Make Your Deductions Airtight

As you've seen, the key to surviving a tax audit is to keep good records. We've found that a simple record-keeping system is the best record-keeping system. Set up a simple bookkeeping system that allows you to record your expenses by category as they occur (this is a log or ledger system).

As you pay each expense, enter the date, the amount and the purpose of the expense. Again, have your log entries notarized on a regular basis–at least monthly. This transforms your records into sworn statements–which can carry a lot of extra weight with the IRS.

The best record-keeping system we know of was created by Dan Pilla (he's very good at getting the IRS to go away) and it's called Stairway to Freedom, A Complete Taxpayer Protection System. Dan's system is based upon his 15 years of experience solving IRS audit problems and demonstrates how to solve and avoid audit problems. The secret to the system's effectiveness: its simplicity and its "play-by-the-rules" approach.

Not surprisingly, the IRS makes a good living every year nitpicking deductions. In fact, the average face-to-face audit nets the agency $5,900 over and above what you already paid in taxes. So, we don't expect the IRS to give up on audits, especially since Washington is trying to increase revenue (and the Government Accounting Office has given the IRS a slap on the wrist for not performing enough audits).

Now, what if you didn't audit-proof your return? One day, you may open up your mailbox and find a notice from the IRS saying you owe more money. We don't want this to happen to you, so click here to learn how to protect your returns from an unwanted audit.