Between texting and Twitter, “acronyms” have become just as popular as the start of pumpkin spice latte season. One acronym that is soon to have the lion’s share of the spotlight is TCJA (The Tax Cuts and Jobs Act). Not since the Tax Reform Act of 1986, when shoulder pads were a staple of fashionistas and football player alike, has there been a more sweeping reform of the tax code.
Now that Labor Day has passed, millions of taxpayers will start their end-of-year tax planning and look towards January and the start of the tax filing season, hoping that their refund will pay for the holiday festivities of the months before. With the passage of TCJA, will it be easier for taxpayers to complete their 2018 return, or will there be more sleepless nights? Are the tried and true end-of-year tax planning strategies still advantageous under the new laws? After much delay, the IRS is beginning to provide guidance on the new legislation, which will help taxpayers navigate the preparation of their 2018 income tax returns. However, when it comes to the audit of 2018 returns, taxpayers may remain uncertain as to audit outcomes. The legislation in TCJA has not been tested in Tax Court, and the IRS regulations will not have been finalized by the time the notices for the 2018 returns start to arrive at taxpayers’ doorsteps.
During the next couple of months, we will be exploring the individual tax law changes brought on by TCJA. One thing is for certain, everyone, either directly or indirectly, will be impacted by TCJA. It remains to be seen whether the impact will be akin to receiving the perfect gift during the holidays or feel like a never-ending Halloween-horror corn maze.
You won’t need a rabbit wearing a fancy waistcoat and pocket watch to see that the actual Form 1040 itself has gotten smaller, as it is now the size of a large postcard (about the size of a half-sheet of 8 ½” by 11” paper). While it may be considered smaller than some breadbaskets, you may need extra muscle to carry it. At least six new schedules have been added to Form 1040 to accommodate the information that was left on the cutting room floor when the form was reduced in size. (For those of you who cannot stand the suspense, rest easy, as there is still space where you can contribute to the Presidential election campaign fund.) Below is a brief rundown of the new schedules. Keep in mind that the new Form 1040 and its corresponding schedules are still in draft form and may change.
- Schedule 1 is where taxpayers will enter additional income items such as taxable refunds, alimony received, business income or loss, rental real estate income or loss, capital gains or losses, income from partnerships, S-corporations, trusts, etc. This schedule will also include taxpayer’s adjustments to income such as educator expenses, traditional IRA deduction, student loan interest deduction, moving expenses, alimony, domestic production activities deduction and tuition and fees deduction. In a future blog post, we will discuss which adjustments to income may still be expensed and which ones are no longer available under TCJA.
- Schedule 2 is where Alternative Minimum Tax and excess Advance Premium Tax Credit repayment will be entered and added together.
- Schedule 3 is where nonrefundable credits such as the Foreign Tax Credit, Child and Dependent Care Expenses Credit, Education Credit, Retirement Savings Contribution Credit and the Residential Energy Credit are entered and added together.
- Schedule 4 is where other taxes such as self-employment taxes, unreported social security and Medicare taxes, additional tax on IRAs, household employment taxes and the healthcare individual responsibility tax are entered and added together.
- Schedule 5 is where other payments and credits such as estimated tax payments made, the refund amount applied from the prior year’s return, the amount paid with an extension request are entered and added together.
- Schedule 6 is where a taxpayer will enter their foreign address (if they have one) and list another person as a Third-Party Designee, if they so desire. Previously, this section was towards the bottom of the second page for Form 1040.
Schedules 1-6 are
additional. These new schedules do not replace the underlying forms, schedules, and worksheets that are currently used to come up with the amounts that will now be listed on these new schedules. When applicable, we will still be filling out
Schedule C Business Income or Loss, Schedule D Capital Gain or Loss, Schedule E Rental Real Estate, Royalties, Partnerships, S Corporations, Trusts, etc.; Schedule F Farm Income or Loss, Capital Gains Worksheet, Schedule 8812 Child Tax Credit, Form 2441 Child and Dependent Care Expenses Credit, etc.
Perhaps
Webster is behind the times, and the definition of
simplified now describes something that is
complicated. It reminds me of when I hear my friends’ teenage kids say the latest version of Fortnite is
sick as they enter their second straight hour glued to their iPhone and playing this very popular game. There is a glimmer of simplicity: Forms 1040A and 1040EZ will be eliminated starting with the 2018 filing season.
In an upcoming blog, we will be discussing the new tax rates, the changes to exemptions, dependents and the standard deduction. Until then, may your days be filled with joy and your tax burdens be light.