What can set off an audit flag?
While attending the Midwest Writers Workshop in Muncie, IN this summer, I met Gary Hensley, a former IRS field agent. Gary had so much information about how the IRS works and he shared interesting tidbits with the writers there.
Gary explained the IRS audit procedures:
The IRS uses a computer score called a DIF (Discriminate Function Indicator) score to determine what tax returns to audit. The higher your DIF score, the more likely your chances at being audited. IRS employees examine high DIF score returns for potential audit. Some are audited, many are not.
One factor that raises a DIF score is co-mingling multiple businesses together on one Schedule C. Schedule C is the tax schedule most writers use to report income and expenses from their writing business. It is attached to the Form 1040. Partnerships and corporations use different tax forms.
If you run several businesses, you should file separate Schedule C’s for each.
Carol Topp, CPA