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How to Minimize the Risk of an IRS Audit

A Practical Guide for Business Owners, Creators, Medical Professionals & High-Income Taxpayers

Receiving a notice from the IRS that your return has been selected for examination can be stressful. An audit often means time away from your business, detailed document requests, and potentially additional taxes, interest, or penalties.

At Velin & Associates, Inc., we work with entrepreneurs, doctors, dentists, YouTubers, filmmakers, Amazon and Shopify sellers, and high-net-worth individuals throughout Los Angeles. Many of our clients operate complex businesses with multiple income streams — which naturally increases audit exposure if returns are not prepared strategically and accurately.

The good news?
Most audits are triggered by preventable issues.

Below, we outline the most common audit red flags — and how proactive tax planning can reduce your risk.

1. Missing or Underreported Income

One of the most common audit triggers is income mismatch.

The IRS receives copies of income reporting forms such as:

If your tax return does not match what the IRS receives, their automated systems flag it.

Example – Creator / Influencer

A Los Angeles YouTuber receives:

If one 1099 is overlooked — even accidentally — the IRS will almost certainly send a notice.

How to Reduce Risk:

For online sellers and creators, income tracking must be systemized — not estimated.

2. Large Swings in Income

Significant year-to-year fluctuations in income can trigger scrutiny.

This is common for:

The IRS may question whether income was deferred, omitted, or improperly classified.

Example – Medical Practice

A doctor’s S-corp reports:

If the decline is due to:

The return should clearly reflect and support those changes.

How to Reduce Risk:

Strategic documentation makes legitimate fluctuations understandable.

3. Ongoing Business Losses

Startups often operate at a loss in early years. However, reporting business losses year after year increases the likelihood the IRS will examine whether:

Example – Creative Business

A filmmaker reports losses for four consecutive years while also claiming substantial travel, equipment, and marketing expenses.

If the IRS determines the activity lacks a profit motive, deductions may be limited.

How to Reduce Risk:

If you are serious about your business, your documentation should reflect that.

4. High-Risk Deductions

Certain deductions receive closer scrutiny because they are frequently abused or misunderstood.

1. Large Charitable Contributions

The IRS compares charitable deductions to income levels. Excessively high contributions relative to income may trigger review.

Limits generally apply:

Proper substantiation is critical.

2. Rental Property Losses

Passive activity rules restrict rental losses unless:

Improperly claiming full rental losses is a common audit adjustment

3. Home Office Deduction

This deduction is often misunderstood.

Example – E-Commerce Seller

A Shopify seller operating from home may qualify if:

However, claiming part of a living room used personally would not qualify.

How to Reduce Risk:

Good documentation does not prevent audits — but it makes them much easier to resolve.

5. Undervalued Assets (High Net Worth & Estate Planning)

Estate tax returns and large asset transfers often face higher audit rates.

The IRS closely examines:

Example – Family Business

If a dental practice is transferred at a value significantly below fair market value, the IRS may challenge the valuation.

How to Reduce Risk:

Proper valuation protects wealth and reduces exposure.

Understanding the Three Types of IRS Audits

Not all audits are the same.

1. Correspondence Audit

Conducted by mail.
Usually triggered by:

Often resolved quickly with documentation.

2. Office Audit

You are asked to appear at an IRS office.
Typically involves:

Professional representation is strongly recommended.

3. Field Audit

The most comprehensive type.
An IRS agent visits:

These audits are detailed and can last weeks or months.

The Reality: Higher Income = Higher Audit Probability

Historically, taxpayers with income above several million dollars have experienced higher audit rates due to complexity and larger dollar amounts.

For our Los Angeles clients — especially doctors, Amazon sellers, creators, and high-income entrepreneurs — complexity alone can increase exposure.

This is why proactive planning matters.

The Most Important Rule: Review Your Return

Even if a CPA prepares your return, you are ultimately responsible for its accuracy.

We regularly review returns prepared elsewhere and find:

A tax return should not simply be filed — it should be reviewed strategically.

Audit Prevention Is Strategic Tax Planning

Audit prevention is not about being overly conservative.
It is about:

When these elements are in place, audits — if they occur — are manageable.

At Velin & Associates, Inc., we focus on:

✔ services for YouTubers and creators
✔ for Shopify and Amazon businesses
✔ for doctors and dental practices
✔ Tax planning for high net worth individuals
✔ Business tax strategy and bookkeeping
✔ S-corp planning and compliance

Our goal is not just to file returns — but to reduce risk while maximizing legitimate tax efficiency.

Work With a CPA Who Understands Complex Income

If you are a:

Your tax return is not simple — and it should not be treated as one.

Strategic tax planning today reduces audit risk tomorrow. For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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