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7 tax deductions the IRS watches closely — and how to keep yours safe

Michael KurkoDecember 16, 2025 at 1:10 AM

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7 tax deductions the IRS watches closely — and how to keep yours safe (Nico De Pasquale Photography via Getty Images)

Tax season is stressful enough without wondering whether a single deduction will draw scrutiny from the IRS. The reality? Just 0.36% of individual returns were audited in 2023, according to IRS data — that’s less than 4 out of every 1,000 returns.

But a handful of write-offs do get disproportionate attention. Not because they’re suspicious, but because they’re frequently misused or incorrectly documented by taxpayers.

Here’s a closer look at seven deductions that raise the most eyebrows, and how to make them work for you rather than against you.

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1. Business losses

This one’s about intent — and proof

It’s not uncommon for a business to lose money occasionally. But if you’re reporting losses year after year, the IRS may wonder if you’re running a legitimate business — or just using a hobby to offset other income.

The IRS uses a “safe harbor” rule: If an activity generates profit in at least three out of five consecutive years, it’s generally presumed to be a legitimate business. Can’t meet that threshold? You’ll need to prove you’re genuinely trying to make money.

Auditors look for basic indicators of real business activity: separate bank accounts, invoices, marketing materials, a documented business plan or any other evidence showing an intent to make a profit. If your business has credible records, the deduction is usually safe. When it doesn’t, the IRS is more likely to challenge reported losses.

If your business is legitimate, this deduction is worth taking. Just be ready to show the IRS how the business operates day to day.

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2. Home office deductions

Not a guest room? Not a red flag

Few deductions cause as much confusion as the home office write-off. But it’s simpler than it seems — and claiming it doesn’t automatically trigger an audit. The IRS just requires that the space must be used exclusively and regularly for business. A laptop in the living room or a guest room that doubles as an office doesn’t qualify.

The part that trips up most folks is claiming the deduction for multipurpose spaces or estimating square footage without support. But if you use the simplified method — $5 per square foot up to 300 square feet — and keep basic documentation (think: photos, a floor plan, and utility bills), you should have no trouble proving the space is legitimate.

If you’re self-employed, the deduction can noticeably lower your taxable income. W-2 employees, however, can’t claim it — the One Big Beautiful Bill signed into law this year makes a previously temporary suspension permanent.

If your home office legitimately qualifies, the deduction remains one of the strongest available.

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3. Charitable donations without receipts

Big givers get a second look — but don’t skip the paperwork

Charitable contributions are a standard write-off, but unusually large donations relative to your income can raise questions — especially when they’re donated in cash. The IRS compares your contributions to averages for your income level. If you claim a significantly higher deduction, it’s likely to attract a second look from the IRS.

The IRS requires charities to provide written acknowledgment for any single gift of $250 or more. Smaller donations still require a bank record, receipt or canceled check. For non-cash donations of $500 or more, you’ll need to file Form 8283 with your tax return.

Many deductions don’t get denied because they’re wrong — they’re denied because taxpayers can’t prove them.

The charitable deduction is worth claiming as long as you keep proper documentation. Even a quick photo of a receipt or saved email confirmation can be all the proof you need if you’re questioned.

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4. Medical expenses

You’ll need a big bill — and better records

You can deduct medical expenses only if they exceed 7.5% of your adjusted gross income — a threshold Congress made permanent in 2021. It means if you earn $80,000, the first $6,000 in medical costs provide no tax benefits.

Most taxpayers never cross that threshold, but when they do, the amounts can be substantial — and may draw IRS scrutiny.

Eligible costs include surgeries, prescription medications, dental work, hospital bills, medical equipment, Medicare premiums and even mileage or bus fare to appointments. Non-deductible items — such as cosmetic procedures that aren’t considered medically necessary, over-the-counter supplements, and gym memberships — are what most often trigger IRS questions.

Documentation is critical. Keep itemized receipts, explanations of benefit statements from insurers, and itemized provider bills for at least three years after filing your tax return.

For households facing major surgery or managing chronic illness, the tax savings can be substantial. And worth the additional recordkeeping.

🔍 Read more: What hospitals won't tell you: 7 steps to lower your medical bills

5. Self-employed business expenses

Mileage is gold — if you log it

If you’re self-employed, you can write off travel, supplies, software and gear you use to run your business. But Schedule C filers face higher audit rates than the typical taxpayer, largely when those expenses look unusually high compared with your income — or could be mistaken for personal purchases.

One of the most frequently challenged deductions is mileage. At 70 cents a mile in 2025, the standard deduction is valuable — but only if you have documented logs showing the date, destination, business purpose and miles driven for each trip. Claims based on estimates typically get reduced or denied. Travel, meals, and home tech purchases also face scrutiny if you can’t clearly prove they are related to your business.

The easiest way to protect this deduction is to document it in real time. If your records clearly show when a trip happened, what the expense was for or how you calculated mileage, the IRS is likely to accept it — and the tax savings can be substantial.

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6. Rental property write-offs

Split expenses if you also use the place

If you own a rental property, you can deduct mortgage interest, repairs, depreciation and maintenance. But if the property is also used personally, things get complicated. Use your property for the greater of 14 days or 10% of rental days, and you must divide every expense proportionately between rental and personal days.

The IRS requires clear records breaking down exactly how many days the property was rented versus how many days you used it personally. Claiming a $25,000 roof replacement as a deductible repair instead of an improvement can trigger an audit. The IRS compares Schedule E repair deductions against similar properties, and unusually large claims can raise major red flags.

If you rent out a vacation home for 60 days but stay there 30 days of the summer, only two-thirds of your expenses are deductible.

Bottom line: Treat your property like a business. Track bookings with a rental calendar, save contractor invoices and document every stay. With proper documentation, you shouldn’t have any problems. But attempting to deduct 100% of expenses on a property that sees heavy personal use will draw some attention.

🔍 Read more: 2026 property tax bill just arrived? You have weeks to fight it — but act fast

7. Vehicle deductions based on questionable mileage

The IRS knows when mileage looks sketchy

The IRS has seen every kind of mileage mistake. If your numbers are too perfectly rounded or unusually high for what you earn, it’s a giveaway that you didn’t log your mileage in real time.

While auditors don’t expect perfection, they demand accuracy. A simple mileage-tracking app or notebook that captures odometer readings, dates, destination and the business purpose of each trip satisfies IRS requirements. The Tax Court repeatedly denies mileage deductions when taxpayers can’t prove the details.

For self-employed workers, mileage can be one of your most valuable deductions — missing just 100 miles a month costs you over $800 in lost deductions annually. But guesswork or estimates are the quickest way to lose it in an audit.

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Bottom line: Documentation beats suspicion — every time

Most deductions don’t get rejected because they’re inherently suspicious — they’re disallowed because the documentation doesn’t hold up during review. Just like filing on time or correcting mistakes early, preparation goes a long way toward avoiding bigger problems down the road.

Claim the deductions you’re entitled to, keep simple proof for each one and file with confidence. Your overall audit risk is low. But if the IRS does ask questions, clean records mean you’re well positioned for a quick resolution with little or no change to your return.

For questions about your specific tax situation, talk with a certified tax preparer, CPA or trusted financial advisor who can guide you based on your exact circumstances.

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About the writer

Michael Kurko is a finance writer and editor who covers investing, real estate, personal budgeting and financial literacy. His expertise has been featured in FinanceBuzz, The Balance, Investopedia, U.S. News & World Report and Forbes Advisor, among other top financial publications. In addition to his work in finance, Michael is also a freelance book editor and fiction writer. He strives to make complex money topics clear and approachable so readers can make informed decisions and build lasting financial confidence.

Article edited by Kelly Suzan Waggoner

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Source: “AOL Money”