The IRS recently released a draft of the new Form 1040, which has had a dramatic makeover. The new form is a large postcard-size document (half the normal page size), which may be a nod to President Trump’s campaign promise to simplify the tax code to the point that an average American could fill out their form on a postcard. Forms 1040EZ and 1040A have been eliminated, so all taxpayers will be using this new Form 1040 beginning with the 2018 tax year.
The first page of the form contains the taxpayer’s identifying information, while the back of the form contains the actual tax calculation. Wages, interest and dividend income, IRA’s and pensions, and social security will all be reported directly on page 2 of the new Form 1040.
While the tax form may look deceptively simple, there are now six new additional schedules, numbered 1 through 6, that may need to be completed and attached to the return.
Schedule 1, Additional Income and Adjustments to Income, will be used by taxpayers who may have additional income or adjustments that were previously reported on lines 10 through 37 of the 2017 Form 1040. This would include, but is not limited to, business income, capital gains and losses, and rental income. Each of these additional items would require a separate schedule to show the details and computations.
Schedules 2 through 4 will report taxes, including alternative minimum tax, nonrefundable credits, such as education and foreign tax, and other taxes, including household employment tax and the net investment income tax. Again, each of these items would require attaching its own, separate schedule of details, with related forms and schedules.
Schedule 5, Other Payments and Refundable Credits, will report estimated tax payments, the net premium tax credit, and amounts paid with an extension request.
Finally, Schedule 6, Foreign Address and Third Party Designee, provides taxpayers who have a foreign address a place to list their country, province, and postal code and provides all taxpayers with a place to list information for a third-party designee who can discuss the return with the IRS.
The draft Form 1040 and the new schedules will also refer to various existing forms and schedules, which will continue to exist in updated form. For example, the new Form 1040 directly references Schedule A, Itemized Deductions. The new schedules reference Schedule C, Profit or Loss Form Business, Schedule D, Capital Gains and Losses and Schedule E, Supplemental Income and Loss, among references to other standard forms that existed before the Form 1040 makeover.
Given that the IRS website reports that more than 9 out of 10 taxpayers use software or a tax preparer to prepare and file their income tax returns, it’s not clear what efficiencies will be gained by the radical redesign of the Form 1040, as most individual tax returns will be electronically filed, and the pre-existing forms and schedules will still be required. It appears, then, that except for the most basic of tax situations, the ‘simplification’ of Form 1040 will, in fact, just add additional summary schedules and another layer of complexity. This consequence, coupled with the anticipated challenges of maneuvering through the maze of new tax laws during the upcoming 2019 tax filing season, is quite simply simplification at its best.
Please reach out to our Family Wealth and Individual Tax Group if you have any additional questions about Form 1040.