such as $1,000 instead of the exact $984) make your return look suspicious. The IRS prefers exact numbers, not guesses.

Claiming tax credits without eligibility

Tax credits such as the Earned Income Tax Credit and Child Tax Credit are flagged if you claim them without meeting every requirement. Mistakes or guesswork with these can trigger a quick audit.

Undisclosed foreign income or digital assets

Now that the IRS tracks more digital assets and foreign accounts, missing or incomplete reporting on things like overseas bank accounts or cryptocurrency can quickly draw attention and sometimes, penalties.

Large fluctuations in income

A big jump up or down in year-to-year income may stand out to the IRS, especially if there’s no clear reason on the return. This is checked because sometimes income is left off to pay less tax.

Top IRS Tax Audit Triggers for Businesses and Self-Employed Taxpayers

If you run your own business or freelance, these situations commonly raise questions for IRS auditors. Here’s what to watch out for and why:

Repeated business losses

If your tax returns show your business losing money each year, the IRS might think it’s just a hobby rather than a real business. Businesses are expected to aim for profit after the startup years.

Unusual or excessive business expenses

High costs for things like travel, meals, or entertainment, or claiming your home or car as fully for business use, are closely checked. These kinds of expenses are often exaggerated to cut down on taxes.

Large cash transactions

Bank deposits or withdrawals of cash, especially if they’re frequent or for large amounts, can suggest unreported income or potential money laundering (even if it’s not).

Misclassifying employees

Misclassifying an employee as a contractor can lead to tax withholding omissions. The IRS frequently examines such cases due to their impact on payroll taxes and benefits.

Failing to report all business income

If the income your business reports doesn’t match what clients, banks, or payment platforms report to the IRS, that mismatch is an audit trigger.

Overstating home office or business use

Claiming your home office or vehicle is used only for business, especially 100% of the time, is rarely true. The IRS often challenges these claims.

Incomplete documentation for deductions

Audits or denied deductions often result from suspicious business costs, such as supplies or repairs, lacking clear, dated receipts or contracts.

Always Remember →

Claim only what is real, report everything accurately, and keep your records well organized. Most audits happen because certain numbers don’t add up or seem unusual. When your return is honest and well documented, your chances of an audit are much lower.

Now that we have the complete answer to “What will trigger an IRS audit?” let’s see how you can reduce your chances of being selected, and keep your return strong, accurate, and audit-ready from the start.

How to Minimize Your IRS Audit Risk

If you want to stay out of IRS trouble, try these smart moves. These steps are real, tested, and go deeper than just saying “be honest.” They help you stand out less and stay safe, even if your taxes get more complex.

Report all cryptocurrency and digital asset activity

Did you buy, sell, or trade crypto even just once? Since 2025, the IRS has significantly increased its focus on digital asset activities. It is crucial to report all such activities, regardless of the amount, and avoid the misconception that small transactions will go unnoticed. Use appropriate tools or seek professional assistance to accurately track and report all digital assets.

Don’t guess or round numbers

Filing tax returns with too many round numbers (like $500, $1,000, etc.) looks strange. The IRS expects actual amounts, not estimates or guesses. Always write the real numbers from your records.

Be extra careful with home office deductions

Only claim a home office if you truly use it regularly and only for business. The IRS checks this one more than most. Take photos, keep sketches, and log your work hours if needed.

Track cash transactions and bank deposits

Making big cash deposits or pulling out large sums gets noticed. The IRS keeps an eye on these, especially with new rules for tracking financial movements. Record every cash transaction and explain it in your documents if needed.

File and pay on time, every time

Submitting tax returns or payments past the due date can draw unwanted attention. Always apply for an extension in advance if you think you’ll miss the deadline, rather than hoping for a favorable outcome.

Skip deductions/deductions you don’t fully qualify for

If you’re considering claiming credits like the Earned Income Credit or substantial medical deductions, proceed only if you meet all qualifications. Certain credits are more frequently scrutinized for potential fraud.

Keep perfect records for Schedule C (small business) claims

If you’re a small business owner or a freelancer, save every invoice, receipt, and contract. Repeated business losses or claiming your hobby as a business can trigger an audit.

Care with foreign accounts and assets

If you have money abroad or foreign investment accounts, report them completely using the right IRS forms (FinCEN Form 114 (FBAR), Schedule B (Form 1040), Part III, IRS Form 8938). Even a small oversight can cause problems.

Check numbers twice; avoid math mistakes and typos

Simple math errors or entering a wrong Social Security number can put you in the IRS audit pile. Double-check everything before you send in your return.

List all gigs and side income, even if it’s small

Uber driving, side crafts, and online selling all count. The IRS gets copies of 1099s or other forms and compares their information to your return. Miss even a few dollars, and your risk goes up.

Explain big changes when needed

If this year’s numbers are way higher or lower than last year, attach a short note or at least keep one for yourself. Examples: Large medical expenses, selling a house, and a sudden drop in business income.

Mistakes in your tax return can lead to audits. Filing by hand, or depending on low-quality tools, increases the chance for errors and missed details.

For clients with complex tax needs, Verni Tax Law provides the expert guidance and up-to-date knowledge you need. Anthony N. Verni, with CPA and attorney credentials, ensures your return is thorough and compliant and protects you from audit risk.

Do You Get Your Tax Refund If You Get Audited

Getting a tax refund after filing can feel like a relief.
But what happens if the IRS picks your return for an audit? Do you still get your refund?

Usually, if your return is flagged for an audit before the IRS issues your refund, the IRS may put the refund on hold. This means the IRS waits until the audit is complete and checks that your reported numbers (income, deductions, credits) are correct. If everything matches up and you were right on your return, you will get your full refund. If there’s a mistake, the IRS will adjust your refund amount or offset it against any tax you owe.

In some cases, if the IRS audits you after your refund has been sent, they can still review your return and may ask for some or all of the refund back if an error is found.

Important Thing To Know →

During an audit, the IRS will let you know exactly what is being checked. They will contact you by mail, not by phone call or email. Always respond as instructed and keep your documents ready.

Remember, your refund is not automatically lost if you are audited. It may be delayed, adjusted, or unchanged, depending on the audit’s findings and your records.

How Long Does an IRS Audit Take?

The length of an IRS audit can be different for each case. Simple audits, like checking a missing document or a small math error, often finish in a few weeks. More complex audits that look at multiple years, different types of income, or business records can last several months or even over a year.

A few things affect how long your audit takes:

Type of audit: Mail audits (requests for documents by mail) are usually faster. In-person audits take more time.
How quickly you reply: Responding quickly to all IRS letters and requests helps move the IRS audit process along.
Amount of records to review: The more records needed, the longer the audit may take.
IRS workload: Sometimes, processing is delayed if the IRS is very busy.

While you wait, always keep copies of everything you send, and keep track of the deadlines the IRS gives you.

Clarity Is the Strongest Defense Against an Audit

An IRS audit is not always a sign of a mistake, but uncertainty in your return can raise concerns faster than any red flag. The IRS uses technology and data comparison tools, which significantly reduce errors and oversights.

When your return is built on accurate figures, well-documented claims, and a clear understanding of reporting requirements, you reduce not only audit risk but also long-term financial exposure.

If you have questions about your return or need a second review before filing, Verni Tax Law can help. With 25+ years of experience, Anthony N. Verni brings the unique advantage of dual credentials as both a licensed tax attorney and a Certified Public Accountant (CPA), along with a Master of Business Administration (MBA), providing clients with informed, strategic guidance at every stage.

For the best audit prevention tips, get in touch today.

FAQs

Q1: Does getting a large refund trigger an IRS audit?
A: Not necessarily. The IRS does not audit solely based on refund size, but large or unusual refunds may prompt additional scrutiny if they result from questionable credits or deductions.

Q2: Can amending a tax return trigger an IRS audit?
A: Amended returns are reviewed separately and can be selected for audit, but amending alone does not guarantee an audit.

Q3: How far back can the IRS audit my tax returns?
A: Generally, the IRS can audit returns filed within the last three years, but this can extend to six years or more in cases of substantial errors or fraud.

Q4: Does using tax software reduce my audit risk?
A: Tax software can help reduce errors, but it does not eliminate audit risk if your return contains IRS audit red flags or questionable information.

Q5: Will reporting cryptocurrency transactions trigger an audit?
A: Not reporting cryptocurrency is a trigger. Properly reported digital asset transactions do not automatically trigger an audit, but the IRS is increasing scrutiny in this area.