Best Time To File Taxes To Avoid Audits: What Triggers One and What To Do

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No one wants to be audited by the Internal Revenue Service (IRS), as it can be a stressful and potentially expensive process. While there’s no sure-fire way to prevent an audit, knowing the steps you can take to reduce your risk and avoid an IRS audit can be invaluable. Read on to learn what’s most likely to trigger an IRS audit and what to do if you are audited.

Quick Facts About IRS Audits

• In 2024, the IRS closed 505,510 tax return audits, resulting in more than $29 billion in recommended additional tax.
• The standard audit window is three years after filing, though it can extend longer in certain situations.
• The average audit rate has been close to 0.30% in recent years. 
• Higher-income earners face much higher audit rates, with taxpayers earning over $10 million seeing audit rates of about 8%.

What Is an IRS Audit?

An IRS audit is a thorough examination of your tax return and its supporting documentation. The goal is to verify that you’ve reported income, tax deductions and credits accurately and according to tax law.

The IRS conducts audits to ensure compliance and close the “tax gap,” which is the difference between what taxpayers owe and what they actually pay.

There are three main types of audits:

• Correspondence audits: These are the most common type, in which the IRS sends you a letter requesting documentation to support specific items on your return. They may want to review charitable deductions, education credits or business expenses. You respond by mail, and most will not require an in-person meeting. 
• Office audits: These audits involve bringing records to a local IRS office for in-person review with an IRS examiner. The examiner will go through the documentation, and typically assess multiple tax issues. 
• Field audits: These are the most comprehensive type of audit, in which an IRS revenue agent visits your business, home or tax professional’s office. They often involve high-income taxpayers, complex business returns or circumstances where the IRS suspects significant underreporting. They may also cover multiple tax years.

Is There a Best Time to File Taxes to Avoid an Audit?

The short answer: No, timing doesn’t significantly impact your audit risk. 

The IRS has consistently stated that when you file doesn’t affect your chances of being audited. It’s what you file that matters. 

However, there are a few timing considerations to keep in mind:

• Filing early may protect you from identity theft, as scammers can’t file a fraudulent return using your information if you’ve already processed your return. 
• Filing on time or with an extension is better than filing late, which triggers penalties and interest on any amount owed.

What Triggers an IRS Audit

There are certain triggers that may make you more likely to be on the receiving end of an IRS audit. Potential red flags the IRS watches for include:

• Mismatched income information: This is a major trigger, and it happens when what you report doesn’t match records coming from employers, banks and clients. 
• High income: The more you earn, the higher your audit risk may be. Those with income over $10 million face an 8% audit rate, compared to much lower rates for other income brackets. 
• Large or unusual deductions: Claiming disproportionately large deductions compared to your income raises red flags, since the system compares your deduction to statistical averages.
• Self-employment or Schedule C returns: Common problem areas may include home office deductions, vehicle expenses without mileage logs, meals and entertainment, and the mingling of business and personal expenses. Repeated business losses may also be red flags.
• Round numbers: Returns showing perfectly round numbers — like $20,000 instead of $21,224.34 — may appear to be estimated instead of based on actual records. 
• Cash-heavy businesses: Restaurants, salons and car washes may face higher scrutiny because cash transactions are harder to verify.
• Earned Income Tax Credit (EITC): Despite serving lower-income taxpayers, the EITC has high audit rates due to its complexity, which causes frequent claiming errors.
• Foreign accounts and assets: Failing to report foreign bank accounts or assets can trigger audits and severe penalties.
• Cryptocurrency transactions: Unreported or incorrectly reported crypto transactions can flag returns for audit.
• Large, sudden income changes: Dramatic increases or decreases from one year to the next without explanation can trigger a closer review.

How the IRS Chooses Returns for Audit

The IRS uses sophisticated systems that identify returns that are most likely to have errors, which include: 

• Discriminant function system: The DIF algorithm scores each return based on how much it deviates from statistical norms. High scores are flagged for manual review.
• Unreported income detection: The IRS automatically matches the income you reported with income from third parties using W-2s, 1099s and other tax forms. Discrepancies trigger automatic flags.
• Related examinations: If the IRS audits someone you do business with, your return may also be selected for an audit.
• Random selection: A small percentage of returns may be randomly selected for audit, which can help the IRS refine its statistical models. 

High-Risk vs. Low-Risk Tax Behavior

Some tax behaviors are far more likely to attract IRS attention than others. Knowing the difference can help you avoid unnecessary scrutiny.

How To Reduce Your Chances of an Audit

Want to reduce the chances that you’re on the receiving end of an IRS audit? These tips can help:

• Report all income accurately: Ensure every W-2, 1099 and income form is accurately reflected on your return. And remember, even if you don’t receive a 1099 or W-2, you’re still required to declare the earned income on your return. 
• File electronically: E-filing can reduce math errors and ensure proper processing. 
• Keep excellent records: Maintain organized records, including receipts, mileage logs and business documentation. Keep records for at least three years, but ideally seven.
• Take reasonable deductions: Only claim tax deductions that you can document and that you’re entitled to. 
• Document your home office carefully: Ensure that home office expenses and space meet the criteria for exclusive business use. Take photos and keep floor plans.
• Report cryptocurrency transactions: Report all crypto sales and keep detailed purchase records. 
• File international forms: Submit all required forms from foreign accounts and assets. 
• Avoid round numbers: Use exact figures, not rounded or estimated numbers. 
• Work with tax professionals: A certified public accountant (CPA) or enrolled agent can ensure accuracy in complex situations.

Common Life Changes That Increase Audit Scrutiny

There are some life changes or events that may increase the risk of audit examination. These include:

• Starting a business and moving from W-2 income to self-employment
• Large gifts or inheritance
• Major income changes, including large raises or windfalls, followed by deductions 
• Divorce or separation, especially with changes in filing status or dependent claims 
• Home sales, with improper capital gains exclusion claims triggering audits 
• Moving abroad, as this can introduce complex filing requirements 

What To Do If the IRS Contacts You: Step-by-Step Guide

If the IRS contacts you for any reason — and especially for an audit — here are the steps to follow:

1. Verify it’s actually the IRS: Check your IRS Online Account, look up the notice number on IRS.gov or call the IRS directly. Make sure you’re calling the correct number by dialing the number listed on the IRS site. 
2. Read carefully and note deadlines: Understand which tax year is being examined, which items are in question, which documentation is needed and when your response is due.
3. Gather your documentation: Collect the appropriate tax return, W-2s, 1099s, receipts, bank statements and business records.
4. Respond promptly and completely: Send your response by the deadline using traceable delivery. Include all requested documentation, and include clear explanations as needed.
5. Know your rights: You have the right to representation, to know why the IRS is asking for information, to appeal decisions and to privacy.
6. Consider professional help: You can do this at any point in the process. For complex audits or substantial amounts, you may consider hiring an enrolled agent, tax attorney or a CPA. 

Avoid IRS Scams: How the IRS Will Never Reach Out

It’s important to watch for potential scams. The IRS will never:

• Initiate contact via email, text or social media, except potentially in rare cases when you’ve opted in.
• Demand immediate payment without sending a bill by mail.
• Threaten to have you arrested or deported.
• Ask for credit card numbers over the phone.
• Call and leave threatening, urgent voicemails.
• Require payment by gift cards, wire transfer or cryptocurrency. 

How To Stay Organized Year-Round

Staying organized can help minimize the risk of complications if you are audited. These six tips can help:

• Set up a filing system, with separate folders for income documents, expenses, business receipts and investment statements.
• Track expenses in real-time using accounting software or expense tracking apps.
• Reconcile your accounts monthly to catch errors early.
• Keep digital backups by scanning and digitally storing all receipts and financial documents.
• Maintain separate business and personal accounts, including bank accounts and credit cards. 
• Document mileage immediately, using a tracking app or a dedicated log. 

Myths vs. Facts About IRS Audits

There are plenty of myths floating around when it comes to IRS audits. Here are a few debunked:

Myth: Filing Early Increases Audit Risk

Fact: Filing timing doesn’t affect audit selection. The IRS focuses on content, not timing.

Myth: Small Deductions Won’t Trigger an Audit

Fact: While large deductions are more likely to raise flags, the IRS can audit any item. 

Myth: The IRS Only Audits Wealthy People

Fact: While high-income earners face higher rates, anyone can be audited. Low-income EITC claimants face disproportionately high audit rates. 

Myth: If Three Years Pass, You’re Safe

Fact: While the standard state of limitations for audits is three years, it extends to six or more years for select circumstances like substantial underreporting. It extends indefinitely for fraud. 

Myth: You Can’t Be Audited if You Get a Refund

Fact: Refunds don’t prevent audits. The IRS can require repayment plus additional tax if it’s needed. 

Key Takeaways

These points highlight the most important facts to remember when it comes to IRS audits and audit risk.

• The overall audit rate varies, but is under 1% for the general population. Certain factors, however, increase risk.
• Income mismatches are a common audit trigger, regardless of income level.
• High-income taxpayers and self-employed individuals can face higher audit rates.
• Keep detailed records for at least three years, but ideally six.
• If audited, verify the audit’s legitimacy, respond promptly and consider professional representation. 

Preston Hartwick and Angela Mae Watson contributed to the reporting of this article.

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