Tax season doesn’t exactly spark joy and for good reason. While most of us will file and forget, a small but unlucky slice of taxpayers will face something far more stressful: an audit.
The IRS audits less than 1% of all returns each year, but certain financial behaviors can crank up your chances of landing on their radar. And according to finance expert Punit K Jindal, some of the biggest audit triggers are surprisingly common.
Jindal is the founder of Dancing Numbers, a data automation platform that works with over 50,000 QuickBooks users and handles more than 10 million transactions annually. In other words: he’s seen every type of financial pattern you can think of and he knows exactly what makes the IRS start asking questions.
“After years of helping businesses manage their financial data, I’ve seen which activities consistently draw unwanted attention,” says Jindal. “Understanding these patterns can help taxpayers stay compliant while avoiding costly audits.”
Here’s his breakdown of the three types of transactions that tend to draw the most scrutiny and what to do if any of them apply to you.
1. Large Cash Deposits (And the Sneaky Way People Try To Avoid Them)
You’ve probably heard that banks report cash deposits over $10,000. That’s true. It’s done through something called a Currency Transaction Report (CTR), which goes straight to the IRS.
But what the IRS really doesn’t like? People trying to fly under the radar by depositing just under that amount again and again.
The software the IRS uses is smart. If you keep depositing $9,500 or amounts just shy of $10,000, it’s actually more suspicious than making one large deposit.
This tactic, known as structuring, is seen as a potential sign of money laundering even if the cash is totally legitimate. That puts small business owners like contractors, restaurant owners, and other cash-heavy operations in a tricky spot.
The fix? Keep thorough records and be consistent. If you’re dealing in cash, you need receipts, invoices, and documentation that explains exactly where that money came from.
2. Income That Doesn’t Match Your Forms
Here’s a simple rule: if someone sends you a W-2, 1099, or K-1… the IRS gets a copy too. And if what you report doesn’t match what’s on those forms, their automated system will notice.
This is one of the fastest ways to get audited. The IRS cross-checks everything. Even a small discrepancy will raise a red flag.
Common slip-ups include forgetting to include freelance income, skipping a 1099-INT from your bank, or misreporting investment gains. And since 1099 forms can be triggered by as little as $600 in earnings, even small gigs or side hustles count.
Jindal’s tip: go through every form you receive and match it line-by-line with your return. If you’re missing a form, don’t guess. Get in touch with the payer. It’s far less painful to fix a return than to deal with an audit.
3. Business Deductions That Seem a Bit… Ambitious
If your business deductions are way above average for your income level or industry, expect extra attention from the IRS. They track industry norms, and any outliers are flagged for review.
One deduction that regularly causes problems? Home offices. The IRS is strict about the ‘exclusive use’ rule for home offices. If you claim 40% of your home as a business space, that better be accurate and backed up with measurements and documentation.
Meal and entertainment expenses are also tricky, especially with changes in recent tax laws. Other risky categories include travel, vehicle use, and big equipment purchases—especially when they’re poorly documented.
The golden rule is simple. You need a legitimate business reason for the deduction and the receipts to back it up.
How To Keep the IRS off Your Back
Jindal shared a few practical ways to stay on the safe side of the audit line:
- Use accounting software: Automated record-keeping beats spreadsheets or shoeboxes full of receipts.
- Report all income: When in doubt, report it. The risk of underreporting just isn’t worth it.
- Know your industry averages: If your expenses are unusually high, make sure you can explain why.
- Save everything: Receipts, bank statements, contracts—digitally or otherwise—keep them organized and accessible.
Jindal also cautions against assuming that something “unusual” means it’s automatically wrong. It might just be different than the statistical norm—and that’s enough to prompt a closer look from the IRS.
A construction contractor might have 90% vehicle expenses, and that’s fine, but if a freelance graphic designer tries to claim the same thing, it’s going to raise eyebrows.
His final piece of advice?
Keep good notes.
Don’t wait until you’re under audit to try and recreate what happened. Jot down explanations for unusual transactions while they’re fresh. It’s those details that can make all the difference later.
The bottom line: It’s not about hiding things from the IRS. It’s about keeping your books clean, your claims reasonable, and your records airtight.
Because when it comes to taxes, boring and well-documented is the goal.
Read More:
- 5 Essential Steps To Prepare for Tax Season
- How Long Does It Take to Get A Tax Refund?
- 11 Top Tax Deductions You Might Be Missing Out On
