Do you need more time to file your 2005 individual tax return?
If so, you can file for an extension of time to file your return. However, even with an extension, you must estimate how much you owe, and send in that amount by April 17, 2006. (Year 2005 taxes are due on April 17 this year because April 15 falls on a Saturday.)

• " If the IRS thinks your estimate is unreasonable, they may disallow your extension and assess a penalty for filing late tax returns.
• " If you underestimate your taxes, you'll have to pay interest on whatever amount you fail to pay by April 17.
• " If you pay less than 90 percent of the tax you owe, you'll end up owing a penalty of 0.5 percent of the underpayment every month until you pay the balance. For example, if you pay $600 on April 17, but discover when you complete your return that you really owe $1000, you will owe 0.5 percent per month on the
$400 that is overdue, or about $2 a month, until you pay the balance in full.
• " If you think you may need more time to prepare your return, you should file for an extension using Form 4868, Application for Automatic Extension of Time to File.

This year the extension is good for 2 more months. You have 6 months to file your return, due this year on October 16th. And this year it's easier to file because you don't need an explanation or signature.

IRS Late Payment Penalties
In the circumstance where you have a balance due to the IRS (meaning you still owe some tax), the sooner you pay the tax and file your return, the more you can save yourself in penalties and interest.
If you have extended your return and didn't pay at least 100 percent of the tax you owe by April 17, you'll end up owing a late payment penalty of 0.5 percent per month until the tax is paid. The maximum late payment penalty is 25 percent of the amount due. You'll also owe interest on whatever amount you didn't pay by April 17. The current rate of interest charge is 5 percent per month compounded daily.

If you didn't get an extension and still owe a balance due you are looking at a late filing penalty of 5 percent of the unpaid tax per month plus interest. The maximum late filing penalty is 25 percent of amount due.

No Statute of Limitations
Regardless of whether you are due a refund or owe, there is another point to keep in mind. If you never file your return there is no limit on how many years the IRS can go back to assess and collect tax.
So, one way or the other, there are compelling reasons to get on with it and file your return.

Remember, the extension does not extend the time for payment of tax. You must make a proper estimate of any tax due. While no tax payment is required to obtain the extension, failure to pay the full amount of tax you owe on April 17th will subject you to interest and/or penalties.

How To Avoid That Nasty IRS Audit
Successfully avoiding audits, while still claiming significant deductions, is a tax professional's and income tax filer's dream. Of course, we all love to dream about ideal occasions, like when our favorite sports team wins, or when our kids get the lead role in the school play, or when we finally get the big break at the office, or when we can avoid an IRS audit. That doesn't mean that these dream days don't happen, though.
Here are a few things to make sure you are currently doing to help yourself avoid the ever present and lurking danger of an IRS audit.

1. Make sure that any third-party income and reports agree with your records.
   
   
2. Make sure you have selected the correct forms and schedules to fill out. Ask yourself: Do the forms apply? Am I stretching the situation? Are there credits that I am entitled to whose forms I haven't included but need to?|
   
   
3. Keep track of bank deposits so that all items will be easy to trace. Write the source of check directly on the deposit slip, especially transfers between accounts, so that these are not inadvertently counted as income. The first thing tax auditors request are your checking, savings, and investment accounts. They then proceed to do a total cash receipts analysis, comparing the total to the gross income shown on your tax return. By marking every deposit slip, you know where to look for further documentation to support your notation and the auditor will have the trail in front of him or her for the source of the unusual nontaxable receipts such as insurance recoveries, loans, gifts, and inheritances. Surprisingly, it's not that much work and is worth the effort.
   
   
4. Always keep your checking and savings accounts free of irregularities. Be sure you can explain large bank deposits and increases (especially sudden ones) in your net worth. WARNING: If you have unreported income of more than 25% of your adjusted gross income, the auditor may turn your case over to the CID. If you suspect this may occur, do not provide any leads to the auditor regarding the sources of the unexplained deposits. The burden of proof is on the IRS. You do not have to provide leads that make their job easier.
   
   
5. Keep your business and personal accounts separate.
   
   
6. If you know you are going to take a business deduction, pay for it by check.
   
   
7. Know the proper time to file. IRS computers are not programmed to review only those returns received before April 15th. So who is to say that late returns, those filed after April 15th, won't be audited, or will be audited less than returns mailed earlier?
   
   
8. Be thorough. Don't leave out any information. Sign where you are supposed to.
   
   
9. Be neat.
   
   
10. Check your mathematics.
    
    
11. Balance your total deductions with your income. Extensive deductions that add up to a substantial portion of your total income are audit flags.
    We will help you save you thousands of dollars a year and give you the security of being "audit proof" by knowing that all your deductions are legally defensible.