Top 10 IRS Red Flags

IRS Red Flags

IRS red flags come in many forms.

To help nullify your risk of being audited, pay attention to the most common red flags, below.

TOP 10 IRS Red Flags


  1.   Making too much money. Sounds like a problem everyone would like to have, but making over $200,000 may make you more likely to be audited. The fact is that there are fewer auditors, so the IRS is focusing on where they can make the most bang for the buck.
  2.   Not reporting all your income. No matter how much or little you make, report everything. In some way or other, unless you run a strictly cash business (another red flag), all of your income is reported to the IRS. W2, 1099 and other forms you receive are duplicated and sent in to the IRS. If your reported income doesn’t match theirs, that’s one more red flag.
  3.   Math errors. Whether you file electronically or still file paper forms, your information gets entered into a computer. And one thing computers are very good at is doing math. If things don’t add up, or there was an honest mistake in inputting the information, it can raise a red flag. A math error won’t necessarily get you an audit, but it will get attention you may not want. Double check your returns and have a qualified tax professional assist you and keep you out of tax trouble.
  4.   Home businesses that never make money. Sole proprietorships that file a Schedule C year after year and always show a loss will raise a red flag. Even if you show a profit, but the profit margin is always unreasonably small, that will get the IRS’ attention.
  5.   Large charitable deductions.  Being charitable is amazing.  However, large donations deviate from the norm.
  6.   Overstating business expenses. Depending on the type of job you have, there can be many legitimate expenses that your employer doesn’t reimburse you for. If you’re a business, you might be tempted to write off just a little extra.  Don’t try to deduct something that’s not on the approved list and don’t claim deductions way outside the norm. Check with your tax professional and stay up to date with tax laws so you’re not padding your tax return with write offs.
  7.   Sketchy real estate rental revenue or losses. Some people will ‘rent’ their property to friends or family at well below market value and then claim normal rental business expenses. As with other areas, the IRS compares what you claim against local standards to determine if this is a legit business. If not, they will disallow the deductions.
  8.   Home office deductions. There are absolutely legitimate home office deductions but the IRS has very strict guidelines on what you can claim and how much. Try to claim too much and this is a classic red flag.
  9.   Claiming losses for things that aren’t deductible or deductible in your circumstances. Example.  Claiming day-trading losses on a Schedule C. If you dabble in stock trading and take a loss, it may or may not be deductible.  And it most certainly does not qualify for a schedule c deduction. You also can’t take a deduction for alimony. The IRS maintains a list of non-deductible expenses.  Make sure to check that and check with your tax professional.
  10. Claiming 100% business use of your vehicle. Don’t do it.  You do not spend 100% of your time in a personal vehicle, doing business.



Many of these items are IRS red flags. 

However, most are legitimate deductions.

The key is to have a qualified tax professional on your side, especially someone who is well experienced in tax resolution and can help you minimize the risk of an audit and the resulting tax problems down the road. At the very least, keep meticulous records and make sure you are inside the guidelines of the IRS.

If you need an expert tax resolution professional who knows how to navigate the IRS maze, reach out to our firm and we’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem. Call Us Now!