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What Happens If You Get Audited — And How to Prepare

A Complete Guide With Real Examples From Velin & Associates, Inc.

Getting an IRS or state tax audit notice can feel overwhelming — even if you’ve done everything right. Every year, thousands of individuals, creators, small-business owners, and high-income earners are selected for examination. Some audits are random; others are triggered by specific red flags, mismatched forms, or deductions that stand out.

At Velin & Associates, Inc., we help clients across a wide range of industries navigate audits smoothly — including YouTubers, TikTok creators, Shopify and Amazon sellers, medical practices, dentists, online commerce businesses, filmmakers, and high-net-worth individuals.

This article explains why audits happen, what to expect, how to prepare, and includes real examples of issues we see in our practice.

Why the IRS Selects Taxpayers for Audit

IRS audits generally fall into one of the following categories:

  1. Document Mismatch (Most Common)

Audits are triggered when:

Example:
A Shopify seller didn’t realize that both Shopify Payments and PayPal issued 1099-Ks. The IRS flagged a mismatch of $38,000 in unreported income. We corrected the return and removed penalties.

  1. High Deductions Compared to Income

The IRS compares you to others in the same industry. Unusually high expenses trigger questions.

Example:
A YouTuber deducted $22,000 in travel and camera gear on $45,000 of income. We were able to justify the expenses with receipts, mileage logs, and content plans — resulting in no changes to their tax liability.

  1. Schedule C Losses

Frequent business losses look suspicious, especially for:

Example:
A part-time filmmaker filed three years of losses. The IRS questioned whether it was a business or a hobby. We prepared a business plan, invoices, and industry documentation. The IRS agreed it was an active business.

  1. Large Cash Transactions

Cash-heavy professions — such as barbers, nail techs, servers, or online creators receiving “tips” via Cash App/PayPal — often get audited due to irregular deposit patterns.

  1. Random Selection

Not every audit has a reason. The IRS randomly selects a percentage of returns each year.

What Happens Once You Receive an Audit Notice

Step 1: The IRS Sends a Letter — Never a Phone Call

The letter will tell you:

Never respond without reviewing the letter with a CPA.

Step 2: Determine the Type of Audit

There are three main types:

  1. Correspondence Audit (Mail Audit)

Most common for creators, online sellers, and small businesses.
The IRS requests copies of:

  1. Office Audit

You meet with an IRS officer at a local IRS office.
Common for:

  1. Field Audit

The IRS visits your business location.
This usually applies to:

How to Prepare for an Audit — What the IRS Wants to See

Regardless of your industry, the IRS looks for the same categories of documentation.

  1. Proof of Income

Examples:

Example:
An Amazon seller’s audit was triggered because Amazon reported $276,000 on a 1099-K but the seller only reported $245,000.
We reconciled:

  1. Proof of Expenses

The IRS requires receipts and proof of business purpose.

Common deductions that the IRS reviews heavily:

Velin & Associates Example:
A dental practice claimed $32,000 in “educational travel.”
We reclassified the expenses into:

  1. Mileage & Vehicle Logs

The IRS requires:

Example:
A filmmaker audited for vehicle expenses only had Uber receipts.
We reconstructed mileage using production call sheets and location logs — and preserved 80% of the deduction.

  1. Business Purpose Documentation

Especially important for creators and online sellers.

Examples by profession:

Creators / YouTubers / TikTokers

IRS wants:

Shopify & Amazon Sellers

IRS wants:

Dentists & Medical Practices

IRS checks:

High Net Worth Individuals

IRS examines:

What NOT to Do During an Audit

❌ Do not ignore the letter
❌ Do not call the IRS without a CPA
❌ Do not make up mileage logs
❌ Do not give the IRS more documents than they requested
❌ Do not meet the IRS alone

How Velin & Associates Helps Clients During an Audit

At Velin & Associates, Inc., we handle the entire audit process on behalf of our clients — the IRS communicates with us, not you.

✔  We respond to the IRS letter
✔  We prepare all documentation
✔  We reconstruct missing records
✔  We negotiate penalties
✔  We attend meetings & hearings for you
✔  We check whether the audit could expand to other years
✔  We protect you from self-incrimination mistakes

Examples

Example: TikTok Influencer Underreported 1099-K Income

The IRS claimed the creator failed to report $19,000 from TikTok gifts and livestream tips.
We reconciled:

Final liability: $0 — IRS closed the case.

Example: Shopify Store Audit — High Return Rates

The IRS questioned why sales were high but profit was low.
We provided:

Outcome: IRS reduced tax owed by 63%.

Example: Dentist Audit for Equipment Purchases

The IRS suspected personal use of dental chairs and medical tools.
We provided:

Outcome: 100% deductions allowed.

Example: High Net Worth Individual — Real Estate Loss Audit

IRS challenged $85,000 in passive losses.
We proved:

How to Prevent a Future Audit

✔  Keep digital records (Google Drive / Dropbox)
✔  Track mileage with an app
✔  Use separate personal & business bank accounts
✔  Keep receipts organized by category
✔  Work with a CPA specializing in your industry

Using a specialized CPA — such as a CPA for YouTubers, CPA for Shopify Store, Amazon Business CPA, Dentist CPA, CPA for Filmmakers, or CPA for High Net Worth Individuals — drastically reduces audit risk because your tax return is prepared according to industry norms.

Worried About an Audit? We Can Help.

Whether you received a notice or want to audit-proof your return for next year, we’re here to help. 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

CPA for YouTubers | CPA for Shopify Store | CPA for Online Commerce | CPA for Creators | Shopify Store CPA | CPA for Filmmakers | CPA for Amazon Business | Amazon Business CPA | CPA for Dental Practice | Dentist CPA | Dental Business CPA | Online Commerce CPA | CPA for TikTokers | CPA for Doctors | CPA for Medical Practice | CPA for High Net Worth Individuals



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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