It happens all the time. I am on an airplane. I strike up a conversation with the woman next to me. I tell her I'm an accountant. It turns out she is in network marketing. Although my newfound acquaintance has only been in the business for a couple of years, she is already making a substantial six-figure income - more money than she has ever made before.

She steers the conversation in the all-too-familiar direction, and starts peppering me with questions: "How can I save on taxes? Should I put my money in a trust? Take it off shore? Set up a pension plan? Can I write off my motorboat?"

Before answering these questions, I have a few of my own for her. "Are you keeping good records? Do you have an accountant or other tax professional helping you? Have you ever done a profit-and loss-statement so you know where you stand? Are you making sufficient estimated tax payments? Are you current with your yearly tax filings?"

"Er," a long pause ensues. "Well, no..."

At this point, I sit back and give her a little room. My fellow passenger is a tax bomb, and I just heard the ticking.

It is my experience that many people are in a situation like this woman's; they are making a comfortable income and still leaving themselves vulnerable, if the IRS were to pay a visit.

Could you be next?

Think of this article as the instructions for disarming a tax time-bomb, and making sure that even a full IRS audit would be a less painful experience.

Let me start with the Six Commandments for keeping the IRS off your back:

1) Hire an Accountant.

I know what you are thinking as you read this - "Why do I need to pay an accountant, when I can buy a tax software program for $49?" For starters, an accountant can help you get organized. He can advise you on the best way to keep records. An accountant can help you prepare profit-and-loss statements so that you can see how much money you are making and where your money is going, and help anticipate how much tax you may owe. He can advise you as to what is (or is not) deductible for tax purposes, as well as the best way to substantiate and increase your legitimate deductible expenditures. Most importantly, an accountant can keep you in tax filing compliance, the one area where most of my clients get into trouble, just by missing deadlines.

2) Keep good records.

Without good records, you have no means to justify your legitimate deductions under the tax laws. Remember: in an audit, the burden of proof is on you to substantiate your legitimate tax deductions. Keep a daily calendar of your activities and receipts for all your business expenses, organized monthly. I know this sounds like it's more trouble than it's worth. Let me assure you that if you follow my advice it will be well worth the effort for two reasons:

1. First, it will make it that much easier for your tax preparer to go through your records.

2. More importantly, it will allow you to defend yourself should the IRS come knocking on your door. I have seen, with my own two eyes, what happens in audit situations where clients' records are sparse or non-existent. It isn't a pretty sight.

3) Never Ignore Big brother.

Upon receiving a letter from the IRS, run (do not walk) to a tax professional. IRS letters run the gamut from the fairly benign inquiry to a serious problem. (As a quick rule of thumb, a certified letter usually indicates a serious problem.) For example, it's common for the IRS to lose a tax return or a payment. If you can quickly satisfy the IRS by sending them a copy, why not take care of it right away, before it becomes serious?

Another possible reason for IRS correspondence may be that the IRS has some questions regarding a tax return you filed. Let me assure you from experience that ignoring this type of letter will not make the problem go away. Instead, the IRS will proceed without you, which could eventually require you to hire someone like me to fight the government in court, or in collection.

4) If it Sounds Too Good to Be True, It Probably Is.

Many clients ask me about putting their money in unincorporated business organizations, or offshore, or in gold bullion in the cellar, with the idea that then they won't have to pay taxes. When you hear something like this, there is a good chance the IRS already knows about this tax dodge. My advice is to seek a reputable third-party opinion. I know this will cost some money, but it could save you thousands of dollars in aggravation later.

5) File Your Tax Returns in a Timely Manner.

The easiest way to get into trouble with the IRS is not to file your tax returns on time. Very few people who voluntarily file their tax returns get audited. On the other hand, my experience is that people who only file the tax returns after the IRS inquiry are more likely to be scrutinized. I cannot think of a single good reason to make yourself visible to IRS radar.

6) Don't Make It Up.

People tend to panic at tax time when they discover that a huge tax bill awaits. It is very tempting to start making up numbers. Resist this temptation. While it is never pleasant to owe the IRS money, submitting an obviously false return could land you in jail. A corollary is that you should also resist the temptation to make up false receipts for the IRS to look at if you are audited. I had one client get criminally charged for doing just this - so, to save $12,000 in taxes, he ended up paying $25,000 in legal fees!

Now that I have your attention(I hope), here are some basic tips on how to save money.

Everyone's tax situation is unique and here are a few hints:

1. Keep good records of all business expenses, substantiating their business purpose. Nine out of ten tax problems arise from the failure to take this simple, if occasionally tedious, precaution. The tax law specifically allows you to deduct necessary and ordinary business expenses incurred in carrying on a trade or business. Keep a daily record, diary, or planner with all your business expenses.

2. Use one, or at most two, credit cards exclusively for all your business purposes. This way, you know exactly where to look for all the business expenditures.

3. Do you travel overnight as part of your business? Of course you do. Do your clothes get dirty as a result? Then the cost of dry-cleaning them is entirely tax deductible.

4. Does your spouse work? If not. You should consider hiring her or him at minimum wage. Chances are, your spouse is doing plenty for your business already. Document it. Then setup an insured medical reimbursement plan for your employees (i.e., your spouse) and dependents (your kids),and deduct your contributions as a business expense. Note: if the plan is not funded by insurance, then other IRS rules apply.

5. Do you have children? Are they older then six or seven? Then put them to work! By which I mean, you should consider hiring them for minimum wage (perfectly legal in a family business). Their first $5,150 or so will be basically tax-free to the child because of the standard personal tax deduction - and totally deductible to you! A note here: make sure that your child is actually performing legitimate, business-related work you can document, if asked. Yes, stuffing envelopes does count.

6. Do you have more than one car? Then try to use one solely for business purposes. This will take some self-discipline, but it will allow you get the most tax benefit from one business vehicle.

7. If possible, conduct sales seminars and presentations at home. In this way, the cost of all food and refreshments (even the leftovers!) will be totally tax deductible as a business expense.

Of course, you need to prove, if asked, that this was not just a social bash! I suggest videotaping all or part of the evening for posterity, or collecting people's business cards and filing them with your receipts.

Sound tax planning lets you keep more of your money - and your peace of mind.