There are few things that strike fear into the hearts of Americans like an envelope with "IRS" written on the outside. This is not without good cause. For many people, a tax audit can be one of the most painful, scary, and expensive financial experiences of their life.

It goes without saying, that you should take whatever steps possible to avoid finding yourself sitting across from an IRS agent. While they don't maliciously search for errors or white lies on our returns, it's still their job, and they do it with a surgeon's precision.

Before you consider the top seven steps to avoiding an audit, it's important to gain a brief understanding of how the IRS audit system works.

First and foremost, returns can generally be audited for the prior three tax years. However, if the IRS suspects fraud (which includes intentionally understating income or overstating deductions), there is no statute of limitations on examining your return.

Second, your return usually doesn't get selected at random, but contains "triggers" that are caught by the secretive "DIF" computer system used by the IRS. Although the IRS still does random audits, as well as targeting certain industries that use a lot of cash, these are an extremely low percentage of the total audits performed.

The vast majority of audits are initiated because certain categories of your expenditures or income vary noticeably from the national averages. Furthermore, if you have multiple categories where these averages simultaneously deviate, your chance of being flagged by the DIF system rises exponentially.

So, to stay of the IRS's radar, here are some crucial tips to keep in mind:

When you're sitting at your dining room table, crunching the numbers for your return, it's easy to succumb to temptation. It may feel like no one will ever notice if you trim or inflate your numbers slightly, but you are wrong!

The IRS's ability to process information, including matching up information on your return with information filed by your employer or employees, is astounding. If you cheat, even just a little bit, you may eventually get audited.

Remember, audits are often triggered by certain expenses that exceed the national averages. By spreading certain expenses over two or more years, you are going to lower or eliminate the difference between your return and the averages.

Expenses you should consider spreading over a couple of years include: charitable giving, large medical expenses, and business entertainment expenses.

The home office deduction is one of the deductions denied most during IRS audits. It tends to be a place that people either ignore, or are ignorant of the complex rules. These rules include the requirement that the space be used solely for business purposes.

Considering that the home office deduction usually only amounts to small net savings for most taxpayers, it is often not worth the risk. Remember, getting audited opens up your whole return, and maybe the prior three years' returns, to examination.

By showing the IRS in advance that you are wiling to document and substantiate your deductions, you also show them that an audit will not likely yield much additional revenue. This is especially true of deductions that are already prone to triggering an audit.

Attaching a copy of a large, canceled donation check, or an itemized bill of a recent medical procedure, might answer an agent's questions before your return ever gets flagged. You can also consider including a typed note offering explanations for larger expenses, and letting them know that you'd be happy to provide documentation upon request.

More and more Americans are starting side businesses to supplement their income. To help spur on home-based capitalism, Congress allows business owners to deduct their business losses against other income.

However, if you don't make a profit in at least three of the five previous years, the IRS will declare it a "hobby" and not a business. This could result in a recalculation of prior years' returns to recapture the losses you claimed. In a nutshell, show some profit to retain your business status, and don't try to claim a hobby as a legitimate business.

The IRS computer system is sophisticated enough to catch a social security number that ends up on more than one return. If you and your ex-spouse both claim your child as a dependent, it's going to get flagged. Likewise, if your child who is off at college files their own return and you claim them as well, you're going to draw scrutiny.

The IRS keeps track of professional tax preparers whose work does not stand up under audit. In essence, if these people have bent the rules on previous returns, they are more likely to do it again.

By using a tax preparer that promises to increase your refunds, guarantees to lower your taxes, or takes a percentage of what you save, your likelihood of an audit will skyrocket.

Still, even if you are vigilant in avoiding audit triggers, an audit can happen to you. To be prepared, make sure you diligently keep documentation and receipts for all of your income and deductions. Receipts and documentation should be kept for at least 3 years, and the returns themselves should be kept for at least 10 years.

For more resources on the IRS audit process, take a look at these resources:

E-Personal Finance Tax Section:

IRS Publication 556 Examination of Returns: