Though the initials I.R.S. tend to bring a chill to most people's spine, audits from any tax agency state, local or federal can be scary. Beyond just being time consuming, they can be totally nerve-wracking and possibly very costly. So how to prepare for the possibility of facing an audit?

I found a great article about this  recently on BusinessWeek.com entitled How to Handle a Tax Audit. My favorite piece of advice and one of the most common issues I see with small businesses, especially sole proprietors, is simply to keep business and personal financial records separate.

From the article: "If you're not incorporated, and you're not segregating your personal financial records from your business activity, that's going to be a big problem when they come and audit. If you keep separate books and records for your business, the audit will be shorter, faster, and it will go a lot smoother."

Click here to read the whole thing.

The bottom line is to get and stay organized and keep good records for what you spend in your business. Beyond that, make sure the expenses you write off are legitimate and that you can justify them adequately if ever audited. Then you'll at least be on solid ground if faced with the not-so-fun reality of opening up your books and business records to your "friendly" IRS or state tax agent and the outcome of your meeting will be less of a gamble!