Plan your expenses and deductions strategically each year
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Maintain accurate and organized financial records for easy reporting
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Talk to a tax professional for expert guidance
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Use accounting and tax software to make management easier
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How Smart Tax Planning Can Protect You During an IRS Examination or Audit
For most high-income Californians, an IRS letter is the one envelope you never want to open.
But what many don’t realize is that smart tax planning before an audit can dramatically reduce both risk and stress — and even save you money if you’re ever examined.
At PacificWestTax, we specialize in helping business owners and professionals stay audit-ready year-round through proactive strategy and documentation.
Why the IRS Targets Certain Filers
The IRS doesn’t select returns at random. High earners, business owners, and real-estate investors fall into categories the IRS monitors closely.
Triggers often include:
- Large deductions relative to income
- Schedule C or rental losses
- Complex business entities
- Foreign accounts or offshore assets
- Mismatched 1099 or W-2 reporting
Understanding these red flags is step one in staying off the radar.
The Power of Proactive Tax Planning
The best defense against an audit starts long before the IRS calls.
Strategic planning can:
- Ensure deductions are properly substantiated
- Align entity structures to reduce scrutiny
- Organize documentation for key expenses
- Use elections and accounting methods that comply with IRS preferences
Our clients who engage in year-round planning rarely face disputes — and when they do, they’re prepared.
Example: The $15,000 Audit That Never Happened
A Los Angeles surgeon earning $900,000 had been claiming large home-office and vehicle deductions through an S-Corp.
After a review, we reclassified the expenses, documented business use, and cleaned up mileage records.
Months later, that taxpayer’s return was flagged for review — but passed through unchallenged because everything matched IRS standards.
Proactive cleanup saved a potential $15,000+ in penalties and hours of stress.
If You’re Already Facing an Audit
If you’ve received an IRS or Franchise Tax Board notice, don’t panic — but don’t ignore it either.
Here’s what smart representation looks like:
- Immediate response: File a professional reply within the stated deadline.
- Organized documentation: Present records that directly support each position.
- Strategic communication: Limit discussion to relevant facts — don’t volunteer extra data.
- Negotiation: Experienced CPAs can often reduce penalties or settle disputes before escalation.
Having an experienced CPA manage correspondence can be the difference between a smooth resolution and a drawn-out ordeal.
California’s Extra Layer of Complexity
California’s Franchise Tax Board (FTB) often mirrors IRS audits — or conducts its own simultaneously.
Because the state’s income tax rates are among the highest in the nation, the FTB aggressively verifies high-income filers.
That’s why our audit defense always considers federal and California state implications together.
How PacificWestTax Helps
We take a proactive, white-glove approach for high-earning clients:
- Annual risk reviews and audit-readiness checks
- Entity structure audits to catch issues before the IRS does
- Representation for IRS and FTB examinations
- Detailed response packets that speak the IRS’s language
Our goal: protect your wealth and your peace of mind through strategy, not reaction.
Key Takeaways
- Smart planning prevents audits and limits exposure if examined.
- High-income Californians are frequent IRS targets — documentation is your defense.
- Coordinating federal and California tax strategies prevents double scrutiny.
- A proactive CPA is your best shield against audit risk.