What can trigger a tax audit?

High deductions compared to income can indeed trigger a tax audit due to the potential for discrepancies and unusual patterns in reporting. Tax authorities, such as the IRS, utilize various algorithms and statistical models to identify returns that deviate from the norm. When a taxpayer reports deductions that are substantial in relation to their income, it raises red flags because it may suggest that the taxpayer is inflating deductions to reduce their taxable income artificially.

For example, if an individual earns a modest salary but claims significant business expenses or itemized deductions relative to that income, it prompts scrutiny. The IRS aims to ensure compliance and that taxpayers are accurately reporting their financial situations, preventing tax evasion or abuse of the tax system.

On the other hand, consistent income with low deductions, a minimal number of write-offs, or regular employment without investment income are generally less likely to raise concerns. These situations often present patterns that align more consistently with average taxpayer behavior, making them less susceptible to audit flags.