10 IRS Audit Triggers to Avoid (Because Nobody Has Time for That Drama)

Let’s talk about the one thing every business owner dreads...the IRS knocking at your door (figuratively, of course). An audit might sound like the end of the world, but in reality, it’s just the IRS double-checking your math.

That said, no one wants to invite that kind of attention.

The good news? Staying off the IRS’s radar doesn’t require magic, just smart money management and a little know-how. Here’s what you need to know to keep things smooth, sacred, and stress-free.

Spotting the Red Flags: What the IRS Notices

IRS Audit Triggers aren't chosen at random. Certain patterns, errors, and behaviors raise eyebrows, and that’s when the letters start arriving.

Here are a few common scenarios that could catch their attention:

• Discrepancies in Income Reporting: If what you report doesn’t match what your clients report, the IRS will notice. Those 1099s and W-2s aren’t just for your files—they go to the IRS, too.
  

• Over-the-Top Generosity: Charitable donations are great, but they should match your income level. Claiming $15K in donations on a $45K salary? The IRS might want to chat.
  

• Cash-Based Operations: If your business relies heavily on cash transactions without clear records, that’s a red flag.
  

• Losses, Losses, and More Losses: Reporting losses every year makes the IRS wonder if you’re running a hobby instead of a business.

Patterns That Raise Eyebrows

Audits don’t just come from errors. Sometimes, the way your numbers look on paper can draw scrutiny.

For instance:

• Suspiciously Round Numbers: If your expenses and income look too neat and tidy, the IRS might suspect estimation rather than accuracy.
  

• Excessive Entertainment Expenses: Love those client dinners? So does the IRS—but they’ll want to see receipts.

  
  

These patterns don’t necessarily mean you’ve done anything wrong, but they’re worth avoiding to keep things simple.

The Hobby vs. Business Debate

One of the biggest misconceptions is that you can claim anything as a business expense. But if your business isn’t making money—or hasn’t turned a profit in three out of five years—the IRS might classify it as a hobby. That means no more deductions.

How to Avoid This:

Keep detailed records of your intent to make a profit. Show growth, marketing efforts, and a plan to turn things around.

Mistakes Happen, Here’s How to Fix Them

The IRS knows humans make mistakes, but even innocent errors can trigger a closer look.

From typos to math missteps, here’s what to do:

• Double-check your work before filing.

• Use bookkeeping software or, better yet, hire a professional (yes, I’m looking at you).

• If you spot an error post-filing, submit a correction ASAP.

  
  

Avoiding IRS Audit Triggers: Sacred Money Style

Here’s your game plan to stay in the IRS’s good graces:

1. Keep Detailed Records: Save receipts, track income, and document everything.

2. Separate Personal and Business Finances: Co-mingling accounts is a big no-no.

3. Hire Help When Needed: A professional can save you time, stress, and costly mistakes.

What to Do If You Get Audited

If the IRS comes knocking, don’t panic. An audit doesn’t mean you’re guilty of anything. Just:

• Stay calm and organized.

• Respond promptly to requests for information.

• Reach out to a tax professional for guidance.
  

With the right preparation, you’ll breeze through it and come out stronger.

Staying audit-free isn’t about fear, it’s about being proactive and organized. With Sacred Money Inc. in your corner, you can handle tax season with confidence and keep your financial house in order.

Need help making your finances audit-proof? Let’s make your money management sacred. Book a consultation today!

Hey there! I’m Karen.

I'm the Founder & CEO of Sacred Money Inc., where I empower spiritually-minded entrepreneurs to heal their financial wounds and manage their money with confidence and grace.

We offer a unique blend of practical financial expertise, including bookkeeping and tax services, with trauma-informed coaching.

My work is here to guide you toward financial resilience and abundance. I'm passionate about transforming the way we think about money and integrating it with our values, pleasures, and spiritual practices.