Getting audited is never ideal. Even if your records are clean, having the IRS examine your financials under a microscope is stressful and time-consuming.
That’s why it’s worth taking a few simple steps to avoid audit triggers in the first place.
While there’s no guaranteed way to stay off the IRS’s radar, there are clear patterns in what triggers an IRS audit, and most of them involve how you handle expenses. In this article, we’ll walk you through how to avoid a tax audit by improving the way your business tracks reimbursements, mileage, and financial records.
1. Use an Accountable Plan—And Stick to It
One of the most common audit triggers is poor expense documentation. When the IRS sees missing receipts or inconsistent reporting, that can raise suspicion.
If you want to avoid a tax audit, the first step is setting up an Accountable Plan—a structured process for reimbursing employees in a way that follows IRS rules. This plan helps ensure that all submitted expenses are legitimate, documented, and properly categorized.
Digitizing your receipts and maintaining a clean audit trail reduces errors and makes you less likely to be flagged. The more thorough and consistent your documentation, the easier it will be to respond if the IRS ever asks for more information.
2. Avoid Math Mistakes—Let Technology Handle the Numbers
Math errors—no matter how small—are a major reason for audits. Even honest miscalculations can be interpreted as a red flag if they cause inconsistencies on your tax return.
To avoid audit problems, it’s essential to use technology that automatically calculates and cross-checks your data. Most modern expense software can flag inconsistencies before you file. This minimizes risk and keeps your records clean.
Remember, what triggers an IRS audit is often less about fraud and more about sloppy reporting.
3. Understand What the IRS Considers a Legitimate Business Expense
The IRS requires that all deductions be both “ordinary” and “necessary” for your business. That means you can’t just deduct everything under the sun and call it work-related.
For example, personal purchases like home décor or meals without a business purpose won’t hold up under scrutiny. Even if they seem minor, these types of expenses can create doubt and increase your chances of an audit.
To avoid a tax audit, train your team to submit only expenses that clearly fit IRS guidelines. Every claim should have a business reason, a receipt, and proper documentation within your Accountable Plan.
4. Log Mileage the Right Way
If you claim mileage on your taxes, you need to follow IRS requirements for mileage log documentation to the letter. Vague records or “best guesses” won’t cut it.
The IRS expects:
- Dates of travel
- Start and end locations
- Business purpose of each trip
- Total miles driven
This is one of the most overlooked areas—and often what triggers an IRS audit. To protect yourself, use a digital mileage tracker that automatically logs every trip and generates IRS-compliant reports. That way, if questions arise, you have everything ready to go.
What Is an IRS Audit?
An IRS audit is a detailed review of your tax returns and financial documents. The goal is to verify that everything you reported is accurate and complies with tax law.
If you’re wondering, what is an IRS audit? Think of it as the IRS’s way of double-checking that your income, deductions, and expenses match up with what they expect for your business type and revenue level.
Audits can be random—but more often, they’re triggered by inconsistencies, missing information, or aggressive deductions.
Final Tip: Don’t Wait for a Problem to Get Help
If your books are a mess, your expense policies are unclear, or you’re worried about compliance, now is the time to fix it—not when the audit letter arrives.
Need help setting up a compliant system, organizing your expenses, or reviewing your books for red flags?
Talk to Code Accounting today and learn how we can help you clean up your financials, stay IRS-compliant, and reduce your risk of being audited. We’ll help you spend less time worrying about the IRS—and more time running your business.
