Continued from last week's article, here are five more tax-saving tips to help you get the most out of your hard-earned cash. The purpose of these tips is to help you get ahead by better understanding your tax options.

6)   Audit Phobia
When it comes to taxes, often people's number-one concern is to avoid an audit -- but beware. Fear of an audit can be one of the costliest phobias you'll ever have. Believe it or not, the tax code was written to give deductions to those deserving (OK, deserving as defined by Congress).

Lots of people are afraid to take legitimate deductions for fear of an audit. It's the taxpayer's responsibility to report his or her income and deductions consistent with the IRS' rules and regulations. It's the IRS' prerogative to question your interpretation of the tax code. But don't let fear cost you money.

If you made a contribution of less than $250 in cash to your church or synagogue, for example, you're allowed to take a deduction, even if you don't have a receipt. Don't be afraid to take it as a legitimate deduction.

7)   Don't Overdo It
Conventional wisdom says that if something is deductible, it is desirable. Not quite. Every expense, including deductible ones, costs money. Deductible contributions aren't free. For example, if you make a purchase for your business, say $500 of toilet paper, you can deduct it. But if you're in the 28% tax bracket, after the deduction, you're still spending $360. That's a lot of toilet paper.

8)   Reevaluate Your Portfolio
Your tax bracket should influence where you invest your hard-earned money. Those of you in the upper tax brackets -- 28% or higher -- might find tax-free municipal bonds to be an attractive addition to your portfolio. Municipal bonds are debt obligations issued by state and local governments. Most have been structured in accordance with the IRS code so the interest payments are free of federal tax -- and, in many instances, state and local taxes.

But those of you in the 15% tax bracket should avoid municipal income completely. Munis offer a lower rate of return, but they're tax-free. If you're in the higher tax bracket, this investment will result in a higher rate of return because of the tax savings. Those of you in the lower bracket won't benefit as much from the savings. You may do better with an investment that has a higher return, even if you have to pay taxes on those earnings.

If you try to avoid taxes at all costs, it can sometimes be a big hit to your bottom line.

9)   Reevaluate Debt
Debt should constantly be reevaluated to seek out opportunities to both lower the interest rate you're paying and to try to convert non-deductible interest to deductible interest. The most convenient way to do this is a home-equity line of credit. It's one of the few deductible interest payments left.

A home-equity line of credit will allow you to borrow against the equity in your home. The interest paid is deductible as long as you borrow less than $100,000. You can use this money for any purpose at all, like paying off higher-interest credit cards, auto loans, your in-laws, or any other non-deductible debt. It could even be advantageous if you pay a higher interest on the home equity loan than you do on other kinds of debt.

For example, a 10% interest rate on the home equity line of credit could be better than an 8% auto loan. If you're in the 31% tax bracket, the 10% interest rate would cost you 6.9% on an after-tax basis. That's better than the 8% auto loan.

And don't forget, when you take out a home-equity loan, you're borrowing against the equity in your house. If you neglect those payments, you could end up with no house at all.

10)   What to Do With Your Child's College Savings
The tax code provides an opportunity to save at an accelerated rate for your child's college education by placing money in his or her name now rather than upon reaching college age.

In 2001, the first $750 (up from $700 in 2000) of unearned income in a child's name is completely tax-free. The next $750 is taxed at the child's tax bracket of 15%. Unearned income includes things like interest, dividends, and capital gains.

This law allows a family in a high tax bracket to transfer assets earning $1,500 in a child's name, saving substantially on the tax that a taxpaying adult would pay. For example, if you were earning $1,500 in your name in the combined 40% federal and state tax rate, you'd pay $600 in tax.

For the same $1,500, your child would pay only $112.50, a savings of $487.50 per year, courtesy of federal, local, and state government.

When your child reaches 14, all of the income in excess of $1,500 is taxed at the child's rate, and the savings can be even more significant. Until age 14, any unearned income over $1,500 is taxed at the parents' rate.

Another red flag: there are two risks to placing all this money in the child's name. First, if your income is modest, placing the money in the child's name could reduce or eliminate his or her eligibility for need-based financial aid. Second, placing the money in the child's name means the money belongs to the child.

If at age 18 he or she decides to trade in those college savings for a shiny new BMW, you'll be legally powerless to take the money back -- but you may get a lift to the mall.

In addition to or in lieu of money in a child's name, many people would be advised to consider the relatively new Section 529 college savings plans offered by many states.

Gary Schatsky is Chairman of the National Association of Personal Financial Advisors. NAPFA is the only national association of fee-only financial advisors. As an attorney and comprehensive fee-only financial advisor, he lectures nationally on topics such as personal finance, investment planning, tax planning, and estate planning. Visit his Web site at www.objectiveadvice.com.