As a complement to the Tax Cuts and Jobs Act of 2017 (“TCJA”), President Trump and others in his administration promised to simplify the Internal Revenue Code so much that individual tax returns could be filed on a postcard. Well, the final version of the Form 1040 “postcard” has been released and must be used for all 2018 personal tax returns. We will walk you through some of the major changes to the form and its instructions. But first, this is what the new main form looks like:
Like the old version, there are still two pages to the main form. These two pages are condensed to half of the page, presumably to be printed on the front and back of half a sheet of paper to look like a postcard.
The first page includes the same informational items you found at the top of Page 1 of the old form, including your name, address, Social Security Number, filing status, and list of dependents. However, Page 2 only includes 23 lines of information, starting with wages and ending with the estimated tax penalty. In comparison, the 2017 Form 1040 included 79 lines.
At first glance, it may seem like less reporting is required. But, don’t be fooled into thinking you will only need to complete the information on these 23 lines and file your return. While that may be an option for some taxpayers, others will need to attach other newly introduced schedules to report additional information.
It’s also important to note this new 1040 will replace not only the old 1040 but also the old Forms 1040A and 1040-EZ. Those forms will no longer exist. Now, all taxpayers will file on Form 1040. Those taxpayers who used to file on Forms 1040A or 1040-EZ will now likely just attach fewer additional schedules to their returns, if any at all.
You may be asking yourself, “what are these new additional schedules and who will be required to file them?” The IRS has introduced Schedules 1 through 6, in addition to the existing Schedules A, B, C, D, E, and F. The following chart, provided by the IRS in the instructions for the new 1040, summarizes who will need to file each of these new schedules:
Schedule 1, for example, will apply to anyone with capital gain transactions, unemployment compensation, prize or award income, or gambling winnings. It will also apply to those claiming above-the-line deductions, or adjustments to income, for self-employment tax, student loan interest, or educator expenses.
This chart does not appear to be comprehensive. There are other adjustments to income not mentioned in the chart for Schedule 1, such as the deduction for contributions made to traditional IRAs, self-employed pension retirement accounts, and health savings accounts. Thus, it will be important to carefully review the instructions for each schedule with your tax advisor to determine your filing requirements.
In addition to the new Schedules 1-6, other changes were made to the new 1040 associated with the TCJA including the following:
- Qualified Business Income Deduction (“QBI”) – The TCJA introduced a 20% deduction on passthrough income for individual taxpayers. The QBI deduction, after being calculated on a separate worksheet, is reported on Line 9 of the new 1040.
- Personal Exemptions – The TCJA eliminated the personal exemption for years 2018 through 2025. Accordingly, this line has been removed from Form 1040.
- State & Local Tax Deduction – The TCJA limits your state and local tax deduction, including income and property taxes, to $10,000 per year. The new Schedule A has been updated to reflect this limitation.
- Miscellaneous Itemized Deductions – The TCJA also eliminated miscellaneous itemized deductions subject to the 2% adjusted gross income limitation for years 2018 through 2025. The section to report these deductions has been removed from Schedule A.
The IRS has made these and other changes to the new 1040 for 2018. To help taxpayers, it has published some helpful FAQs providing additional information. Hopefully this overview has given you a better understanding of the new Form 1040. If you still have questions, contact us.