6 Mistakes That Could Trigger a Tax Audit

Do you find yourself worrying about being audited each and every tax season? If so, it may ease your mind to know that the IRS audited only 0.38% of all tax returns during the fiscal year 2022. That means that fewer than four out of every 1,000 returns were flagged for a more thorough examination. Fortunately, there are lessons to be learned from those audited tax returns, including which mistakes are most likely to raise red flags. Here are six of them.

1. Fibbing

As a general rule, it's not a good idea to lie to the IRS. Whether you're deflating your income to avoid paying taxes or claiming a dependent you don't have a legal right to claim, you could find yourself in trouble.

Here's what will get you: Fudging the numbers to avoid paying taxes or to receive a credit you don't deserve could get you in trouble. Save yourself the worry of an audit by telling the truth.

2. Calling a hobby a business

The tax breaks business owners have access to make it tempting for some folks to claim a hobby as a business. According to H&R Block, the IRS generally considers a hobby a business if you've made a profit for three of the past five years. Let's say build birdhouses or make wedding cakes. If you're not making a profit, it's not a business.

Here's what will get you: Trying to write off the expenses associated with a hobby by labeling them "business expenses." Separate business expenses from hobby expenses.

3. Personal use of a business vehicle

One tax break for business owners is the ongoing cost of their business vehicle. Let's say you design and sew cat clothes and deliver them to pet stores in your area. Writing off the expenses associated with those deliveries is acceptable. What's not acceptable is calling a trip to drop the kids off at volleyball practice a business expense. In other words, keep careful records detailing the mileage driven for business-only trips.

Here's what will get you: If you plan to claim the use of a vehicle for business purposes, keep a detailed record of mileage, including calendar entries showing where the trip started and where it ended. Also include the purpose of each trip.

4. Donating a large portion of your income

Being generous has all kinds of benefits, including emotional. And when tax time rolls around, being generous also benefits anyone who itemizes their tax returns. However, you should never exaggerate how much you've given. If you really do donate 50% of your annual income each year, that's great! Just make sure you have the receipts to back up your claim.

Here's what will get you: Claiming to donate a large portion of your income, particularly if your income is not very high, will immediately raise a red flag. You can protect yourself in a tax audit by keeping careful records of your donations.

5. Inflating the cost of your home office

The home office deduction is typically only available to freelancers and independent contractors. If you're working for a company you don't own, a home office is not a deduction you can take. It's not even a deduction you're eligible to take if you remotely work for another company and run a side gig.

What the IRS wants to see is how much you spend to run your own business. It's fine to claim the area where your desk, computer, work phone, and other critical supplies are -- as long as it's not used for any other purpose.

Here's what will get you: Claiming your office is much larger than it is or claiming an area is an "office" when it's actually used for other purposes. Unless you have the receipts to back it up, claiming you've spent more on inventory and supplies can also raise a red flag.

6. Making simple mistakes

Simple mistakes, like math errors, forgetting to sign your tax return, or mixing up Social Security numbers are one of the most common reasons taxpayers are audited. Sure, it's an easy fix, but if you're counting on a tax refund hitting your bank account, it will slow the entire process to a crawl.

Here's what will get you: Rushing through your work without double-checking your math or reviewing each line of the return to ensure you haven't forgotten anything.

As long as you're truthful and careful, chances are excellent that an audit is not in your future. Even if you receive a letter from the IRS saying you're being audited, there's no reason to panic. Do your best to make any requested changes or to provide the IRS with the information it seeks. And remember, your tax return is only one of the millions the revenue service will process this year. The IRS is not going to lose any sleep over it, so neither should you.