Most people don’t expect the IRS to look twice at their tax return. You submit it, wait for the refund, and move on with your year.
But sometimes a small gap, a pattern that feels unusual, or a claim that doesn’t fully match your own records can be enough to slow down your return. And that’s usually where the worry begins, because you’re left wondering what caught their attention in the first place.
So before you file again, it helps to understand what the IRS pays close attention to. Once you see what these red flags that can trigger an IRS audit are and how these 2026 tax audit red flags work, you’ll have a much clearer sense of what keeps your return moving forward without extra questions.
Red Flag 1 – Large, Unexplained Income Discrepancies
When the IRS looks at your return, it already has most of your income forms sitting in its system. So the moment your return shows a number that doesn’t match what they already have, it naturally catches their eye. And honestly, this happens more often than people expect, because even a small mismatch can look like income that wasn’t reported at all.
Most of these gaps show up in really simple, everyday situations, like when:
- A W-2 or 1099 didn’t get added on time.
- Your investment or brokerage numbers don’t line up with what’s on the return.
- Your bank deposits look higher than the income you reported.
- Your business income looks a little different from past years.
- Gig work or online sales were reported to the IRS but not fully included on the return.
And the thing to keep in mind about these red flags that can trigger an IRS audit is that the IRS relies heavily on basic matching. They put your return side by side with the forms they’ve already received from employers, banks, apps, and platforms. And when the numbers don’t line up, the system flags it for a closer look. So even a small mismatch can raise your audit risk without anything else going on.
A similar issue comes up when a return was never filed at all, because unfiled years leave the IRS with unmatched income forms that keep sitting in their system until they decide to review them.
Red Flag 2 – Excessive Deductions Relative to Income
When the IRS reviews a return, it doesn’t only look at the income. It also pays close attention to how the deductions compare to that income. And when the deductions look a little too high for the level of income reported, the return naturally stands out. This doesn’t mean the deductions are wrong, but it does make the IRS curious about how the numbers came together.
You usually see this red flag pop up in situations like:
- Claiming business expenses that seem unusually high for the size of the business.
- Reporting losses year after year, even when the income stays steady.
- Showing large charitable contributions compared to total income.
- Taking itemized deductions that don’t match your income bracket.
- Writing off expenses that don’t clearly connect to the work you do.
And a good point to remember here is that the IRS compares your deductions to those of others with similar income levels based on years of data. If your deductions deviate significantly from the norm, it can trigger a second review, increasing your audit risk, but it doesn’t necessarily indicate an issue.
Red Flag 3 – Home Office Deductions Gone Wrong
The home office deduction is helpful, but it’s also one of the areas the IRS looks at very closely. And the common IRS audit reasons are simple. Many people claim it without meeting the actual rules, or they mix personal and business use in a way that doesn’t fully qualify. So when the numbers look a bit off, or the space doesn’t clearly meet the IRS standard, the return stands out.
Most issues show up in situations like:
- Claiming a room that isn’t used regularly and is only for work.
- Writing off a space that doubles as a bedroom, lounge area, or family room.
- Taking a very large percentage of the home for business use.
- Listing expenses that don’t connect to the workspace at all.
- Claiming the deduction even when the business activity itself isn’t consistent.
And what really matters here is that the IRS requires that a home office have a clear business purpose. They assess if the space is actually used for work and if expenses align realistically with it. Inconsistent numbers or setups can trigger scrutiny, making this deduction a potential red flag if not claimed correctly.
Red Flag 4 – Large Cash Transactions and Bank Deposits
When the IRS looks at your return, it compares the income you report with the activity moving through your bank accounts. And when the cash activity feels stronger than what the return shows, the IRS pauses for a moment. Cash is harder to trace, so the IRS looks closely at it to make sure it came from a source that was supposed to be reported.
You usually see this red flag pop up when:
- Withdrawals and deposits don’t follow a pattern that fits your normal work.
- Your account shows cash activity that doesn’t match the type of business you run.
- Personal and business cash end up mixed together in the same account.
- Large one-time deposits show up with no clear business purpose.
A key point to keep in mind is that the IRS looks for a clear link between your income and bank activity. Mismatches can raise audit risk and lead to tax balances, resulting in notices about liens or wage garnishments. Hall and Associates Tax Relief helps individuals understand and resolve these notices to prevent further issues.
Red Flag 5 – Claiming 100% Business Use on Personal Vehicles
When someone claims a personal vehicle was used only for business, that often triggers a red flag with the IRS. It’s rare for a car to be used solely for business; usually, there’s at least some personal use. So when a return says 100% business use with no sign of a second personal car or a clear reason, the IRS system notices.
You see, this raises suspicion when:
- A single vehicle is claimed to be business-only despite no evidence of a separate personal-use vehicle.
- Claims include commuting miles or personal errands, which IRS rules say are not business use.
- There is no mileage log or records showing business miles vs. personal miles.
- Actual expenses or mileage deductions are large compared to the income or business activity reported.
What makes these real red flags that can trigger an IRS audit is that the IRS requires clear proof when you use a vehicle for business. If the paperwork or log doesn’t show a pattern of business use, claiming full business use looks wrong. That mismatch between what’s claimed and what’s documented often puts the return under IRS scrutiny.
Read More → How Far Back Can IRS Audit a Business? Your Complete Guide
Red Flag 6 – Cryptocurrency Transactions Without Proper Reporting
When you trade, sell, or otherwise dispose of cryptocurrency and don’t report it on your return, the mismatch can draw immediate attention from the IRS. Since the IRS treats crypto as property, any sale, exchange, or disposal counts as a taxable event.
Because of new rules in 2025, many crypto exchanges now must send transaction reports to the IRS. If your return doesn’t include what the exchange already sent, your return may end up on a list of audit candidates.
You commonly see this red flag when:
- You traded crypto but didn’t report the sale on your return.
- You got crypto as payment or reward and did not report it.
- Crypto-to-crypto trades were left out or misreported.
- You used crypto for purchases or exchanged it, but ignored the tax rules because you thought it wasn’t “real money.”
The reason this is a key red flag is that the IRS now collects third-party data from exchanges and compares it with what you report. If they find a gap, your return gets marked for review. Even honest mistakes in crypto reporting can trigger that spotlight.
Red Flag 7 – Failure to Report Foreign Financial Accounts
When you have money sitting in financial accounts outside the United States, the IRS expects those accounts to be reported when they cross certain limits. And because the IRS already receives information from foreign banks and financial institutions, a missing report stands out quickly. Even if the account didn’t earn much or didn’t move much during the year, not reporting it can raise concern.
Most of the issues show up when:
- Someone has a foreign checking, savings, or investment account that crosses the reporting limit.
- Multiple small accounts together move past the threshold, but none get reported.
- Foreign income appears on the return, yet the account holding it is never disclosed.
- Accounts that have existed for years show up nowhere on the annual filings.
The key point is that the IRS has two reporting requirements for foreign accounts: the FBAR, which covers the total value of foreign accounts during the year, and FATCA, which requires additional disclosure of certain foreign assets. If either report is missing and the IRS has data about your accounts, it can trigger a closer examination of your return. Often, the absence of these documents raises red flags before any further checks are made.
Red Flag 8 – Claiming the Earned Income Tax Credit (EITC) Improperly
The Earned Income Tax Credit helps a lot of families, but it’s also one of the areas the IRS checks more closely than almost anything else. And the main reason is that even small mistakes can change the credit amount a lot. So when the information on the return doesn’t line up with what the IRS already has in its records, the return naturally gets a second look.
Most issues start showing up in situations like:
- A child is claimed who didn’t live with the taxpayer long enough during the year.
- The relationship rule doesn’t match the person being claimed as a qualifying child.
- Two taxpayers try to claim the same child, which often happens with separated or unmarried parents.
- The filing status doesn’t support the credit, especially when “head of household” isn’t documented well.
- Self-employment income is increased or decreased in a way that doesn’t match business activity, making the credit look larger than it should.
And the simple thing to remember here is that the EITC works only when income, dependents, and filing status all fit together in a very clear way. The IRS has years of data on how these details usually look, so when something feels out of place, the system flags the return for a closer review. Even honest errors can raise your IRS audit risk factors because this specific credit is checked with a stricter standard than most others.
Red Flag 9 – Frequent Amendments to Returns
When you amend a return once, the IRS usually sees it as a simple fix. That’s normal. The concern starts when the return keeps getting updated. And honestly, that pattern makes the IRS wonder whether the first version was filed with complete records or whether the numbers were never fully settled.
You usually see this happen when:
- Income forms get added later because they weren’t included the first time.
- Business owners adjust revenue or expenses after reviewing incomplete books.
- Deductions change more than once and end up shifting the refund.
- Filing status or dependent claims keep getting revised.
- Rental or investment numbers get corrected again after year-end statements arrive.
What stands out here is the pattern. When a return keeps changing, the IRS sees it as a sign that the original filing may not have been supported well. And that repeated uncertainty can raise your audit risk even if each correction was made with good intentions.
Red Flag 10 – Reporting Rental Properties with Losses Over Extended Periods
Rental properties can have losses, and the IRS expects that in certain years. But when the losses continue year after year, the IRS starts to wonder whether the activity is actually being run as a business or if it looks more like a personal expense being written off. And that long pattern of losses is what usually gets the IRS to take a closer look.
You often see this red flag show up when:
- The property has ongoing expenses that stay high while rental income stays low.
- Repairs and improvements are claimed in a way that pushes the property into a loss every single year.
- The owner rarely shows a profit even during stable rental markets.
- Personal use of the property is mixed into the expenses.
- Records don’t clearly show that the property was available for rent for a full year.
The point that matters here is simple. The IRS expects a rental property to show profit some of the time or at least to follow a pattern that makes sense for a real rental activity. When the numbers stay negative without a clear reason, the return stands out, and that ongoing pattern of losses can raise your audit risk.
And when the IRS adjusts those losses during an audit, the changes can leave you with a balance that feels hard to manage. In situations like that, the IRS looks at whether you can realistically pay the full amount, and programs like hardship status or an Offer in Compromise may come into the picture once the audit is complete.
Also Read → How Far Back Can the IRS Do an Audit for Individuals?
How to Avoid Being Audited by the IRS?
Avoiding IRS audits is not hiding anything from the IRS. It’s more about filing a return that makes sense on paper and matches the information the IRS already has. When everything lines up in a steady, consistent way, your return usually moves through the system without extra attention. And that’s really what keeps the audit risk low.
Here are the steps that actually help:
- Make sure every income form is included.
- Keep deductions, credits, and expenses backed by simple, clear records.
- Report crypto, foreign accounts, and rental activity the right way.
- Avoid patterns that don’t fit your income level.
- Keep personal and business activity separate.
- Stay consistent from one year to the next.
- File on time and avoid filing several amendments.
- Keep mileage logs, business records, and receipts updated during the year.
- Handle cash activity carefully and avoid mixing different types of cash in one account.
- Make sure dependents, filing status, and credits match your actual situation.
- Check that your return lines up with the third-party information the IRS already receives.
Conclusion
When you look closely at these 10 red flags that can trigger an IRS audit, you start to see that most IRS issues don’t begin with anything major. And that’s the part that makes people uneasy, because you can file your return with the best intentions and still feel unsure about how the IRS might read it.
That’s where having someone who understands how these reviews work can make everything easier to manage. Hall and Associates Tax Relief steps in before the stress builds. They review your return like the IRS, identifying potential issues and advising on necessary clarifications or corrections. And if an audit notice ever shows up, they step in with full IRS audit representation, which means they handle the communication, paperwork, and responses so you’re not handling it alone.
You can reach out, share what’s going on, and Hall and Associates Tax Relief will walk you through the next steps in a calm and steady way.
FAQs
Q1: How likely am I to be audited if I have one red flag?
One red flag does increase your chances, but it does not guarantee an audit. The IRS selects returns based on how unusual something looks when compared to the information they already have. So the risk really depends on whether the issue stands out in their system. A small mismatch may only place your return in a slightly higher review group, while a stronger concern, such as missing income forms or patterns that do not fit your past filings, may draw more attention. Most returns with a single red flag do not turn into a full audit, but the system may still pause for a moment to verify the numbers.
Q2: Does filing electronically reduce my audit risk?
Filing electronically can lower your audit risk because it removes many of the errors that usually happen with paper filing. The system checks your math, confirms that all required fields are complete, and prevents forms from being forgotten or misplaced. This helps the return move through the IRS processing stage smoothly.
Some reasons electronic filing helps include:
- Fewer manual mistakes.
- Faster confirmation that your forms were received.
- Fewer delays caused by missing documents.
While this does not eliminate the chance of an audit, it reduces the chances that a simple clerical issue triggers extra attention.
Q3: Can hiring a CPA prevent IRS audits?
A CPA cannot stop the IRS from choosing your return, but they can make the return stronger and more accurate. They match your income forms, check your deductions, and make sure everything is supported by proper documentation. That reduces the kinds of mistakes that often trigger IRS questions later.
A CPA also helps with:
- Organizing records.
- Preparing data that line up with your activity.
- Explaining how each item should be reported
So while they cannot prevent an audit, they help lower the risk that your return looks inconsistent or incomplete.
Q4: What steps should I take if I get an IRS audit notice?
If you receive an audit notice, it helps to follow a clear process so you understand what the IRS needs and what records you must gather.
A steady way to handle it is:
- Read the notice slowly and note the tax year, the deadline, and the items the IRS is reviewing.
- Collect documents that directly support those items. This usually includes receipts, income forms, bank statements, mileage logs, and any records connected to the numbers on the return.
- Keep the documents in one place and organize them in the same order that the notice lists the items.
- Respond by the deadline and send only what the IRS requested.
- Consider speaking with a tax professional if you feel unsure about how to answer or how much information to provide.
Following these steps helps you respond clearly and avoid back-and-forth questions that can slow the process.
Q5: How long does the IRS have to audit my return?
The IRS generally has three years from the date you filed your return to begin an audit. This is known as the standard assessment period. Most reviews happen within this time because the IRS tries to focus on recent filings. The period becomes longer when the return shows a large amount of unreported income or when certain disclosures are missing. If a return was never filed, the IRS does not have a deadline for starting an audit.
For a normal return, the three-year period is what applies, and once that time passes, the IRS usually cannot open a new audit for that year.
