Everything You Need to Know About the New Tax Form

Everything You Need to Know About the New Tax Form

Before the tax law overhaul, the Trump administration and Republican-led Congress touted a postcard-size income tax return form designed to simplify filing your taxes.

In June, the Internal Revenue Service and U.S. Treasury Department released a draft copy of the new 1040 income tax form. However, critics say that while the tax return is shorter, it may actually be more complicated than ever.

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If you want to start thinking about taxes, the new draft copy offers a glimpse of what’s in store for the 2019 tax-filing season. Read on for a primer on what changes to anticipate in light of the Tax Cuts and Jobs Act, which was passed last December.

The size of the form is bigger than an actual postcard. “There is no postcard, just a shorter Form 1040,” says Steven Weil, an enrolled agent, president and tax manager at RMS Accounting in Fort Lauderdale, Florida. He adds that while the form is shorter, it requires a taxpayer to use extensive schedules, or forms the IRS requires filers to prepare, along with the tax return when they have certain types of income or deductions.

“Take a look at the new form, and you will find it covers a half page on the front and a half page on the back. If it were truly a postcard, it would have room for an address and return address, as well as a stamp on one side,” he adds.

It’s good that the IRS isn’t actually sending tax forms on an actual postcard, Weil says, emphasizing that it would be a gift for identity thieves combing through mailboxes. “Most returns today are filed electronically, anyway,” he says.

Despite the hype, the new form may not make it simpler to file your taxes. “It will no longer be possible to just copy this year’s information on the return, using last year’s return as a model. When you consider the change in the form, the change in the rules – as to what can no longer be deducted when itemizing, for example, the lack of exemptions and a higher standard deduction – most of us in the tax business expect to see lots of new clients that are more confused than ever,” Weil says.

Abby Eisenkraft, an enrolled agent and CEO of Choice Tax Solutions in New York City, agrees. “The form reduces two pages to one page but necessitates six additional schedules,” she says, referring to additional paperwork that the taxpayer will need to calculate things like deductions. “And this does not include the additional schedules one needs to report self-employment, rental real estate, sales of securities and so on,” she adds.

Kelly Wright, director of financial planning at Pinnacle Advisory Group, a Columbia, Maryland-based wealth management firm, also thinks the tax form looks more complicated. “No one wants more taxes. However, reducing the size of Form 1040 will not make tax preparation more simple, nor does it affect taxes due in any way. A postcard[-size] 1040 form will simply be a shorter, more confusing form, based on many of the same taxes and deductions that still exist,” Wright says.

That last part troubles Wright. “Many available deductions and credits are not listed on the IRS draft form,” he says. “The IRS simply removed many of the helpful steps that guide people in preparation of their taxes. As much of that direction is now absent, it is possible some will simply think it does not apply to them.”

Tax withholding tables are different. In February, the IRS changed the tax withholding tables that determine how much income tax should be taken from your paycheck, calculated by the number of allowances you claim and how much you earn. If you haven’t reviewed what’s in withholding since the new tables came out, now is an ideal time to check. If not enough has been withheld, you could end up owing taxes.

Your state taxes may increase. “The standard deduction has increased substantially for federal tax but not for many states. This means state taxes will increase dramatically for many taxpayers, one of the hidden caveats of [the Tax Cut and Jobs Act],” Wright says.

Many deductions will disappear. Many deductions will vanish next year, including the personal exemption, the alimony deduction and the deduction for moving expenses. Miscellaneous deductions have also been eliminated, which means that unreimbursed business travel and mileage will be gone, along with the home office deduction.

Some deductions will remain, however. The standard deduction will increase to $12,000 for individuals (from $6,350 under the previous tax law), and $24,000 for married couples filing jointly and surviving spouses (up from $12,700 from the 2018 tax-filing year). And head of household filers will see an uptick in their standard deduction to $18,000, up from $9,350. And there is a new qualified business income deduction, which has to do with noninvestment business income, which has caused a lot of confusion, Eisenkraft says.

“The new tax act left more questions than answers, with tax professionals waiting for the Congress and the IRS to clarify. We are eight months in and still don’t have answers,” Eisenkraft says. “Unfortunately, this is not simplification at all, and many tax professionals will be increasing their fees because of additional education requirements, staffing and the complexity of the requirement reporting.”

 

 

Source:- usnews

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