7 Business Income Red Flags

Dianna Jennings
23 hours ago
2 min read

Nobody wants a surprise letter from the IRS. And when it comes to your business income, there are a few red flags that could draw attention even if you’re not doing anything wrong.

Business Income Red Flags

Here are some of the most common income-related red flags we see and how to avoid them:

You forgot to include side or payment app income. Platforms like Stripe, PayPal, Venmo, and Square report that income now. If you’re only counting what hits your main bank account, it’s easy to miss something.
Your deposits don’t match your sales. If your bank shows more (or less) than your actual sales, it can look like you're underreporting even if it’s just messy tracking.
You’re writing off a lot with barely any income. Big deductions with small revenue can raise red flags. Make sure your numbers make sense and match your actual business activity.
Your numbers look different every year. Sudden drops (or spikes) in income without a clear reason could get noticed. Good records help you explain the “why.”
Mixing personal and business income. Depositing personal funds into business accounts (or vice versa) without proper documentation makes your financials messy and harder to defend if questioned.
Inconsistent reporting across documents. What you report on your tax return should match your bookkeeping. Discrepancies between forms, reports, and filings can create unnecessary scrutiny.
Cash-heavy businesses not properly tracked. If you run a business that handles a lot of cash (like hospitality, beauty, or retail), the IRS pays closer attention. Proper logs and consistent records are essential.

In Conclusion...

Properly and accurately tracking business income not only reduces red flags with the IRS, but it also helps protect your business goals, growth, and future actions. Whether you track your own finances or outsource, make your books audit-proof.