Tax Experts Share the 8 Things That Could Get You Audited

When you go through a tax audit, the IRS takes a closer look at your tax return and the financials that go into it. Even if you've done nothing wrong, a tax audit represents an uncomfortable hassle, which could turn into a surprising financial mistake.

We spoke with tax pros to find out what things may draw some unwanted attention to your financial situation. Here are the 10 things they say could make your tax returns more vulnerable to an audit.

If you earn self-employment income and also claim certain tax credits, it could be a recipe for an audit.

Self employment income combined with Earned Income Credit or refundable Child Tax Credits will draw some attention, according to Crystal Stranger, JD, EA and CEO at Optic Tax.

"There is a lot of potential for abuse when obtaining refundable credits and having self-employment income, as if a taxpayer leaves expenses out and is in a top range of income, then the refundable credits can be maximized," Stranger explains. "Because of this, these credits are highly audited, especially when in the maximum range due to income from self-employment."

If you plan to take advantage of solar or EV credits, that could lead to an audit this year in particular, since Stranger says that the new administration has already said they'll be taking a harder look at credits used for Solar and Electric Vehicle purchases.

"I don't imagine there is a lot of abuse on these credits, but taxpayers may need to prove the dates placed in service, that money was not claimed for ancillary purchases such as replacing a roof or heating unit as part of the solar credit," she says.

Tax season involves collecting a wide range of documents. If you forget one, that could be a red flag.

"A super common reason for a mini audit or a paper review is the IRS receiving a tax document that is not accounted for on your return," says Ashley Morgan, attorney at Ashley D Morgan Law, PC.

That's because the IRS cross references what was reported to your tax ID after the return is filed and processed.

"For example, if you were issued a tax document, like a 1099 or W2, and that amount is not part of your return, the IRS will issue a CP2000 approximately 2 years after the return is filed and will request that you address the missing information," Morgan says. "If there is not a justifiable reason for the missing income (or you just do not respond), then there will be a new balance assessed."

If you own a business that has significant expenses, you might face an audit at some point.

"A very common issue we see is for an audit is having a business show losses for over three years in a row," Morgan says. "A business that shows no income for over three years can be considered a hobby and no longer a business."

But, that doesn't mean that small income reductions aren't perfectly acceptable. "Now if the business is showing a small loss for an extended period of time of $1,000 or less, it probably isn't a big deal," Morgan continues. "But if you are taking $10,000 to $20,000 losses and getting refunds from those losses due to other income or a spouse's income, it is highly likely the return is getting flagged."

When you add up tax-deductible expenses, rounding out your numbers might be a red flag.

"It can be a big red flag if your expenses are all round numbers," Morgan says, adding that the IRS will review and make sure that your expenses make sense for your business.

"For example, if you are an at-home baker, it may not make sense if you are trying to deduct mileage for over 100,000 miles driven in a year. It may be accurate, but it is more likely to raise a red flag."

Business expenses can change from year to year. But a significant increase could be a problem.

"If you have a business that has been around for many years and there is a year with significantly new expenses or extra high expenses — not like a purchase of real estate, equipment or a capital improvement — it can raise a red flag," says Morgan.

Of course, she says that there are exceptions, but it's important to note that it can look suspicious. "The IRS understands your ebbs and flows of expenses and will invest in improvements, but if you quadruped your advertising expenses without any increase in income, it may be a red flag."

Many small business owners work from home. With that, you could deduct some home office expenses. Depending on your situation, taking this deduction could raise your chances of an audit.

"The IRS looks very closely at the home office deductions," says Stephen A. Weisberg, principal attorney and founder at The W Tax Group.

"If you claim the home office deduction, make sure your workspace meets the IRS guidelines, i.e., it's exclusively for business and regularly used for business purposes, and keep good records," Weisberg continues. "Remember, you're only allowed to take deductions for the specific area that's used for business, not the whole house."

If you use your car for work, but your business needs don't typically involve as much travel as you're claiming, you could sound some alarms for the IRS.

"This is a big one. If you claim a large business mileage or vehicle expenses but your vehicle usage doesn't seem reasonable for your income level or your type of business," Weisberg says. "The IRS looks for patterns to determine if you're improperly deducting for personal use."

Although a tax audit is a hassle, it doesn't necessarily mean you did anything wrong. It simply means that the IRS is double-checking your tax return. If they spot an error, you might have to pay more in taxes due to potentially higher taxable income as a result of the audit.

Don't let the threat of an audit stop you from building up an extra income stream. Learning how to make extra money can help you transform your financial situation and help you crush your tax debt, even if your taxes get more complex.