Red Flags That Increase Your Chance of Being Audited

Introduction

Most people will never experience an IRS audit—but your odds go up when certain red flags appear on a tax return. Some of these are simple mistakes; others are legitimate deductions that require extra documentation. Understanding what the IRS looks for can help you avoid unnecessary scrutiny and keep your filing clean.

1. Income Reported Doesn’t Match IRS Records

The IRS receives copies of your:

• W-2s
• 1099-NECs
• 1099-Ks (payment apps and processors)
• 1099-INT and 1099-DIV
• 1099-DA (digital asset transactions)

If the income you report doesn’t match what the IRS already has on file, your return is automatically flagged.

2. Large or Unusual Deductions

Claiming deductions far above what is typical for your income level draws attention. Examples include:

• Extremely high charitable contributions
• Large business losses
• High medical deductions
• Overstated home office expenses

These can be legitimate—but the IRS may ask for proof.

3. Self-Employment Losses Year After Year

If you report a business loss every year, the IRS might question whether you’re running a real business or a hobby.
Businesses should show a profit in at least three out of five years to avoid hobby-loss scrutiny.

4. High Cash Income or Cash-Based Work

Industries like:

• Restaurants
• Construction
• Beauty services
• Rideshare/delivery
• Retail pop-up sales

…often involve cash transactions. The IRS knows these industries underreport income at higher rates, so they are more likely to be reviewed.

5. Claiming the Earned Income Tax Credit Incorrectly

The IRS audits EITC claims more frequently because they are prone to filing mistakes.
Incorrect reporting of dependents, income levels, or filing status often triggers a review.

6. Home Office Deduction Mistakes

The home office deduction is heavily scrutinized because many people misunderstand the rules.
To qualify, the space must be:

• Regularly used
• Exclusively for business
• Not shared with personal activities

When used correctly, the deduction is great—but misusing it can lead to questions.

7. Cryptocurrency or Digital Asset Activity

With new reporting requirements (including the 1099-DA), the IRS is increasing audits for people who:

• Trade crypto frequently
• Don’t report sales
• Participate in NFTs, mining, or staking
• Receive crypto as payment

The IRS is focusing more on digital assets every year.

8. Sharp Changes From Prior Years

Sudden spikes or drops in income, new types of deductions, or significant lifestyle changes can raise flags—especially when not explained by your income documents.

9. Not Reporting Side Hustle or Freelance Income

Platforms like Uber, DoorDash, Etsy, and Stripe all report your earnings to the IRS.
If you “forget” to include small side income, you’ll likely receive a notice.

10. Filing Late or Frequently Amending Returns

Late filings or multiple amended returns can signal disorganization or potential errors, which may prompt additional IRS scrutiny.

How to Protect Yourself

You can’t completely eliminate the chance of being audited, but you can reduce the risk by:

• Reporting all income
• Keeping receipts and documentation
• Only claiming deductions you can support
• Filing on time
• Using accurate bookkeeping
• Working with a qualified tax professional

Accuracy is the best audit defense.

MyTax.dog Can File Your Taxes and Reduce Your Risk

If you’re worried about making mistakes or triggering an IRS red flag, MyTax.dog can file your taxes for you. Their preparers ensure:

• Income is reported correctly
• Deductions are fully supported
• Digital asset activity is handled properly
• Red-flag items are reviewed for accuracy
• Your return is clean, compliant, and audit-ready

With expert help, you can file confidently and avoid unnecessary stress.

Final Thoughts

Audits are rare, but the IRS knows exactly what to look for when identifying questionable returns. By understanding common red flags and filing carefully, you can keep your return accurate and reduce your chances of hearing from the IRS. And with professional support from MyTax.dog, filing correctly has never been easier.

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