Next up: 2010 taxes (and how to cope if you're audited)

Getty Images/Get ready for next year's taxes now!Getty Images/Get ready for next year's taxes now!Ah, spring. It's when an adult's fancies turn to thoughts of... paying her taxes.

And, possibly, panic over the idea of being audited.

Taxes are due April 15. If you're still staring at a pile of 1040s and W-2s, time to get cracking. If you've already filed them, pat yourself on the back, and then start getting ready for next year. Yes, really. Yes, now. Whether you do your taxes yourself or hire a professional, you can make filing your 2010 returns infinitely easier by doing a few simple things.

1. Get organized, stay organized. Set up a file folder specifically for documents relating to your 2010 taxes. Tuck your receipts and documents into this folder as you receive them. If you want to be uber-organized, set up folders for different categories: personal property taxes paid, interest paid, interest earned, donations made in cash, donations of goods, payments related to your business (if you have one), and one more for those papers that don't seem to fit anywhere else.

2. Know what to save and what to toss.
According to the experts at WalletPop, you should keep receipts, bank statements, employee tax records (for a housekeeper or nanny), and other documents supporting your income and deduction figures for at least three years after the filing date, and you should hang on to your old tax returns (and supporting documents) forever. But what about old paycheck stubs, ATM receipts, electric bills, Internet charges, and credit card statements? If you're not sure what to keep, think of it this way: If you used it to figure out what to put on your tax return, you should hold on to it. That means you can probably throw away your grocery store receipts, but if you claimed a childcare deduction, keep proof of those payments. Still not sure what's important? The IRS lists different types of records here.

3. Concerned about clutter?
Consider scanning bills and saving them electronically as they arrive. Storing the images on a thumb drive at the end of each year. If you manage your money online, don't assume you'll be able to access old statements easily. Sure, your bank or credit card company does have your 2006 statements somewhere in their files, but most online banking systems only keep records from the last six months or so up online. You can request copies of older statements, but it'll cost you -- especially if you need several years' worth at a time. A better idea: Download your statement each month instead of just glancing at it on your computer.

But what if you get a certain, special letter in the mail, one indicating that the IRS would like to have a little chat with you about your returns from, say, a year or two ago? Approximately 1.5 percent of tax returns are chosen for audit, for myriad reasons. There are two kinds of audits. In a correspondence audit, the IRS asks for more information about certain parts of your return; you simply send in the documentation that answers their questions. A field audit requires that you meet with an IRS examiner at a local IRS office or, in some cases, your home or place of businesses.

If the IRS chooses your return to audit, here are a few things you should do:

1. Don't panic, but don't ignore the letter, either.
There are several things that can trigger an audit -- a larger number of deductions that normal for your income level, for instance, or vague claims of a home office -- but not everyone who gets audited gets taken to the cleaners. Read IRS Publication 1, which explains your rights under the Taxpayers' Bill of Rights, and do your research -- there are plenty of free IRS publications available at

2. Your best defense isn't a good offense -- it's justification.
If you've kept all of your records as recommended above, you should be able to easily justify the deductions you made on your tax return. If you didn't, you are entitled to reconstruct those records (and request more time in which to do so).

3. Request to meet at an IRS office. If possible, avoid meeting at your home, where it's far too easy to get sidetracked (or to offer up more information than you need to, and end up with an audit of other tax years). Even better: Have your tax preparer represent you, and hold the meeting at his or her office. If you did your own taxes, consider hiring a professional to represent you at the audit.

4. Bring only the documents that the IRS has requested. Don't bring past tax returns, receipts, bills, or any documents not specifically requested by the auditor, the legal experts at suggest. And don't talk too much -- answer the questions as they're asked, and leave it at that. Typically, the IRS focuses only on certain sections of your return; there is no need to explain items that they haven't asked you about.

5. Don't get emotional. The IRS certainly won't be. This isn't about you, this is about your money.

6. Don't sign anything if you can help it. Form 872 is the one to watch out for. It extends the amount of time in which the IRS can assess additional tax on your return. Typically, there's a three-year statute of limitations from the due date of the return in question, though in certain situations -- under-reporting of income by more than 25 percent, for example, or in cases of fraud -- they can examine your return as much as six years after the fact.

7. Don't fight the figures. If you disagree with the amount of additional tax you're told you owe, don't try to negotiate that number; instead focus on the tax issues at hand. Ask the auditor to explain why a certain deduction wasn't allowed, or ask for time to recreate documentation of income. Whatever you do, don't claim you can't pay up -- the auditor won't care.

Keep in mind that the chances of getting audited are slim. But the amount of time you can save by getting organized early can be vast. And, in the off chance that you do get a request for an audit, if you're organized, you'll be better able to handle it.