Tax Season is Coming – Part 2: Changes Are Coming!

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Thanks to the Tax Cuts and Jobs Act signed in 2017, and the changes it brings to the 2018 tax year, it is to be expected that the traditional Form 1040 is receiving an overhaul as well.

The old 2-page 1040 is expected to be replaced by a “postcard” version reflecting fewer lines of income and deductions to arrive at your tax liability than in the past.  Don’t get too excited thinking your return could be a piece of cake now and you should ditch your accountant… there are still up to 6 schedules that may accompany the new return format to provide the additional information needed by the IRS to file a complete and accurate tax return.

  • Schedule 1 – additional sources of income (other than W-2), student loan interest and health savings account contributions
  • Schedule 2 – other forms of taxes, such as on a child’s unearned income
  • Schedule 3 – nonrefundable tax credits
  • Schedule 4 – summary of other taxes such as self-employment tax, uncollected Social Security and Medicare taxes and others
  • Schedule 5 – tax payments such as estimate payments or amounts paid with an extension
  • Schedule 6 – appointment of a third-party designee to discuss your tax return with the IRS on your behalf

In addition to the new schedules, many deductions that were allowable in the past are now just that – a thing of the past.  To name a few, the personal exemption deduction, alimony deduction, miscellaneous deductions, and state and local tax (SALT) deductions over $10,000 (combined) are no longer allowed.

The Forms 1040-EZ and 1040-A that could historically be filed by taxpayers with a relatively simple tax situation are no longer appropriate forms to file. The 1040 will be the only way to file.

Many states, including California and New York, are non-conforming with some of the federal changes. State returns may need modifications, so be sure to provide your accountant with all of your information as you have in prior years.

Bottom line, the 2018 tax year will be an interesting one if the draft Form 1040 sticks. Maybe now is a good time to talk to the experts in the new tax law, your trusted advisors and accountants at TYS LLP.

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