The U. S. Government has shrunk the well-known 1040 tax form that Americans transmit to the IRS annually. In theory, it is supposed to make filing taxes easier. However, in reality, it has made things, for many Americans, more complicated.
The new form combines the three versions of the 1040 (1040, 1040A, 1040EZ), reducing them all to 23 lines on a half page, front and back, as opposed to 79 lines on the original 1040 form. With the updated form, you check a box on the front to indicate whether you are taking the standard deduction along with your personal information. On the back, list your income and withheld taxes.
That’s all you have to worry about if you have very simple taxes, no children or investments. Americans with even slightly more complex situations, however, or those who wish to itemize deductions have to submit additional paperwork. This includes more paperwork in most cases than they had to file in previous years.
Examples: Retirement savings contribution credit, capital gains income, alimony, etc.
These items are not on the new 1040 form. Additional paperwork is required. If you accidentally skip them, you could under-report income or miss tax breaks and trigger audits.
Most of the information taken out of the old 1040 was moved to six new forms. This will make it harder as you’ll need to figure out where information from the old forms goes on the new forms in order to avoid omissions that could potentially increase your tax liability significantly.
In addition, with the American Tax Cuts and Jobs Act that President Trump signed into law, business owners are going to find a new perk. Most small businesses will be able to deduct 20 percent of their business income in addition to having their taxable income taxed at lower rates. In addition, for the first five years, they’ll be able to write off investments in new equipment the year the investment is made. However, as always, with this change comes more paperwork.
Other, Major Changes
There will be several other changes coming, some of which are in flux at the moment. The most notable of these changes is the removal of the personal exemptions on tax forms. For 2017, that amount came to $4,050 per person claimed on the tax return. For the 2018 tax year, that has been removed and replaced with a $500 credit for non-child dependents.
Because everything has changed and there are so many new forms, it is advantageous to get help from a professional tax preparer, ideally, one that is in business year round to be able to keep up with all the updates and changes.