Get to Know the New Form 1040: Fewer Line Items to Fill, More Schedules to Attach

Plus: Section 199a adds potential benefits for pass-through entities

Thanks to the Tax Cuts and Jobs Act of 2017, the venerable IRS Form 1040 will look and feel different this year. Besides the aesthetic makeover, there is plenty for tax pros to become familiar with: new requirements, new sections, and new definitions, plus oodles of provisions for Section 199A, exemptions, divorce, property settlement, and tax credits.

With 2018 rapidly coming to a close, now is the time for tax pros to get to know the new form, says tax specialist Arthur Werner. Werner details the new form and what you need to know about it in his Eli Financial webinar, “Federal Income Tax Update for the 2018 Tax Season.”

Werner notes that, while many clients may think the brevity of the new form means that filing will be simpler, the opposite may actually be true.

The New Form 1040: Prep for Lots of Attachments

First of all, say goodbye to forms 1040A and 1040EZ. Along with the standard 1040, these were the bread and butter of personal tax filing and used (and often hated) by about 150 million taxpayers last year.

With the passage of the Tax Cuts and Jobs Act, the Internal Revenue Service (IRS) and the Treasury Department decided that the old 1040 was just not up to the task.

No, you don’t get a “postcard-sized” tax return, as some in Congress promised, but you do get one that is much shorter. The IRS says the new form is about one-half the size of the old one.

“This new approach will simplify the 1040 so that all 150 million taxpayers can use the same form,” the agency said in a press release this summer. “The new form consolidates the three versions of the 1040 into one simple form. At the same time, the IRS will still obtain the information from each taxpayer needed to determine their tax liability or refund.”

The new return is essentially one page long (it takes up half of each side of a page). While the old form had 79 numbered lines, notes The Balance, the new one has just 23.

For filers, the form automatically defaults to “married filing jointly.” Much of the rest of the return’s simplicity, however, hinges on the need for filers to complete and attach schedules 1, C, D, E, or F. Claiming tax credits other than dependent credits means you’ll have to grab a Schedule 3. Any other taxes, such as self-employment or net investment income tax means a Schedule 4 is going to get stapled to the 1040.

“You can see where this is going,” said The Balance. “Unless your tax situation is utterly basic, nothing has really changed. The information the IRS needs has just been relocated to other forms.”

Section 199A: Changes for S-Corps, Trusts and Estates

The 1040 is not the only big change this year, notes Forbes. The Section 199A deduction presents what could be a 20-percent tax deduction on qualified business income. It sounds good, but anyone wanting to snag the deduction (or help those who want it) needs to plan in advance.

“Planning for and determining the best way to take advantage of the 199A deduction is a very complex process,” says Forbes writer Jamie Hopkins.

The caveats are almost as complicated as the IRS’ instruction book:

  • Not all businesses qualify.
  • The deduction phases out above $315,000 income for joint filers and half that for single filers.
  • The existence of W-2 wages, property ownership, and certain business structures can limit some business owners from taking the deduction.
  • Shifting costs to S-corps from W-2 wages can raise alarms for IRS investigators, so juggling income warrants caution.

“Taxpayers eligible to claim the full 20 percent deduction on [qualified business income (QBI)] will incur a maximum effective rate of 29.6 percent on the QBI,” wrote analysts at BDO. “While this rate reduction is beneficial, it will be important to consider the decrease in corporate tax rates from 35 percent to 21 percent.”

Yes, there is potentially a lot of good news for filers this year, says Werner, host of “Federal Income Tax Update for the 2018 Tax Season,” but tax pros cannot walk into the filing season without having done a good deal of homework first.

To join the conference or see a replay, order a DVD or transcript, or read more

Jeff Schmerker

Jeff has extensive professional experience writing on a variety of topics, from pharmaceutical research to environmental history. He has published more than a half-dozen books, and he has worked as a newspaper reporter, magazine editor and restaurant reviewer. He lives in Missoula, Montana with his wife and son.

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