Tax season 2026 is in full swing. It’s imperative to get all your documents in order and submitted on time and to the appropriate IRS filing centers.

However, you must ensure that the documents are drafted properly. You can land in hot water should you make a mistake. The IRS is notorious for conducting audits, whether on personal taxes or business taxes, when they suspect irregularities with your tax returns.

A number of people, who were flagged by the IRS for an audit, told us the same old story. “We never thought they’d audit us!” Despite the fact the IRS audits a very small percentage of individual tax returns, generally less than 0.5% annually, which equates to roughly 1 in 300-500 returns, if your return appears out of the normal parameters, the IRS will likely flag your return for a review and possible audit. In recent years, overall audit rates have hovered around 0.2% to 0.4%, with higher-income earners and complex business returns being the most audited.

Here are the top 5 ways to avoid an IRS audit:

What is an IRS Audit?

An IRS audit is a financial examination of an individual’s or a business’s financial records, accounts, and bookkeeping methods. The audit ensures the information you have provided to the IRS is accurately reflected and reported on your tax return. While the IRS typically only audits.

The information must be correct according to federal tax laws. If the IRS believes an error or suspicious financial activity is occurring, it will likely trigger an investigation by the IRS and a thorough review of the documents, records, and information you have provided. Such a review could be costly and time consuming for you not to mention any penalties and fines you are assessed.

Top IRS Audit Triggers

If you are looking to avoid an IRS audit, it’s imperative you understand what the IRS is looking for. The more prepared you are, the less chance you have of being flagged for a review or audit.

Here are the top IRS audit triggers to look out for:

Missing Income

If your taxes are automatically withheld from your paycheck, your employer must report your earnings and withheld taxes to the IRS. However, non-wage income is not taxed in the same manner since it is not withheld. This includes the following types of non-wage income:

  • Business income
  • Capital gains
  • Interest
  • Rental income
  • Dividends
  • Royalties
  • And more

The aforementioned are more susceptible to discrepancies. The IRS looks for any such discrepancies that can quickly trigger an audit.

Changes in Income

If you experience large swings in income, this can trigger an IRS audit. People whose income fluctuates significantly from year to year may be on the IRS’s radar. This can include those who own their own business or who are self-employed.

Large changes in income from one tax year to the next can signal a red flag. The IRS is very good at tracking those who are not reporting or under-reporting their income.

Business Losses

If you’re just starting a business, you know how difficult it can be to generate a profit. According to Yahoo! Finance, it may take a few years, if not longer, to make your business profitable.

If you claim business losses for multiple years in a row, this will catch the attention of the IRS. If the loss is substantial for three or more years after the business has started, the IRS may want you to explain why you are not yet profitable.

Suspicious Deductions

Deductions are a normal part of taxes—especially in business. However, the IRS will scrutinize certain deductions based on your income source, your job, and your past filings.

Be mindful of the following deductions:

Charitable Deductions – Charitable deductions that are more than the average amount of donation can alert the IRS. Deductions are capped at 60% of the adjusted gross income (AGI) for cash donations, and 30% for stocks and additional property.

Passive losses on rental properties – If the amount to run a rental property is more than the rental income it brings in, you cannot claim a loss unless the following is met:

  • You own 10% of the property or more, you are managing the property, and your modified AGI is less than $100,000, or
  • You are a real estate professional and are active in managing the property.

Unqualified Home-Office Deductions – If you are self-employed and work from home, you can deduct home office expenses. However, if you work from home as a regular employee, you do not qualify for this deduction.

Undervalued Assets

Undervalued assets generate estate returns that trigger the IRS. They are looking to see if the estate’s assets are valued too low to save money.

It is imperative to be honest regarding the value of the assets. Hire highly qualified appraisers to appraise the assets to keep the IRS at bay.

Bottom Line

When you file taxes – and be sure to file on time even if you cannot provide all the documents necessary so you avoid penalties and late fees, be sure to do it the proper way. Do not cut corners or look for the easy way out. It just doesn’t pay to under-report your income because the IRS has multiple tools at its disposal to ensure your numbers add up. There’s no benefit in the long run for undervaluing your assets or taking deductions that only raise suspicion.

Play it safe and be honest. This is the best way to avoid an IRS review or audit. An IRS audit will wreak havoc on your peace of mind, and it could financially hurt you and your business. Finally, keep your information organized and accurate. These suggestions are the best way to avoid an IRS audit.