What triggers an IRS audit and how do I prepare in 2025?

The overall IRS audit rate for individual returns is about 0.4%, but certain factors significantly increase your odds of being selected.

Common audit triggers:

• High income: Taxpayers earning over $500,000 are audited at roughly 10x the average rate. Those earning over $1 million face even higher scrutiny.
• Large Schedule C deductions: Claiming business losses that offset significant W-2 income, especially repeatedly, is a red flag. The IRS uses a Discriminant Information Function (DIF) score to flag returns with unusual deduction-to-income ratios.
• Cash-intensive businesses: Industries like restaurants, laundromats, and retail are scrutinized more heavily.
• Earned Income Tax Credit (EITC): EITC claims are audited at a disproportionately high rate.
• Unreported income: The IRS matches all W-2s, 1099s, and K-1s against your return. Any mismatch triggers an automatic notice.
• Cryptocurrency transactions: The IRS has made crypto compliance a priority.

How to prepare: Keep thorough records of all income and deductions for at least 3 years. Maintain receipts, bank statements, mileage logs, and home office measurements. If audited, you will receive a letter (the IRS never initiates audits by phone). You can represent yourself, hire a CPA, enrolled agent, or tax attorney. Respond within the deadline stated in the notice, usually 30 days.

Types of audits: Correspondence audits (by mail) are most common. Office audits require you to visit an IRS office. Field audits involve an agent coming to your home or business and are reserved for complex returns.