E-filing 1040: How to add a note to IRS?

[FIREin2018]

I'm using H&r block.

If i e-file, how do I add a note to explain something?
Ie: Income is in Schedule C instead of Sched A

[secondcor521]

You should not add a note unless the IRS specifically asks you to add a note.  If there is a place where the IRS asks for a note, H&R Block software should provide a way to do so.

Providing a note may prevent you from e-filing.  You can still print and mail it though.

If you report income in the definitely wrong place, the IRS may send you a notice or a letter.  You can clarify (or correct) at that point.

Schedule A is for itemized deductions; I can't imagine a scenario where a taxpayer would report income there.  Maybe you meant Schedule B?

[FIREin2018]

You should not add a note unless the IRS specifically asks you to add a note.  If there is a place where the IRS asks for a note, H&R Block software should provide a way to do so.

Providing a note may prevent you from e-filing.  You can still print and mail it though.

If you report income in the definitely wrong place, the IRS may send you a notice or a letter.  You can clarify (or correct) at that point.

Schedule A is for itemized deductions; I can't imagine a scenario where a taxpayer would report income there.  Maybe you meant Schedule B?

Whoops.. I don't remember but i definitely will have some income under Sched C and read that unless i give a note, i will most likely get a IRS letter. And yes, clarifying it at that point usually ends it.
but I also read that if i put in a note along with my return saying the missing income is in Sched C that it prevents the letter in the 1st place, which is more desirable.

[secondcor521]

If you read that in IRS guidance, then I would follow it.  If you read it anywhere else, I'd personally consider it to be suspect advice.

What sort of income is it that might confuse the IRS without a note?  I'm just curious.  I do volunteer tax prep for AARP Foundation Tax Aide and do maybe 50 tax returns a year including several Schedule C's, and have not run across any scenario like you describe, so I'd like to learn more.

[FIREin2018]

If you read that in IRS guidance, then I would follow it.  If you read it anywhere else, I'd personally consider it to be suspect advice.

What sort of income is it that might confuse the IRS without a note?  I'm just curious.  I do volunteer tax prep for AARP Foundation Tax Aide and do maybe 50 tax returns a year including several Schedule C's, and have not run across any scenario like you describe, so I'd like to learn more.

W2-G (alot of them). i'm not listing it under the regular income section that W2 is supposed to go. i'm putting it in Sched C. i'm also putting down losses in Sched C and listing it as other losses, instead of Sched A (or whatever form for deductions). I put down occupation as gaming but i might change it to risk assessor or some other generic

[secondcor521]

If you read that in IRS guidance, then I would follow it.  If you read it anywhere else, I'd personally consider it to be suspect advice.

What sort of income is it that might confuse the IRS without a note?  I'm just curious.  I do volunteer tax prep for AARP Foundation Tax Aide and do maybe 50 tax returns a year including several Schedule C's, and have not run across any scenario like you describe, so I'd like to learn more.

W2-G (alot of them). i'm not listing it under the regular income section that W2 is supposed to go. i'm putting it in Sched C. i'm also putting down losses in Sched C and listing it as other losses, instead of Sched A (or whatever form for deductions). I put down occupation as gaming but i might change it to risk assessor or some other generic

Ah, I see.

If you came into my AARP Tax Aide location and I were preparing your taxes, I would start asking questions about why you can argue that you're a professional gambler.  Most people would fail those tests; they'd only be trying Schedule C to be able to reduce their tax liability (either by claiming more losses than possible via Schedule A, or by claiming other losses).

If you failed those tests and still wanted to file those income and expenses via Schedule C, I would decline to prepare your return.  It's very likely that if you get audited in this area (which is very unlikely) that you would lose.

There is a well known rumor that the IRS checks Schedule C businesses that lose money year over year and may reclassify them as hobbies and tax them appropriately.  I doubt your proposed Schedule C shows a net profit; if so that would be a point in your favor.

[Catbert]

I suspect that a lot of letters go out without human review so a note won't help.   If 1099/W2s the IRS received aren't on your return in the place the computer expects, bam, out goes a letter.

I say that as someone who has no particular knowledge of the IRS.

Edit to say "IRS" not IRA.

[Sibley]

Journal of Accountancy's article re professional gamblers. It's from 2016 so a bit dated, but I doubt anything has really changed:
https://www.journalofaccountancy.com/issues/2016/oct/taxes-for-gamblers.html#:~:text=Whether%20a%20gambler%20is%20an,regularity%2C%20to%20the%20production%20of

My take: good luck. I hope you're prepared to pay the tax when the IRS disallows the deduction.

[mistymoney]

If you read that in IRS guidance, then I would follow it.  If you read it anywhere else, I'd personally consider it to be suspect advice.

What sort of income is it that might confuse the IRS without a note?  I'm just curious.  I do volunteer tax prep for AARP Foundation Tax Aide and do maybe 50 tax returns a year including several Schedule C's, and have not run across any scenario like you describe, so I'd like to learn more.

W2-G (alot of them). i'm not listing it under the regular income section that W2 is supposed to go. i'm putting it in Sched C. i'm also putting down losses in Sched C and listing it as other losses, instead of Sched A (or whatever form for deductions). I put down occupation as gaming but i might change it to risk assessor or some other generic

Ah, I see.

If you came into my AARP Tax Aide location and I were preparing your taxes, I would start asking questions about why you can argue that you're a professional gambler.  Most people would fail those tests; they'd only be trying Schedule C to be able to reduce their tax liability (either by claiming more losses than possible via Schedule A, or by claiming other losses).

If you failed those tests and still wanted to file those income and expenses via Schedule C, I would decline to prepare your return.  It's very likely that if you get audited in this area (which is very unlikely) that you would lose.

There is a well known rumor that the IRS checks Schedule C businesses that lose money year over year and may reclassify them as hobbies and tax them appropriately.  I doubt your proposed Schedule C shows a net profit; if so that would be a point in your favor.

I thought that was true! Is it really just a rumor?

[secondcor521]

If you read that in IRS guidance, then I would follow it.  If you read it anywhere else, I'd personally consider it to be suspect advice.

What sort of income is it that might confuse the IRS without a note?  I'm just curious.  I do volunteer tax prep for AARP Foundation Tax Aide and do maybe 50 tax returns a year including several Schedule C's, and have not run across any scenario like you describe, so I'd like to learn more.

W2-G (alot of them). i'm not listing it under the regular income section that W2 is supposed to go. i'm putting it in Sched C. i'm also putting down losses in Sched C and listing it as other losses, instead of Sched A (or whatever form for deductions). I put down occupation as gaming but i might change it to risk assessor or some other generic

Ah, I see.

If you came into my AARP Tax Aide location and I were preparing your taxes, I would start asking questions about why you can argue that you're a professional gambler.  Most people would fail those tests; they'd only be trying Schedule C to be able to reduce their tax liability (either by claiming more losses than possible via Schedule A, or by claiming other losses).

If you failed those tests and still wanted to file those income and expenses via Schedule C, I would decline to prepare your return.  It's very likely that if you get audited in this area (which is very unlikely) that you would lose.

There is a well known rumor that the IRS checks Schedule C businesses that lose money year over year and may reclassify them as hobbies and tax them appropriately.  I doubt your proposed Schedule C shows a net profit; if so that would be a point in your favor.

I thought that was true! Is it really just a rumor?

I'm not sure either way, which is why I used the phrasing I did.

[mcneally]

I don't have any statistics, but reporting a significant loss in ANY year will increase your DIF score which increases the likelihood that the return gets audited. That's not to say you're likely to get audited, but a higher chance than the <1% overall average. IRS computer systems are so outdated, I don't know that it takes any multi-year patterns into account, but once the return is assigned to an agent, they will look at prior year returns to see if you're been reporting losses for years. In a single year thing, if it's something like a restaurant in 2020 or a Google search shows that your business burned down that year, the agent can make a judgement call to "survey" the return and you'd never even know your return was selected for audit by the computer. 
Source: former revenue agent