Is the New IRS Form 1040 Still too Taxing?
Billed as a “postcard-sized” sheet that’s more user-friendly, does the revised IRS Form 1040 make a difference for taxpayers and preparers?
Shorter, faster, a time-saver that’s easier to fill and file. Those
are just a few of the IRS’ selling points regarding its new “postcard-sized”
IRS Form 1040 that’s being introduced for the 2019 tax
season (for the 2018 tax year).
The first thing you should know is that the new form is not really a
postcard — you can’t stick a stamp on it and toss it into your
mailbox for delivery to the IRS. In fact, doing that is sure to get your,
or your client’s, identity stolen as the form is still chock-full of
sensitive personal information.
The postcard reference merely refers to the form’s smaller
appearance. Considering the IRS received more than 152 million
returns last tax season, including more than 132 million
electronically filed returns, one must wonder if the paper form
change is going to make much difference in today’s increasingly
mobile, paperless, get-it-done-on-the-go culture.
Around 90 percent of all tax returns filed each year are received
electronically, according to the U.S. Treasury Department and the
IRS, which means paper tax forms are edging closer to extinction.
So, the big questions heading into tax season may be: Are we
putting too much emphasis on the look of a paper tax form? Further,
will the new 1040 actually add complexity to the filing process?
The new form updates and replaces the current Form 1040, 1040A,
and 1040EZ. While the current 1040 has 79 lines to fill out, the
new form has just 23. So, by appearance, it looks like it would take
much less time to fill out and file, but that’s not the only change.
Many of the items taxpayers report on their 1040s will now move
to six new Schedules that will need to be filed along with the
Schedule 1, Additional Income and Adjustments to Income
covers items such as business income, capital gains or losses,
alimony received, unemployment compensation, farm income, and
earnings from rental real estate, royalties, partnerships, S
corporations, and trusts, among others. Of course, many of these
will still require additional Schedule filings in certain cases.
Schedule 2, Tax
– This includes the Alternative Minimum Tax and
taxes on a dependent child’s unearned income or “kiddie tax.”
Schedule 3, Nonrefundable Credits
– This covers credits that can
help reduce your tax bill to zero, but that you won’t get a refund
for, including credits for child and dependent care and education.
Schedule 4, Other Taxes
– This accounts for other taxes you might
owe, like self-employment tax, Social Security and Medicare taxes,
household employment taxes, retirement plan taxes, net investment
income tax, and the ACA penalty tax.
Schedule 5, Other Payments and Refundable Credits
– Here you’ll
include items like estimated tax payments, amounts paid with a tax
filing extension request, and premium tax for health insurance
Schedule 6, Foreign Address and Third-Party Designee
– This is
where taxpayers must list any foreign addresses or third-party
designees who may discuss a tax filer’s return with the IRS.
So far, no changes have been announced regarding existing
Schedules, including Schedule A for itemized deductions, Schedule
C for listing profits or losses from business income, and Schedule
D for capital gains and losses, which all may still be required
depending on the circumstances.
So, only taxpayers with the most basic, straightforward tax returns
will file the new top page of Form 1040 — too bad that scenario
only pertains to about 25 percent of all individual income tax filers,
according to recent Treasury Department and IRS estimates. Job
security for CPAs, right?
THE TAX PRO’S PERSPECTIVE
Since the IRS released its draft version of the new Form 1040 in
June, tax professionals have been weighing in with commentary.
“The form isn’t materially changing how I gather and file income
taxes for my clients,” says Daniel Rahill, CPA, JD, a Chicago-based
tax partner with BDO. Rahill, who is also a former Illinois CPA
Society chairman, stresses that when it comes to preparing taxes,
the information needed isn’t any different, it now just needs to be
listed in different places. “It’s essentially going to be the same
process. I’ll ask the same questions and will need the same
information. It’s not a significant event to me — or any of us.”
For other tax preparers, the bigger concern is about those different
places where information that used to be listed on Form 1040 will
now be reported.
“The shorter form is not the issue, the sub-Schedules my clients will
still need to pick through will be the problem,” says Deborah L.
Kurtzke, CPA, MST, of DK Tax & Accounting Inc. “I am anticipating
they will attempt to do their return and get frustrated with the
Schedules and call for an appointment or to drop off their returns.”
The introduction of the new Form 1040 coincides with the
implementation of new tax reform measures specified in the federal
Tax Cuts and Jobs Act of 2017, including higher standard deduction
levels, which may be more advantageous for tax filers who usually
itemize their deductions. But while the upcoming tax changes are
designed to make filing easier, the one-two punch of combining
new tax reforms with a new Form 1040 is likely to land a few blows
this tax season.
“Was it a good idea to also make the first significant changes to the
tax form at the same time new reforms are taking hold? I don’t know
about that,” Rahill says.
Once the new Form 1040 and accompanying Schedules become
official, the clock also starts ticking for tax preparation software
companies to update and test all their products for quality
assurance. So, the most anxious people awaiting the IRS’ official
releases may not be tax practitioners but the software developers
who make it possible for everyone, from the largest accounting
firms to the do-it-yourselfers, to e-file tax returns.
“You don’t want to have to call your software help desk and
explain that you put a number in the box and it didn’t carry over to
the Schedule and then hear, ‘Oh, yeah, we have a coding error,’”
That technology update cascades to all 50 states — every state and
U.S. territory must make sure their own tax forms align with
the new federal guidelines and Form 1040. For example,
Rahill points out that the current Illinois Form 1040 begins by
instructing preparers to list adjusted gross income from line 37 of
the current IRS Form 1040. But the new, shortened form doesn’t
include an adjusted gross income line — that’s moving to one of
the new Schedules.
As we head into what may be one of the more memorable tax
seasons in recent years, quick guidance and resources are
available. Updates from the IRS can be found online
, and specific information about the new
Form 1040 is at www.irs.gov/forms-instructions
. The IRS is also
encouraging everyone to make sure their payroll withholding taxes
are in line with new tax reforms. Their paycheck check-up
withholding calculator can be found at https://apps.irs.gov/app/withholdingcalculator/