What taxpayers should know about the new form 1040

Taxpayers will be in for a surprise when they file their 2018 federal income tax returns next year as the Internal Revenue Service recently announced plans to streamline the Form 1040 into a shorter, simpler form for the 2019 filing season. A draft of the new form reveals it to be much shorter than the old one – reduced from 79 lines to 23. The new form is expected to replace the current Form 1040 as well as the shorter Forms 1040A and 1040EZ traditionally used by taxpayers with less complex tax situations.

[See: Answers to 7 Burning Tax Questions.]

Here are a few things to know about the new tax form.

First, it is not a postcard, although that seems to be the form's new nickname. It is larger than the average postcard and is not formatted for mailing. One side contains personally identifiable information, including legal names, addresses and Social Security numbers, so an envelope will be required along with a stamp and a trip to the post office for those who file on paper.

Second, all of those lines removed from the form contained important information that needs to be reported elsewhere for an individual's income to be properly reported, and for the tax to be properly calculated. The result is six new numbered schedules, or attachments, which will feed into the new, shorter Form 1040. They are as follows:

  • Schedule 1: Additional Income and Adjustments to Income (37 lines)
  • Schedule 2: Tax (7 lines)
  • Schedule 3: Nonrefundable Credits (10 lines)
  • Schedule 4: Other Taxes (12 lines)
  • Schedule 5: Other Payments and Refundable Credits (14 lines)
  • Schedule 6: Foreign Address and Third-Party Designee (3 rows of information)

What does this mean for taxpayers? While the final verdict is still out, shorter may not mean simpler. Many of the lines on the new form and schedules link to other forms containing external calculations, and results from one page often transfer from that page to another page, or schedule, elsewhere in the tax return. For example, capital gains and losses will be reported on one of six forms 8949 before flowing to the Schedule D, then to the Schedule 1 and then to the Form 1040. Is this really simpler? Time will tell. 

RELATED: U.S. states residents are fleeing from to avoid high tax rates: 

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5 states residents are fleeing to avoid tax rates
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5 states residents are fleeing to avoid tax rates

#1: California
Moving to: Nevada

Nevada does not have a state income tax on individuals or business entities, while California tacks on a whopping 13.3 percent income tax rate to residents.

Place to live: Clear Creek Tahoe
Private residential community located on the eastern slope of the Carson Range in Western Nevada, set on 2,136 acres bordering 6 million acres of national forest. 

#2: Minnesota

Moving to: South Dakota

Minnesota's income tax rates range from 5.35 percent to 9.85 percent while South Dakota's does not have an income tax rate.

Place to live: Prairie Hills
Luxury community in Sioux Falls, South Dakota

#3: Oregon

Moving to: Washington

Oregon's income tax rate is 9.9 percent, Washington has no income tax.

Place to live: Aldarra Golf Club
Private, membership-only golf community east of Seattle.  

#4: Arkansas

Moving to: Texas

Arkansas has an income tax rate of 6.6 percent, Texas has no income tax.

Place to live: Avilla
Luxury living community in Plano, Texas.

#5: Georgia

Moving to: Florida

Georgia has an income tax rate of 6.6 percent, Florida has no income tax rate.

Place to live: Grand Haven
Golf community seated on a 4,000-acre nature preserve on the Intracoastal Waterway

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[See: 10 Smart Ways to Spend Your Tax Refund.]

For paper filers, the change will be dramatic. For those who file electronically – and almost 90 percent of the returns processed by the IRS this year were e-filed, according to the IRS – the change will be more subtle. While the process likely will be the same, with tax software and/or paid professionals asking for the same information in the same ways, the output will be different, and taxpayers need to understand what they are filing. The new form, as well as the IRS e-file signature authorization (IRS Form 8879), still require taxpayers to sign, under penalty of perjury, that they have examined the return and accompanying schedules and believe them to be true, correct and accurately list all amounts and sources of income received during the tax year.

Some experts in the tax industry wonder about all the changes. "Is this a question of form over substance?" asks Bob Kerr, executive vice president of the National Association of Enrolled Agents. Kerr also wonders if the redistribution of IRS resources required to implement these changes will be worth the cost, and points out that many state and local tax forms flow from the federal Form 1040. "Are states ready to adjust their programming as IRS iterates versions of the new Form 1040?" he asks.

[Read: How to Get the Biggest Tax Refund This Year.]

In summary, filing a federal income tax return in 2019 is shaping up to be somewhat of an adventure. There are sweeping changes to the tax code, such as the Republican tax overhaul, that are still being defined and implemented, and now there is a new tax form with a host of new schedules that isn't even finalized yet. Depending on what happens in the November elections, Congress could make still more changes to the laws, forms and processes.

How will this ultimately affect the average taxpayer? Stay tuned for details.

Copyright 2017 U.S. News & World Report

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