Tax Forms

Tax Forms

Monday, 04 March 2019 14:07

If you’ve ever wanted tax simplification, where you can file your tax return on a postcard, you may have your wish. But maybe not… In the past, we had a Form 1040, a simplified 1040-A and an even more simplified 1040-EZ. Not many people fill out returns by hand anymore, but if you did, you might accidentally pick the wrong form. Starting with 2018 returns being filed now, there is only Form 1040, which will be the only form some taxpayers will file, but for everyone else, there are up to six additional schedules.

For the simplest of returns, only Form 1040 will be needed, but everyone will fill it out. The first page (actually a ½ page now) only has the basic name and additional information previously at the top of the old 1040, plus the signature information previously on the back of 1040. The back page (again, just a ½ page) summarizes the income, deductions, adjustments, credits, tax and payment information to determine your refund or amount owed. If no lines require a schedule to be attached, you’re done. Your return is about the same size as a large postcard. Did you catch that the bottom of both the front and back of 1040 is blank?

Unfortunately, most taxpayers are going to have to fill out one or more of the six new schedules, in addition to forms previously required like Schedule A (Itemized Deductions), Schedule C (Profit or Loss from Business), or Form 2441 for Child and Dependent Care Expenses.

Schedule 1 reports Additional Income and Adjustments to Income. This schedule captures income items like capital gains, rental income or unemployment compensation. Also reported on this schedule are adjustments to income like educator expenses, IRA deductions and student loan interest.

Schedule 2 is used to report additional tax that may apply to some taxpayers. This schedule currently only applies to taxpayers paying Alternative Minimum Tax or those having excess advance premium tax credit on health insurance purchased through the Marketplace. Most of you won’t see this schedule.

Schedule 3 reports nonrefundable credits. If you have children, odds are you’ll have this schedule to report the child tax credit.

Schedule 4 is for other taxes like self-employment tax or the penalty for withdrawing money from your IRA if you’re not 59 ½.

Schedule 5 report Other Payments and Refundable Credits. The amount you paid in estimated tax payments, the amount of your 2017 refund applied to your 2018 tax liability, or the amount you pay with a request for extension are on this schedule.

Schedule 6 is probably the least used. If you want to allow your paid preparer to discuss your return with the IRS, there is a checkbox on the front of Form 1040 where you can designate that choice, but if you want to designate someone other than your paid preparer, you have to designate them on Schedule 6.

Many of these schedules require additional forms. For example, if you have self-employment income, you fill out Schedule C to report the income and expenses. The net income from self-employment then flows to Schedule 1 to be combined with other income items, and the total income on Schedule 1 then flows over to Form 1040. Simplification at its finest. Did I also mention that all the schedules are no more than ½ page each and the 2017 1040 (and pretty much every 1040 in the past) captured all this information on two pages. If you’re unlucky enough to have to use all six schedules, you’re now filing Form 1040 (front and back but only using the top half of the page) plus six schedules, all of which use ½ of the page or less. That’s seven pieces of paper unless you print the forms front and back (I think that’s OK).

That’s it for my tax form simplification rant. The Form 1040 will guide you to additional forms or schedules as required. But if you have questions about the filing process please contact our office. As always, I am looking for article ideas that you would like me to cover. If you have an idea for a future article, or just have a topic you would like more information on, please send me an email.

At Faw & Associates, we are always available to answer any of your tax or financial planning questions. We are accepting new clients please contact us for an appointment.At Faw & Associates, we are always available to answer any of your tax or financial planning questions. We are accepting new clients please contact us for an appointment.