IRS Upgrade: Top Audit Triggers for W‑2 Employees (and How to Avoid Them Legally)

CPA Stephen Lee explains that the IRS has upgraded its systems to flag common W‑2 return mistakes and outlines key triggers for manual review, especially for employees with side hustles, crypto activity, or home office claims. Major red flags include underreporting income that doesn’t match W‑2/1099/brokerage data, large or disproportionate deductions, consistent business losses that can be reclassified as a hobby, improper refundable credit claims (EITC, child, education), large cash transactions or unexplained deposits, and simple issues like math errors, missing forms, and incomplete returns. He also warns about incorrect dependents or filing status, unreported foreign accounts, abusive tax shelters and “Dirty Dozen” scam patterns, and using a “ghost preparer.” The takeaway: prioritize accuracy, consistency, and documentation to stay audit-ready.

00:00 IRS Upgrade Warning

00:29 Who I Am

00:54 Underreported Income

01:21 Unusual Deductions

01:49 Side Hustle Losses

02:07 Credit Claim Triggers

02:30 Cash Deposit Scrutiny

02:50 Simple Filing Errors

03:04 Dependents and Status

03:20 Foreign and Shelter Risks

03:37 Dirty Dozen Scams

03:56 Ghost Preparer Red Flags

04:09 Three Key Takeaways

04:29 Subscribe and Wrap Up

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