Changes for Your 2018 Taxes: The New Simplified 1040 Tax Form
Last year's Tax Cut and Jobs Act brought sweeping changes to how individuals and businesses handle their taxes in the United States. Even taxpayers with the most straightforward financial scenarios can expect some changes to the process for the 2018 tax year. Most notably, several versions of the 1040 tax form have been consolidated into one simpler version that all taxpayers can use.
Taxpayers will no longer need to determine which tax form they qualify to use. However, these changes may result in them needing to complete additional schedules that accompany their 1040.
Former Versions of the 1040 Tax Form
Previously, there were three versions of the 1040 form. The standard form was the most detailed version. The 1040-A version was considered the short form, but you could only use it if you met certain conditions. For example, you couldn't use the 1040-A if you wanted to itemize deductions, if you owned a business, or if your taxable income exceeded $100,000. The final version, the 1040ez, was the most basic of all of the end of year tax return forms.
Individuals who were filing either single or married filing jointly could use this. To use this, a bankruptcy could not have been filed for after October 15th; the total household income must have been under $100,000. No deductions or special circumstances, such as children, student loan interest deductions, mortgage, could be claimed. In fact, this form did not allow any deductions to be itemized; as a result, the standard deduction must have been taken. However, the Earned Income Credit (EIC) could be claimed using the 1040ez.
The 1040A was often referred to as the "Short Form." It allowed for many of the special circumstances that the 1040EZ did not accommodate, including: student loan interest, classroom expenses, college tuition, IRA contributions and more. This form was permitted for anyone regardless of filing status; those who were married but filing separately were also eligible. As with the EZ, expenses could not be itemized, the standard deduction must have been taken. However, extra deductions could be claimed such as: child tax credit, Hope and Lifetime Learning educational credit, credit for the disabled or elderly, or child/dependent care expenses. The EIC could also be claimed with this form.
Income under $100,000 from: wages, Social Security benefits, pensions, interest or annuities, unemployment, taxable grants, or Railroad Retirement benefits. There were other provisions such as incentive stock options that must not have been taken during the year in order to qualify. The benefit to this form was that it was shorter than the traditional 1040 and often took less time to complete and averaged less time for the IRS to process.
Commonly referred to as the "Long Form", this was the most complex of the three but also allowed for the greatest number of deductions and special circumstances. Anyone who did not qualify for either the EZ or the A must have used this. It included all filing statuses. It also included all types of wages and income. Those who were self-employed, in partnerships, shareholders in S corporations or households with income over $100,000 could use this. Those who were currently employed but did not have either Medicare or Social Security taxes withheld could file this as well.
Besides the deductions and credits listed above, there were additional deductions such as mortgage interest, foreign taxes paid, allowing for claims of losses in federally declared natural disasters and more. If an adoption was performed during the year, the 1040 form must have been used to receive the credit. If you wanted to itemize your deductions, or receive less common forms such as a K-1, 1042, 1120 or 1041, this is the form that must have been used. In general, this is what was used when the filer no longer qualified for either the EZ or A.
The newly released 1040 form is intended to simplify the standard filing process for all households. The form itself has been shorted, however, you may need to include schedules if you have income from certain additional sources (such as capital gains) or if you want to claim particular deductions and/or credits.
If you've previously used the 1040-A or 1040-EZ forms to file your taxes, you're no longer able to do so and instead need to switch to the newly designed standard 1040 form.
Major Changes to the 1040 Form
There are some changes to the 1040 form that could make part of the filing process easier. There were a few items deleted, allowing for simpler filing for some taxpayers. The four major deletions are the personal exemption, the alimony deduction, miscellaneous deductions, and moving expense deductions.
That may seem like a lot of deduction opportunities to eliminate, but these may be balanced out for many taxpayers with a large jump in the standard deduction. Single taxpayers now get a $12,000 standard deduction compared to the previous $6,500. For married taxpayers filing jointly, their standard deduction will be $24,000 rather than $13,000.
If you don't normally claim many additional deductions, you could end up benefiting from this change in terms of your tax liability (or return, if you qualify for one). Even if you do typically claim one or more of the existing deductions, you could still potentially lessen your tax liability.
Questions on the New 1040 Form
The redesigned 1040 form from the IRS is only half a page long on two sides. The first part covers your personal information, while the second part calculates your income information and shows whether you can expect a refund or owe taxes.
What questions do you need to answer on the 2018 1040 form?
First, you'll need to pick a filing status: single, married filing jointly, married filing separately, head of household, or qualifying widow(er). You'll then need your name and social security number (and the same for your spouse if filing jointly). You'll have the chance to take a spouse standard deduction, and you'll need to check off a box if you had full-year health care coverage. Next you simply need to fill in your home address.
From there, you'll move onto your dependents. First, check the box if you have more than four dependents. No matter how many you have, list out the first and last name of each dependent, include their social security number and relationship to you. For each one, you can also check a box if that dependent qualifies for the child tax credit, or any other dependent credit.
Once, it's time to move onto the numbers on page two of the 1040 form you'll go line by line to add all of your income from your W-2, plus other taxable income sources like taxable interest and ordinary dividends. You'll then subtract your deductions and credits to determine your refund or amount owed.
When to Use Schedules with Your 1040 Form
There are additional schedule forms you may need to complete in addition to your 1040 form if certain situations apply to you. Here's a brief description of these:
This schedule covers additional income and deductions not included on the 1040 form. Relevant income sources include capital gain, unemployment, and winnings from prizes, awards, or gambling. You can also use Schedule 1 for deductions such as student loan interest, self-employment tax, and educator expenses.
You'll need to fill out Schedule 2 if you owe an alternative minimum tax or if you have to make payment for an excess advance premium tax credit.
If you want to claim a nonrefundable credit besides the child or other dependent tax credits, you'll need to complete Schedule 3. This includes things like the foreign tax credit, education credits, and the general business credit.
This schedule is intended for people who owe other taxes. This includes things like self-employment tax, household employment taxes, or taxes on tax-favored accounts like IRAs or other qualified retirement plans.
This is for both a few different refundable credits as well as other payments. You can use it to claim additional refundable credits, but it doesn't include the earned income credit, the American opportunity credit, or child tax credits. You can also make other payments, like an amount paid while requesting a filing extension or excessive social security tax withheld.
You'll need this form if you have a foreign address to report to the IRS or if you have a third-party designee besides your paid preparer.
A taxpayer may need to complete one or more schedules to calculate and report various taxable items. The total computed on all schedules is then transferred to and filed with the Form 1040. When using our online tax software, if we determine that these are necessary for your filing our software will include them with your tax return at no additional cost to you.
Infographic on The Different 1040 IRS Forms
What if you need to amend a return?
If you want to correct an error or oversight that you made when you filed a tax return using Form 1040 you will need to use a Form 1040X to amend your return. There are several reasons for amending a tax return. You might need to change your filing status from single to married or alter the number of dependents that you claimed. Discovering an additional Form W-2 or Form 1099 may make it necessary for you to report additional income or withholding. Making changes to the tax deductions, personal exemptions or tax credits that you claimed would also require you to file an amended return.
If you decided to amend your tax return with a Form 1040X, remember that this 1040 form can only be filed after your initial tax return has been processed. A paper copy must be filed; online filing is not available for this form. This is a generic form, so be sure to write the tax year that you are correcting at the top of the form. If you need to fix your returns for multiple years, you will need to file a separate Form 1040X for each year that you are correcting.
A quick note regarding printed forms - As with the 2018 tax law changes that did away with the 1040ez and 1040a forms, the Treasury may modify it's form requirements from time-to-time. If this occurs and you do not plan to use an electronic tax software program such as ours, you'll need to verify that the Treasury has not issued replacements for the forms you are trying to prepare. For example, in 2013 the IRS altered the 1040 form based on changes enacted by Congress the previous year, in the American Taxpayer Relief Act (ATRA). This was not available until January 30th of that year.