Carlotta Thompson spent seven years on the IRS side of the table, facing business owners across the audit process. Over that time she examined thousands of returns, and what struck her most was not how frequently people claimed things they were not entitled to. It was how frequently they claimed things they genuinely were entitled to — and lost them regardless, purely because they could not back the claim up.
That distinction may sound minor, Thompson says, but it is anything but. It is the gap between a tax strategy that survives examination and one that falls apart as soon as someone asks a follow-up question.
In her words, an audit is not usually about what you did; it is about what you can prove.
Most people imagine an audit as a hunt for wrongdoing. In Thompson’s experience, it is closer to a hunt for paperwork. Take a business owner who used a vehicle for genuine work travel but never kept a mileage log: the deduction will be lost, not because the travel did not happen, but because no record establishes that it did. Or consider an owner who really did pay their teenager to help with social media and marketing, yet never set up formal payroll or documented the work carried out. That deduction will be disallowed for exactly the same reason — the activity may have been entirely legitimate, but there is nothing on paper to defend it when challenged.
Thompson encountered this pattern so often that it became the foundation of how she now approaches tax planning on the other side of the profession. In her view, the strategy itself is rarely the weak point of a return. The documentation is.
Why Records, Not Strategy, Usually Decide the Outcome
Thompson believes much of the public discussion around tax planning is focused almost entirely on finding a deduction or credit, and comparatively little on building the record that lets it withstand scrutiny. Those are two different skills, she argues, and most tax preparers are trained and staffed to handle only the first — particularly in the compressed weeks before a filing deadline, when there is simply no time to assemble a documentation file for every strategy on a return.
She is careful to present this as a structural problem rather than a criticism of individual accountants. A preparer handling many client returns in March cannot realistically engage an engineering firm with real estate experience to carry out a formal cost segregation study, which is normally performed by an outside specialist. Nor can they create a family employment agreement or gather comparable rental rate data for a home rental at that stage. In Thompson’s view, work of that kind has to happen earlier — ideally at the start of the tax year, not at the end of it.
Documentation Habits Thompson Advises Every Owner to Build
The underlying lesson, Thompson says, applies to any business owner, whoever they work with. For a home office deduction, she recommends holding on to a floor plan and a clear record demonstrating the space is used exclusively for business. For vehicle expenses, she advises a contemporaneous mileage log — recorded in real time rather than reconstructed afterwards — with both items also forming part of an accountable plan document, typically a required amendment to the operating agreement setting out which expenses will be reimbursed. For family employment arrangements, she says the relationship should be handled like any other job: a signed employer-employee contract, real payroll, documented duties, and records of the hours worked or output produced.
None of this is complicated, she notes. It is simply non-negotiable if the aim is a deduction that holds up under examination rather than one that merely looks solid on paper.
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The Thinking Behind Her Own Firm
Thompson has said she left the IRS specifically to help business owners get ahead of this problem instead of cleaning it up once an audit was already under way. That idea sits behind Tax Strategists of America, the firm she founded, which is built around proactive planning and documentation completed at the beginning of a tax year rather than pieced together under pressure months later.
Even so, Thompson stresses that the broader principle does not depend on working with any particular firm. In tax planning, she says, the strategy tends to attract the attention, while the documentation does the real work. Business owners who grasp that distinction, in her assessment, tend to keep more of what they have legitimately earned than those who treat record-keeping as an afterthought.
