According to a January 2010 study by the Government Accountability Office, 68 percent of S corporation returns filed for tax years 2003 and 2004 (the years data were available) misreported at least one item. Following are five tips to help you bypass the scrutiny of an IRS audit and effectively plan and implement an efficient tax strategy for your business this year.

1. Pay yourself "reasonable" compensation. Become familiar with the IRS’s guidance on "reasonable" compensation and keep good documents and compelling business reasons for determining your compensation. Avoid commingling of business and personal accounts.

2. Update your stock basis every year. Each year basis calculations should be updated. This is a responsibility of the taxpayer. Furthermore, it should not be automatically assumed that a shareholder has enough basis to deduct losses.

3. Keep track of your own basis. Basis determines the limit on the amount of corporate losses that can be deducted by shareholders, determines the upper limit for the amount of tax-free distributions that can be received from the corporation, and is used to determine the gain or loss when stock of the S corporation is sold or disposed.

4. Document all shareholder loans. Shareholder loans should be properly documented and should bear a rate of interest that is, at a minimum, equal to the Applicable Federal Rate as published by the IRS.

5. Be proactive if you are audited. Review your files and seek professional advice and representation. Hire a tax professional with the proper credentials to represent you immediately. Audits may be at the federal, state, or local level and the government personnel that are assigned to them are specially trained.

This article was written by Monte S. Colbert and published in Bloomberg Businessweek magazine.