The Internal Revenue Service has released the redesigned Form 1040, along with six related tax schedules, for next tax season after changes under the Tax Cuts and Jobs Act promised to simplify the tax preparation process.
The Republicans promised a postcard size form and the form, although bigger than a postcard, is shorter, but very deceiving. The prior form 1040, used through 2017, had 79 lines on the front and back, pages 1 and 2. What the new form has done is to push 56 of those lines onto 6 separate schedules to the form 1040.
So, for instance, Schedule 1, Additional Income and Adjustments to Income, is for taxpayers who have to report additional income, such as capital gains, unemployment compensation, prize or award money, or gambling winnings, or who have any deductions to claim, such as student loan interest deduction, educator expenses or self-employment taxes.
Schedule 2, Tax, is for those who are subject to the alternative minimum tax or need to make an excess advance premium tax credit repayment.
Schedule 3, Nonrefundable Credits, is for taxpayers who can claim a nonrefundable credit besides the child tax credit or the credit for other dependents, such as the foreign tax credit, education credits or the general business credit.
Schedule 4, Other Taxes, is for taxpayers who owe other taxes, such as self-employment tax, household employment taxes, additional tax on individual retirement accounts or other qualified retirement plans and tax-favored accounts.
Schedule 5, Other Payments and Refundable Credits, is for taxpayers who can claim a refundable credit aside from the Earned Income Tax Credit, the American Opportunity Tax Credit or the Additional Child Tax Credit. They may also have other payments, such as an amount paid with a request for an extension to file, or they want to report excess social security tax withheld.
Schedule 6, Foreign Address and Third Party Designee, is for taxpayers who have a foreign address or a third-party designee other than their paid tax preparer.
The most incredible aspect of this new approach to the complex requirements of form 1040, is the new IRS Section 199A which deals with the possible 20% deduction for “Qualified Business Income” (QBI) for taxpayers who are sole proprietors, or have ownerships in “pass-through” entities such as LLCs, and S Corporations. This extremely complex new deduction is listed on line 9 of the new 1040, and in parentheses is “see instructions”. However, as of January the IRS has not produced the instructions for QBI or any other schedules or forms of form 1040.
See our blog posting on QBI. Since the regulations regarding this very complex code section have just been released, we will be posting blogs frequently on the most important aspects of this new tax provision.
Please call us if we can be of assistance in explaining and aspects of the new form 1040 and/or the new tax law and how it affects you. Since the IRS has not issued the final forms or instructions, we will have to wait until they do before any tax returns can be filed.