IRS Audit Triggers: How to Avoid Red Flags in Your 2025 Return
Most business owners think an IRS audit is random. It’s not. In reality, the IRS uses data-driven filters and comparisons to flag returns that don’t look right. That means certain patterns, errors, or inconsistencies make you far more likely to get pulled into an audit — even if you didn’t do anything intentionally wrong.
For Texas small business owners, where pass-through entities and home-based businesses are common, knowing these red flags can save you stress, money, and time.
1. Mixing Personal and Business Expenses
Using one account for both your groceries and your QuickBooks entries is an instant red flag. When business owners deduct personal expenses as business costs — even by accident — it creates inconsistencies that the IRS looks for.
Avoid it: Keep a clean separation. Open dedicated business checking and credit card accounts. Use a formal reimbursement process if you ever need to cover a business cost personally.
2. Misclassifying Deductions
Meals vs. office supplies. Capital purchases vs. regular expenses. Business travel vs. commuting. These distinctions matter. Misclassifying deductions is one of the fastest ways to trigger an audit, especially when expenses appear inflated compared to your industry peers.
Avoid it: Learn the 50% meal deduction rule, depreciation rules for equipment, and the difference between business mileage and commuting. Better yet, have a CPA review your chart of accounts quarterly.
3. Excessive or Unusual Deductions
The IRS compares your return to other businesses in the same industry and revenue range. If your deductions are unusually high — say, $45,000 in “business meals” for a solo consultant — your file is more likely to be flagged.
Avoid it: Be realistic and consistent. Back every deduction with receipts, mileage logs, or invoices. And if your deductions are legitimately high for the year, attach explanations where possible.
4. Home Office Claims Without Documentation
Texas has one of the highest rates of remote and home-based work in the country. But the IRS still scrutinizes home office deductions closely. If you claim 50% of your house as a “home office,” expect questions.
Avoid it: Only deduct space used exclusively and regularly for business. Document square footage, take photos, and keep utility bills.
5. Inconsistent Reporting Between Forms
If the income reported on your business return doesn’t match what appears on 1099s, W-2s, or bank records, the IRS’s automated systems will notice. This mismatch is one of the most common audit triggers.
Avoid it: Reconcile every 1099 and payroll report against your books before filing. Even a small oversight can cause a notice.
6. Ignoring Franchise Tax and State Filings
Many Texas LLCs and S-corps assume that because their income falls under the “no tax due” threshold, they don’t have to file franchise reports. Wrong. Missed filings can revoke your good standing, which the IRS may also view as a compliance risk.
Avoid it: File your annual Texas Franchise Tax Report and Public Information Report every year, even if no payment is due.
Why Audit-Proofing Your Return Matters
An audit doesn’t just mean paperwork. It can drain time, add penalties, and put your business reputation at risk. For Collin County business owners juggling growth, payroll, and compliance, prevention is far cheaper than dealing with the fallout.
At Hill Durnin CPAs, we specialize in making returns audit-ready. Our process integrates bookkeeping with tax prep, so errors get caught before they ever reach the IRS.
✅ Take the Next Step
Don’t leave your return to chance. Schedule a year-end review with Hill Durnin CPAs. We’ll stress-test your books for common audit triggers, verify compliance, and ensure your 2025 filing is accurate, timely, and defensible.
📞 Call us at (972) 248-1800
📘 Or book online at hilldurnincpas.com