What triggers an IRS audit and how can I reduce my risk?

The IRS uses a combination of computer scoring (DIF score), random selection, and specific triggers to select returns for audit. Common triggers include: high income (audit rates increase significantly above $200,000 and are highest above $1 million), large charitable deductions relative to income (especially non-cash donations), home office deductions, Schedule C losses (especially when combined with W-2 income), unreported income detected through 1099 matching, large business meal and travel deductions, claiming the Earned Income Tax Credit with errors, rental property losses, foreign income and accounts, and cash-heavy businesses. To reduce audit risk: report all income (the IRS matches 1099s and W-2s), keep detailed records and receipts for all deductions, avoid round numbers on deductions (they look estimated), file electronically (lower error rates), be conservative with deductions that are common audit triggers, and use a qualified tax preparer. That said, the overall audit rate is under 0.5% for most income levels, so while being careful is wise, the odds of being audited are relatively low for most taxpayers.