Nobody likes hearing the word “audit.” It sounds scary. But the truth is, most tax returns are never audited. The IRS does not have the time or staff to review everyone.
Still, some things can increase your chances of getting audited. Let’s break it down in simple words so you understand what actually matters.
Reporting Income That Doesn’t Match IRS Records
The IRS receives copies of your W-2s, 1099s, and other income forms. If you forget to report income, their system will notice.
For example:
- You worked a side job and didn’t include the 1099.
- You withdrew money from an investment account and didn’t report it.
- You had freelance income but only reported part of it.
This is one of the most common triggers. It’s not about how much you make. It’s about whether the numbers match.
Claiming Very High Deductions Compared to Your Income
If you make $40,000 but claim $30,000 in business expenses, that could raise a red flag.
The IRS looks for unusual patterns. Big deductions are not illegal. But they must make sense and be supported with records.
Examples:
- Large charitable donations without proof
- Big business losses year after year
- High mileage claims with no tracking log
If the numbers look unrealistic, the IRS may take a closer look.
Large Business Losses Every Year
Small businesses sometimes lose money. That’s normal.
But if you report losses year after year and never show a profit, the IRS may question whether it’s a real business or just a hobby.
They may ask:
- Are you trying to make a profit?
- Do you have records?
- Are you operating like a real business?
- Good bookkeeping helps avoid problems here.
Cash-Heavy Businesses
Businesses that deal mostly in cash can face higher scrutiny. Restaurants, barbers, auto repair shops, and similar businesses fall into this category.
The IRS knows cash income is harder to track. That doesn’t mean you will be audited. It just means your records need to be clean and organized.
Math Errors and Simple Mistakes
Sometimes audits or notices happen because of simple mistakes:
- Wrong Social Security number
- Filing status errors
- Calculation mistakes
- Forgetting to sign your return
These aren’t fraud. They are just errors. But they can cause delays and IRS letters.
Claiming Credits You Don’t Qualify For
Tax credits like the Earned Income Tax Credit or certain business credits are helpful. But if you claim something you don’t qualify for, the IRS may review your return.
Make sure:
- Your dependents qualify
- Your income matches the credit rules
- You keep documents
Most Audits Are Not Random
Some returns are selected randomly. But many are chosen because something does not match or looks unusual.
The key is simple:
- Be accurate.
- Report all income.
- Keep records.
- Don’t guess.
How Local Tax Can Help
At Local Tax in Bellflower, CA, we help individuals and small business owners file accurate returns and avoid costly mistakes.
We:
- Review your income carefully
- Make sure deductions make sense
- Help organize your business records
- Correct past filing errors
- Respond to IRS letters if needed
If you are worried about an audit or received a notice, it’s better to fix things early instead of waiting.
Local Tax
9429 Somerset Blvd
Bellflower, CA 90706
Phone: (562) 925-2203
We serve clients across LA County and help you file with confidence, not fear.
