"Audit."

It just might be the most terrifying word in the English language. It can strike fear in the heart of even the most diligent taxpayer. But listen up, ladies. Audits are not the life-shattering events everyone thinks they are. The more you know about the audit process, the less you have to fear.

An audit is simply the process of the IRS closely reviewing your tax return and backup documentation as part of the agency's compliance checking. Think of it as a government quality-control tool, much like the quality-assurance checking you do in your own business.

Additionally, you should know that all audits are not created equal. The IRS conducts three types of audits, each with its own procedures.

1. Correspondence audit. In a correspondence audit, the IRS sends a letter requesting copies of canceled checks, receipts and other documentation so it can verify deductions on your tax return. If you can provide the required information quickly, the audit usually ends there. This is the simplest type of audit and is often used for people filing simple tax returns.
    
2. Office audit. In an office audit, the IRS will send a letter asking you to bring your documents to a local IRS office. It may ask for receipts, invoices and any number of financial documents. Just remember to bring only what is requested. If you bring more, you may open yourself up to a wider investigation: If you bring it, the IRS can look at it. This type of audit is not common, but it's less invasive than the next kind of audit.
    
3. Field audit. In a field audit, the IRS will call to notify you that you are being audited. The agent will not ask for any personal information over the phone. Instead, he or she will simply schedule a time to conduct the audit. Then the agent will come to your business and review all your financial records to verify every deduction you claim on your tax return. This type of audit can be invasive and inconvenient, but it does not necessarily mean anything bad will happen.

If the IRS finds that your tax returns are sufficiently backed up by your documentation, you have no need to worry, and the matter will probably be dropped at this point. However, if the IRS determines that your deductions and claims are not supported by your backup documents, you may be left with an increased tax bill. Keep in mind that the IRS is allowed to audit your tax returns for the previous three years, and may do so if it thinks your returns were incorrect.

Less than 2 percent of all tax returns are audited each year. Therefore, your odds of being audited are actually quite slim to begin with. But how does the IRS ultimately determine whom it will audit?

Every year, the IRS conducts some random audits from each taxpayer group (e.g., individuals, small businesses and corporations). Truthfully, there is nothing you can do to avoid a random audit.

The IRS also uses a series of "red flags" to select tax returns to audit for cause. If you know the triggers, you can avoid those red flags and keep out of the audit zone:

1. Be honest. The biggest red flag for any tax return, whether business or personal, is dishonesty. If the IRS finds exaggerated medical expenses or fictional charities, or determines that you failed to include all of your income, you will undoubtedly be audited. Many business owners go overboard and deduct things that have nothing to do with their business. Suspicious business deductions raise red flags with the IRS. Being completely honest is the simplest way to avoid the entire mess.
   
   
2. Avoid sloppiness. Sloppy, mistake-riddled returns force the IRS to spend more time looking at your taxes. And a closer look can spot red flags. To prevent this, be meticulous in filing your return. Double-check your math and each item you claim. Make sure each amount you list on your tax return exactly matches what is shown on your backup documentation.
   
   
3. Be careful when itemizing. While you should definitely itemize your deductions if it reduces your overall tax bill, be aware that itemizing may increase your risk of audit. Itemizing means claiming more line-item deductions, which gives the IRS more items to review and potentially challenge. So be extra cautious. Ensure the accuracy of each deduction and back it up with proof.

If you're not certain your tax return is 100 percent correct, get it reviewed by a qualified tax professional. Using a professional is not a guarantee of accuracy, but it certainly helps. Moreover, many tax professionals will provide support in the unlikely event you do get audited.