Self-Employed Tax Hub
Last Updated: December 5, 2025
Understanding IRS audit triggers is key to a smooth tax season. Nobody wants to deal with an IRS audit, especially when most are preventable. This guide explains what makes the IRS take a closer look at your tax return. You will learn about common red flags and how to avoid them.
Table of Contents
Top IRS Audit Triggers
The IRS focuses on specific areas that tend to have high returns for the agency. Knowing these audit triggers helps you file smart and stay compliant.
High Income Levels and Large Entities
If you make a lot of money, your risk of an audit goes up. The IRS is really honing in on high-income individuals and large corporations. For instance, if you earn over $400,000 yearly, your chances of an audit are higher. For those making over $10 million, the audit rate is expected to jump significantly. Corporations with assets over $250 million also face more scrutiny.
The thinking here is simple: more money often means more complex returns, which can lead to more errors or attempts to underreport income.
Cryptocurrency Transactions
The IRS is watching digital assets very closely. Cryptocurrency transactions, like buying or selling Bitcoin or Ethereum, are a big focus. New rules and better tech help the IRS track these transactions. They cross-reference information from third parties and use special AI tools to find anything unusual. If you’re dealing with crypto, make sure every transaction is properly reported and documented.
Foreign Income and Accounts
If you have money or investments outside the U.S., listen up. The IRS is serious about foreign income and accounts, especially for expats. They want to make sure you’re following rules like FATCA and FBAR. They audit foreign bank accounts, investment income, and offshore holdings to catch underreporting. Even small mistakes here can flag your return.
Unusually Large Deductions
Claiming big deductions compared to your income is a major red flag. If your deductions are disproportionately large, it might trigger an audit. Think about huge business expenses or charitable donations that seem out of place for your income level. The IRS uses data to compare your deductions to others in similar situations. If yours stand out too much, they might investigate further.
Unreported Side Hustles and Freelance Income
The gig economy is booming, and the IRS knows it. If you have unreported income from side hustles or freelance work through platforms like Etsy or Airbnb, you’re on their radar. With new, lower reporting thresholds for forms like 1099-K, more of this income will be visible to the IRS. Make sure all your earnings, no matter how small, are reported.
Everyday Filing Errors and Mismatches
Sometimes, it’s not about big money or complex investments. Simple mistakes can also trigger an audit. Filing errors and mismatches, like typos, math mistakes, or differences between what the IRS has on file (from W-2s or 1099s) and what you report, are common triggers. The IRS uses computers to match these figures, so even a small discrepancy can lead to questions.
IRS Technology and AI Detection
The IRS is getting smarter with technology. They use AI-powered systems, like the Discriminant Function System (DIF), to score tax returns. These systems look for returns that differ a lot from others with similar income, job, and location. Significant differences or oddities increase the chance of an audit. The agency’s use of AI for anomaly detection in things like crypto is also growing.
The IRS has a special focus on the accuracy of reported income and deductions as explained in this informative video about IRS Audit Triggers.
Overview of Main IRS Audit Triggers for 2025
Learn more about IRS Audits on the IRS’s dedicated page.
How to Lower Your IRS Audit Risk
Taking proactive steps is the best way to minimize your chances of an audit. The IRS always emphasizes compliance for all taxpayers, as detailed on their official IRS audits page.
Keep Detailed Records
Documentation is your best friend when it comes to taxes, especially self-employed taxes. Keep meticulous records for all income and deductions. This means saving receipts, bank statements, and any other papers that support the numbers on your tax return. If the IRS asks questions, clear records can quickly resolve issues. For business owners and self-employed individuals, this includes all business expenses, especially mileage.
Report All Income
Make sure you report every single dollar of income. This includes income from side jobs, freelancing, interest, dividends, and, yes, all your crypto dealings. The IRS gets copies of most of your income statements (W-2s, 1099s), so they know if something is missing. Mismatched income is an especially common audit trigger.
Be Careful with Deductions
Only claim deductions you are genuinely entitled to. Don’t exaggerate. If you claim a deduction that seems unusually large for your income or profession, be ready to back it up with solid proof. For example, if you claim a home office deduction, make sure you meet all the IRS criteria and have proof of legitimate business use.
Consult a Tax Professional
When in doubt, get help. A qualified tax professional can guide you through complex tax situations, especially if you have high income, foreign accounts, or a lot of deductions. They can help ensure your return is accurate and minimizes audit risk. Many professionals and CPAs often warn taxpayers about the importance of documenting everything, especially for digital assets. Some audits often come from small inconsistencies, not outright fraud.
How MileageWise Helps You Avoid Audit Triggers
It is not unusual for individuals and businesses get into trouble with their mileage deductions. These are often easy targets for the IRS if not properly documented. MileageWise is here to solve that problem. Our solutions are designed to provide IRS-compliant mileage logs, helping you avoid one of the common IRS audit triggers.
Mobile App for Mileage Tracking
- Automatic Mileage Tracking: Capture every business mile accurately so you never risk misreported mileage.
- Quick Setup: Start logging trips within minutes instead of a lengthy onboarding.
- Ad-Free & Privacy-Focused: Track without distractions or worrying about data security.
- Backup Mileage Capture: Detects trips reliably so your mileage log has fewer gaps, a common IRS red flag.
- Flexible Routing/Distance Calculations: Choose real route tracking or calculated distance calculations.
- Routing Integration with Waze: Let Waze guide you while MileageWise logs trips in the background, creating a clear audit trail.
- Expense Tracking Integration: Keep mileage and business expenses neat and organized.
Dashboard for a Retroactive Mileage Log
- Google Maps Timeline Integration: Recover unlogged trips for accurate mileage deductions. Import trips, classify as business or personal, and let the system convert it into a mileage log.
- AI-Powered Mileage Wizard: Rebuild past months or years of mileage with consistent patterns, eliminating guesswork that could raise red flags. Set a mileage or deduction goal and choose your preferences.
- IRS Compliance Auditor: Scan your logs for missing details, inconsistencies, or formatting issues for an IRS-Proof result.
- Bulk Import and Comprehensive Trip Management: Import clients and routes in batches. Categorize, correct, and batch-edit trips for fast mileage logging.
Try MileageWise for free for 14 days. No credit card required!
Automatic Mileage Tracker App
Customer Story: Securing Mileage Deductions with MileageWise
I work as an electrician, driving all over the city for service calls. When tax season came around, I realized my mileage log was a mess. I had gaps everywhere, and the thought of triggering an IRS audit made my stomach drop. I knew my deductions were legit, but without proper records, I couldn’t prove anything.
That’s when I tried the AI Wizard. The tool automatically rebuilt my past drives after entering the visited clients and my odometer readings. It even filled in missing days using my real patterns, so I didn’t have to guess or piece together old jobs from memory. I reviewed the trips, and within minutes, I had a complete mileage log. For the first time, I felt prepared instead of panicked.
Conclusion: Take Action, Stay Compliant
Understanding IRS audit triggers doesn’t have to be scary. By being aware of common red flags and proactive in your tax preparation, you can significantly reduce your audit risk.
Here’s what you should do:
- Keep crystal-clear records of all income and expenses.
- Report every dollar you earn.
- Cross-check your forms and numbers before filing.
- Seek professional help for complex tax situations.
- Use reliable tools like MileageWise to ensure your mileage deductions are audit-proof.
- Stay updated on IRS rules, especially for new areas like crypto and side hustles.
FAQ
What are the most common IRS audit triggers?
Mismatches with W-2/1099 forms, unusually large deductions or credits for your income, and repeated Schedule C losses are common triggers. High income, crypto or foreign accounts, and cash-heavy activity also draw attention.
Are big charitable deductions a red flag?
They can be if they’re large relative to your income or not well documented. Noncash gifts often require a qualified appraisal and Form 8283.
Is the home office deduction risky?
It’s fine if you qualify, but misuse can trigger questions. You must use the space regularly and exclusively for work, and you can use the simplified method to reduce error risk.
Do foreign accounts create audit risk?
Not by themselves, but failing to file required reports does. You must file an FBAR (FinCEN 114) if your foreign accounts total over $10,000 at any time; FATCA Form 8938 may also apply.
How can I lower my audit risk?
Match every tax form, report all income (including 1099-K and crypto), and keep good records. Avoid round-number estimates, e-file, and respond quickly to any IRS letter. When in doubt, consult a qualified tax professional.
