If you haven’t already switched over to using tax software to fulfill your financial obligations to the goverment, this might be the year to do it. Why now? Because the IRS is changing its forms…again. You could bother to learn the ins and outs of the new forms, or you could let the software do it behind the scenes for you. We detail the changes below so that you can decide for yourself.
As you may recall, the IRS made serious changes to its 2018 income tax forms. The 1040A and 1040EZ were discontinued, replaced by a new 1040 that was supposed to be the size of a postcard but was actually larger: It was roughly a half-page on both sides. In addition, new schedules 1 through 6 were introduced. If you were using an online tax service (or an accountant, of course), you might not have noticed this. You just answered questions as usual, and the application was responsible for dropping your answers onto the correct forms and schedules. Tax solution developers had to scramble to make the necessary changes, but the season was fairly uneventful.
Thanks to the 2018 Bipartisan Budget Act, the landscape has once again been altered. Draft versions of tax forms(Opens in a new window) for the 2019 tax year were released in July 2019. In addition to a slightly longer Form 1040, there’s a brand-new—but optional—form for seniors (taxpayers 65 and older), the Form 1040-SR.
The New 1040
The IRS’s draft of the 2019 Form 1040 is different from the 2018 version—and longer—though it doesn’t fill the entire sheet. Last year’s form used the whole front page to get your personal information: filing status; name, address, and Social Security number; dependents; health care coverage status, and so on. You (and your paid preparer, if applicable) also signed your return on this page.
The proposed 2019 Form 1040 asks for the same personal data on the front page, but also launches into tax topics immediately. There are 15 total lines here. The questioning, as usual, starts with income: W-2, interest, dividends, pensions and annuities, Social Security income, and capital gains or losses. You’ll enter other income such as business or farm income or rental real estate, along with adjustments to income (educator expenses, HSA deduction, and self-employed health insurance deduction) from Schedule 1.
You’ll take the standard deduction or carry over itemized deductions from Schedule A. If you’re eligible for the qualified business income (QBI) deduction that grew out of the Tax Cuts and Jobs Act, you apply that number from Form 8995 or 8995-A. The remainder of the lines on the front page of the new 1040 are dedicated to calculations and the total of your taxable income.
The Old 1040
All of this information took up about half of the second page of the 2018 Form 1040. The rest of the page dealt with taxes and credits. Did you need to report income for one or more children? Did you need to calculate the tax on a qualified lump-sum distribution using the 20 percent capital gain election, the 10-year tax option, or both? Schedule 2 amounts were also documented here, including the Alternative Minimum Tax (AMT) and any excess advance premium credit repayment required.
The remainder of this page covered tax credits, like the child tax credit and other Schedule 3 issues (nonrefundable tax credits). Schedule 4 data carried over to the 2018 Form 1040 dealt with other taxes (self-employment tax, uncollected Social Security and Medicare tax). You then reported on Schedule 5 any taxes you already paid (estimated taxes, amount submitted with a request for an extension); taxes withheld on W-2 and 1099s; and refundable credits (EIC, additional child tax credit, education credits). When you entered your total taxable income and tax obligations, all that was left was to calculate your refund or the amount you owed.
The flip side of the 2019 Form 1040 deals with these same tax topics and ends with your signature and that of any third-party designee (new this year), which allows an individual other than your tax preparer to discuss your return with the IRS. If a paid preparer completes your return, his or her signature and other identifying information is also needed at the bottom of the page.
To recap: The IRS has modified some of the wording and organization of the standard tax topics found on the Form 1040, but not their content. So you’ll start in on those topics on the front page rather than the back, and you’ll notice some changes—unless you’re using tax software.
The first thing you’ll notice about the new 1040 for seniors is that it’s much easier to read. The font is larger and there are no shaded areas like there are on the standard Form 1040. It’s designed to be as simple as the old 1040EZ.
Second, the form’s line items are supposed to be geared toward the income streams that older Americans generally have, but they’re very similar to the new Form 1040. Lines 1 through 6 on the draft form address wages, salaries, tips, and so on; tax-exempt interest; qualified dividends; IRA distributions; pensions and annuities; social security benefits; and capital gain (or loss). Lines 7 and 8 deal with other income and adjustments to income and provide your calculated adjusted gross income.
As with the traditional 1040, you can choose between the standard deduction or itemized deductions (from Schedule A). If you remember, the standard deduction was roughly doubled for the 2018 Tax Cuts and Jobs Act, so not as many taxpayers are itemizing. The 1040-SR includes a standard deduction chart, so you can easily identify your bracket. This goes on line 9, followed by the QBI deduction (if you qualify, of course) on line 10. Your total taxable income appears on line 11b.
Like the Form 1040, the next several lines ask for information about tax credits and taxes paid. When you’ve completed this section and gotten your total payments, you’ll be able to calculate either your refund or the amount you owe. Below that, you can enter information about a third-party designee if applicable and provide signatures for yourself and any paid preparer involved.
The big news is that the Form 1040-SR is easier on aging eyes. Its content is not much different from the standard 1040, at least at this early stage. If you use tax software for your 2019 tax return (watch for upcoming reviews here), you shouldn’t notice any difference until you print out your own copies after filing.
The Tax (Software) Takeaway
The real takeaway is that if you use tax software for your 2018 taxes (watch for upcoming reviews here), most of the changes should occur behind the scenes. That’s one of the real benefits of having made the jump from paper. And, if you haven’t switched over, these changes, while not drastic, might make doing this year’s taxes just annoying enough that you finally make the leap.
Keep in mind that these are just draft forms and will not be finalized for months, since Congress can still make changes to the tax code for 2019. The IRS will be taking comments and suggestions for improvements until August 15, 2019. You can chime in by sending an email to [email protected].
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Source By https://www.pcmag.com/news/the-federal-government-is-changing-its-tax-formsagain