A LITTLE THIS-A, A LITTLE THAT-A

 
+ The IRS has released the 2021 Form 1040 and 2021 Form 1040-SR.  Click here to download these forms as well as other 2021 IRS forms and schedules.

I will review the changes to the Form 1040, Form 1040-SR and Schedules 1, 2 and 3 here at TWTP next week.

+ Here are some more examples of the damage done by the IRS excessive COVID-19 closure – and more proof that the IRS is FU-ed - from fellow tax pros (highlights are mine):

“I e-filed a 1040X in August and it still doesn't show up in "\’Where's My Amended Return?’ Called the e-file service to follow up. Yes, the IRS has it, but expect a 40 week wait time.  I said, ‘I think I misheard you.’  She said, ‘No, you didn't.’ 40 Weeks!” – Jan Roberg

“I am currently quoting to clients for IRS processing time:

Paper-filed amended return: 12-18 *months*
Electronically filed amended return: 8-14 *months*
These both should be weeks rather than months, but this is the world we live in today.” – Russ Fox

"I filed a 2019 amendment in August 2020.  I am still waiting on my refund.  I got the state refund in 7 weeks."  - Steve  

This is unacceptable – but there is nothing taxpayers, or tax professionals, can do about it.

DO NOT contact your tax preparer to ask why you haven’t received your federal refund!

FYI – the IRS is paying interest on late refunds (which is taxable on your 2021 or 2022 return).

TTFN

 

IRS RELEASES DRAFT 2021 TAX FORMS

 

I had been holding these for a BUZZ installment – but there isn’t any other BUZZ to report.

Kay Bell reports that the “IRS releases drafts of 2021 Form 1040 and schedules” and discusses the many changes to these forms at DON’T MESS WITH TAXES.

There has also been a draft version of the 2021 Schedule 8812 released.  This complicated form is used to calculate the Credits for Qualifying Children and Other Dependents to be claimed on the 2021 Form 1040 (or 1040-SR).  It appears to be a real PITA.

TTFN

WHAT’S NEW FOR 2019 FEDERAL TAX FORMS

The biggest change in federal tax forms for 2019 returns filed in 2020 is the return to sanity.  The completely ridiculous “postcard” format of the 2018 return is gone!  The 2019 Form 1040 is most definitely “more better” – and returns to a more logical flow of information. 

There is a new Form 1040-SR for senior filers, created for no other reason than it was required by the Bipartisan Budget Act of 2018, which is exactly the same as the 2019 Form 1040 except it has bigger print and includes a Standard Deduction chart. 

Here is a good summary of the specific changes to Form 1040 that I found online –

·         Moved total from Schedule D (Capital Gain/Loss) from Schedule 1 to Form 1040, page 1

·         Split IRAs and pensions/annuities into two lines – one for IRA distributions and one for pensions and annuities

·         Removed checkbox for health insurance coverage

·         Moved signature area to bottom of page 2

·         Returned foreign address and third-party designee to Form 1040 address area (was on Schedule 6)

·         Added line for total additional income from Schedule 1

·         Added line for total adjustments to income from Schedule 1

·         Form 1040 will now print as two pages since the changes that were made takes up more than one half of each page

And the previously 6 supplemental schedules to the 1040 have been reduced to 3.  Schedule 2 and 4 are combined in the 2019 Schedule 2, Schedule 3 and 5 are combined in Schedule 3 for 2019, and the information previously reported on Schedule 6 is now on the 1040.  The 2019 Schedule 1, like 2018, reports additional income and adjustments to income, the 2019 Schedule 2 reports all additional taxes, and the 2019 Schedule 3 reports nonrefundable credits and other payments and refundable credits. 

The infamous “extenders” were extended by Congress after the IRS “went to press” with the 2019 Form 1040, 1040-SR and supplemental schedules and Schedule A.  The 2019 Schedule 1 has a line 21 under “Adjustments to Income” identified as “Reserved for future use”, which is where I expect you would enter the newly extended deduction for qualified tuition and fees.  There is already a line for the Residential Energy Credit on Schedule 3, referring to Form 5695, and the 2019 Form 5685 has not yet been released. 

But the 2019 Schedule A shows 10% as the AGI threshold for medical deductions, which is now back to 7½%, and the 2019 instructions for Schedule A has been released referencing the 10% threshold.  The 2019 Form 8615 and is instructions have been released without reference to the apparent option to calculate the tax under the old pre-GOP Tax Act method.  This is another reason retroactive tax legislation, especially extending extenders, should not be done at year-end.  But then the idiots in Congress are truly idiots.

New for 2019 filings are Form 8995 and Form 8995-A to calculate the Qualified Business Income Deduction that was created by the GOP Tax Act and first available on the 2018 Form 1040.  Previously the deduction was calculated using worksheets that were not included with the 1040 filing.  The 8995 is for simple calculations, and the 8995-A is for more complicated calculations.

The Schedule C-EZ is apparently gone for 2019.  I am actually sorry to see it go.

TTFN

WHAT’S NEW FOR 2018 TAX FORMS - FEDERAL

There is a multitude of changes to the tax forms and tax law for 2018 on the federal level.

The big change with the federal Form 1040 is that the old well-crafted Form 1040 is replaced with the ridiculous new “postcard” 1040 and 6 new supplementary schedules - probably the stupidest thing I have ever seen in my almost 48 years in the tax preparation business.  There is no 2018 Form 1040A or Form 1040EZ.

As for tax law, here is a comparison of 2018 and 2017 tax law to show some of what is new for individual income taxes 2018.

ITEM	2018 TAX LAW	2017 TAX LAW
TAX RATES	10%, 12%, 22%, 24%, 32%, 35%, 37%	10%, 15%, 25%, 28%, 33%, 35%, 39.6%
STANDARD DEDUCTION	Single- $12,000 Married Joint- $24,000 Married Separate- $12,000 Head of House- $18,000	Single- $6,350 Married Joint- $12,700 Married separate- $6,350 Head of House- $9,350
PERSONAL EXEMPTION	No deduction for personal exemptions.	$4,050
ALIMONY	Deductible by payer and included in income of recipient.	Deductible by payer and included in income of recipient.
MOVING EXPENSE	Deduction for military moves only.	Deduction for job-related moves.
MEDICAL EXPENSES	Allowed in excess of 7½ % of AGI.	Allowed in excess of 7½ % of AGI.
TAXES	Combined deduction limited to $10,000 ($5,000 if filing separate).	Full deduction for all state and local income or sales taxes, property taxes, and personal property taxes.
MORTGAGE INTEREST	Only interest on acquisition debt of up to $500,000 is deductible. Grandfathering for existing loans of up to $1 Million of debt.	Interest on acquisition debt of up to $1 Million and home-equity debt of up to $100,000 deductible.
INVESTMENT INTEREST	Deductible to extent of investment income.	Deductible to extent of net investment income.
CHARITABLE CONTRIBUTIONS	Fully deductible up to 60% of AGI.	Fully deductible up to 50% of AGI.
CASUALTY AND THEFT LOSS	Only casualty losses from Presidentially-declared disaster areas are deductible.	All casualty and theft losses are deductible.
EMPLOYEE BUSINESS EXPENSES	Not deductible.	Deductible to extent total miscellaneous expenses exceeds 2% of AGI.
INVESTMENT EXPENSES	Not deductible.	Deductible to extent total miscellaneous expenses exceeds 2% of AGI.
TAX PREPARATION COSTS	Not deductible.	Deductible to extent total miscellaneous expenses exceeds 2% of AGI.
LEGAL FEES RELATED TO INCOME	Not deductible.	Deductible to extent total miscellaneous expenses exceeds 2% of AGI.
GAMBLING LOSSES	Deductible to extent of reported winnings.	Deductible to extent of reported winning.
TOTAL ITEMIZED DEDUCTIONS	Deducted in full – no limitation.	Deduction limited based on AGI.
CHILD TAX CREDIT	Up to $2,000 for each child under age 17, based on AGI. AGI threshold substantially increased. Up to $1,400 is refundable.	Up to $1,000 for each child under age 17, based on AGI.  Full amount deductible.
DEPENDENT CREDIT	Up to $500 for each dependent not eligible for the Child Tax Credit, based on AGI (same threshold as Child Tax Credit). No credit for taxpayer or spouse.	Does not exist.  No credit allowed.
SHARED RESPONSIBILITY PENALTY	Adequate health insurance coverage required for entire household.	Adequate health insurance coverage required for entire household.
ALTERNATIVE MINIMUM TAX EXEMPTION	Single/Head of House- $70,300 Married Joint- $109,400 Married Separate- $54,700	Single/Head of House- $54,300 Married Joint- $84,500 Married Separate- $42,250
ALTERNATIVE MINIMUM TAX EXEMPTION PHASE OUT BEGINS	Single/Head of House- $500,000 Married Joint- $1 Million Married Separate- $500,000	Single/Head of House- $120,700 Married Joint- $160,900 Married Separate- $80,450
KIDDIE TAX	Calculated separately using tax rate schedule for estates and trusts.	Calculated based on income of parents.

Information on what is new for 2018 for New Jersey and New York to follow.

TTFN

THIS JUST IN!

The official version of the ridiculous new "postcard" 2018 Form 1040 and the 6 new schedules, and the instructions for the Form 1040 and accompanying schedules, are now available to download at the Internal Revenue Service website.

Click here.    

DEALING WITH TAX MYTHS ABOUT THE GOP TAX ACT

My legitimate ongoing concern about the “urban tax myth” that CPAs are automatically 1040 tax exports by virtue of their initials (they are most certainly NOT) doesn’t mean that online CPA-related sources do not provide excellent and timely information and commentary on 1040 issues.

Case in point “Tax Reform Myths and Facts for 2019: What the TCJA Really Means for Taxpayers” by Dave Duval, EA (you will note that he is an EA and not a CPA) at CPA PRACTICE ADVISOR.

Dave makes some excellent points in his piece, beginning with – “As tax practitioners, we wear many hats: tax aficionado, document sorter, government form translator, timekeeper, empathetic ear, and counselor.”

The article deals with the “plethora of information (and more pointedly, misinformation) about the Tax Cuts and Jobs Act of 2017” that is out there.  

Here are some of the good “take-aways” from Dave’s discussion (highlights are mine) –

* State Income Taxes: “Depending on the state, there may be full conformity {with the GOP Tax Act} or none at all. For example, in California taxpayers will still be able to deduct unreimbursed employee business expenses that are over 2% of their federal adjusted gross income. It will be crucial communicating to our clients that states may or may not have conformed to the federal changes, and it is still important to continue to retain documentation on certain deductions that may have been eliminated at the federal level but still apply at the state level. Retaining the documentation may result in lower state taxes, thereby easing the sting of losing the deductions on the federal return.”

NJ residents can still deduct out of pocket medical expenses, including some expenses that may be “pre-tax” for federal tax purposes but not for NJ state taxes, in excess of 2% of NJ Gross Income whether or not they itemize on the federal return.  And PA residents are able to deduct most employee business expenses without any income limitation.

* Alimony: The changes to the rules for reporting and deducting alimony “is only true for divorce or separation instruments executed on or after January 1, 2019. Alimony that is paid pursuant to a divorce or separation agreement executed before January 1, 2019, will still adhere to the alimony rules in place before TCJA. Divorce or separation agreements that were in place before January 1, 2019, and are modified after December 31, 2018, will still follow the old alimony rules unless the modified agreement specifically states it now follows the new rules.”

* Home Equity Interest: “As tax practitioners, we may need to spend more time with our homeowner clients discussing the difference between acquisition and equity loans, and performing interest tracking on how the proceeds were used. Additionally, we may need to request additional paperwork from our clients, such as the loan documents, and hope they recall where they spent the money.”

It is the responsibility of the taxpayer, and not the tax preparer, to separately track acquisition debt and home equity debt.  The importance of doing this cannot be stressed strongly enough.  Taxpayers should begin to work on this task NOW.  Check out my “Mortgage Interest Guide”. 

* Section 199a Deduction: “Many small business taxpayers are anticipating a big tax break this year due to the new 20% qualified business income deduction. Those small businesses that are organized as C corporations may be wanting to switch to a sole proprietorship or S corporation in order to take advantage of the deduction as fast as possible. Hopefully, these taxpayers will be contacting us first and not an online legal site where they can make the switch themselves {very, very important – consult your tax professional before you do anything regarding a change of business entity – rdf}. Many small business owners are not aware of the limitations and complexities to this deduction. Furthermore, there may have been very important reasons why a business formed as a C corporation that goes beyond taxes. By switching entities, these reasons may fall by the wayside.”

The Section 199a deduction is ridiculous, and ridiculously complicated, and unnecessary.  More proof that the members of Congress are idiots.

* The New “Postcard” 1040: “Some taxpayers will be lulled into a false sense that this means taxes are now simpler, and therefore the fee to prepare the return will be lower. As we know, expensive things can come in small packages. With all the changes courtesy of TCJA and state nonconformity, this tax season may be one of the most complicated we have seen. As such, we will need to educate our clients on this and caution them that the preparation fee may be larger this year.”

The “postcard” 1040 is perhaps the stupidest idea I have seen in over 45 years of preparing tax returns. 

Dave’s bottom line truly tells it like it is –

“One thing is for certain about the upcoming tax season − just about every tax return is going to take extra time and care.”

Thanks to Dave for an excellent discussion that should be read by all taxpayers and tax preparers (not just CPAs).

TTFN

THE STUPID NEW POSTCARD 1040

The IRS draft of the new “post-card” sized tax return has been released.  The idea of a tax return the size of a postcard is ridiculous. 

Like everything else connected with the Donald T Rump Administration, the rule is form over substance.  The photo-op and perception are the only thing that is important – and “substance”, any actual accomplishment or anything of real value, is not at all important or necessary.  Trump himself has no substance, so nothing he does has any real substance.

The new 1040, that will be able to be folded and mailed as a postcard, contains substantially less lines than the current return – but it is not a simpler return.  It creates an extra level of complexity with 6 new schedules needed to complete the “post card”.   

Previously if you had income from a sole proprietorship you would complete a Schedule C, or C-EZ, and carry the number over to Line 12 on Page 1 of Form 1040.  Now you must carry the net earnings from self-employment calculated on Schedule C or C-EZ to a new Schedule 1 “Additional Income and Adjustments to Income”, where it would be added to taxable refunds, alimony received, capital gain or loss, farm income, income from rents, royalties, partnerships, S-corporations and estates, unemployment, etc., and then carry the total of all these categories of income over to the 1040.  Two steps replace one.

There would also be a Schedule 2 for one group of other taxes, a Schedule 3 for nonrefundable credits, a Schedule 4 for another group of other taxes, a Schedule 5 for refundable credits, the totals of which would be carried over to the “post-card”, and a Schedule 6 for a foreign address and the information for a third-party designee,

What once could be fit on two pages must now be entered on 7 pages.

The Form 1040 used for 2017 and before was well crafted and competently provided for an excellent summary of all income, deductions, credits, taxes, and payments on 2 pages.  If less information was needed there was the Form 1040A or the 1040EZ.  The “old” 1040 or 1040A worked well for taxpayers, tax professionals and the IRS.  The new system just makes more work for all involved.

I doubt very much that the new “1 form into 7” was the idea of the IRS.  It makes no sense for administration and processing of return filings.  The Service was told to create a post card and it did.

Trump promised his core cult a post-card sized 1040, so he must deliver a post-card sized 1040, regardless of whether it, or anything else he promises, has any real value, legitimacy or appropriateness.

As always, your thoughts?

TTFN

WHAT’S NEW ON 2016 STATE TAX FORMS

As I previously mentioned in an introduction to an earlier BUZZ installment there is no change to the 2016 Form 1040, or 1040A.  They are “line-for-line, exactly the same as the 2015 Form 1040, except for the changes in the standard deduction and personal exemption amounts”.

 

I was waiting to see the 2016 Form NJ-1040 instructions to find out when the new $3,000 exemption for veterans became effective.  The answer was recently provided in an announcement on the NJDOT website -

 

“Under a new State law, veterans may qualify for an exemption of up to $3,000 on their New Jersey tax return for income earned in 2017. This exemption, part of a bill passed by the Legislature and signed into law by Governor Christie last October, is in addition to other exemptions or deductions for which veterans may qualify. The exemption is available for all veterans who received honorable discharges or who were released under honorable circumstances from active duty in the Armed Forces of the United States, a reserve component thereof, or the National Guard of New Jersey in a federal active duty status. Veterans may claim the exemption when they file their Tax Year 2017 returns. The exemption does not apply to 2016 income.” 

 

I have finally seen the 2016 Form NJ-1040 and the one and only change to the form, other than the year, is replacing the boxes in the bottom section of Page 1 for entering the amount of the check enclosed for the balance due (on the 2015 NJ-1040) with boxes for entering a Driver’s License Number (see below).  Otherwise it is exactly the same as the 2015 NJ-1040.

 

The changes that affect the preparation of the 2016 NJ-1040 are –

 

(1) Residents who are eligible and file for a federal Earned Income Credit can also receive a NJ Earned Income Credit equal to 35% of the federal amount.  This increased % was part of the gas tax increase deal.

 

(2) The maximum employee contributions for the various state benefit funds for 2016 are:

 

·         Unemployment Insurance and Workforce Development = $138.56

·         Disability Insurance = $65.20

·         Family Leave Insurance = $26.08

 

If you had 2 or more NJ employers during 2016 and contributed more than these maximum amounts you can receive a refund of the excess on the NJ-1040 via Form NJ-2450.

 

(3) The percentage used to calculate the allowable “Alternative Business Calculation Adjustment” deduction on the 2016 Schedule NJ-BUS-2 (and going forward) is 50%.  The ABCA deduction is now fully phased-in.

 

(4) The Fund for the Support of New Jersey Nonprofit Veterans Organizations has been added to the list of charities to which NJ taxpayers can contribute via the 2016 NJ-1040.  It is identified with code number “22” on the “Other Designated Contribution” line on the form.

 

NJ taxpayers hoping for a quick refund by filing early will be out of luck.  No NJ refunds will be issued until March 1, 2017, regardless of how early the returns have been filed.

 

And, according to the NJ Division of Taxation website –

 

“• Returns filed electronically may take a minimum of four weeks to validate and process.

• Returns filed on paper may take a minimum of 12 weeks to validate and process.”

 

So don’t bug your tax preparer if you haven’t received your NJ refund promptly. 

 

For some reason the State of New Jersey is dragging its arse – the 2016 individual income tax forms and instructions are not yet available to download on the NJDOT website.  I was able to view the 2016 NJ-1040 and instructions because a client received the booklet in the mail last week.

 

There have been no changes to New York state income taxes and the 2016 New York IT-201 or IT-203 – other than the statutory cost of living adjustments to the Standard Deduction and the Tax Rate Schedules and some changes to obscure tax credits.  The only credit changes worth mentioning are -

 

·   “NYC school tax credit - Beginning with tax year 2016, the credit will now be a New York State personal income tax credit for residents of New York City.  Previously, the credit was a New York City personal income tax credit for residents of New York City.

 

·   Noncustodial parent earned income credit - This credit has been permanently extended.  Previously, this credit was due to expire December 31, 2016. See Form IT-209, Claim for Noncustodial Parent New York State Earned Income Credit, and its instructions.”

 

There is a new requirement for taxpayers who use software to prepare NY state returns, which I do not do (highlight is mine) –

 

“The taxpayer’s driver license or state identification information is required. If the taxpayer and/or spouse has been issued a driver license or state identification card, they are required to provide that information to be entered into the software. Taxpayers must provide the ID number, issuing state, issuing date, and expiration date for all licenses or identification cards. If the taxpayer license/ID is a New York State driver license or non-driver ID, the document number found on the license/ID must also be entered. In the event that a taxpayer does not have a driver license or state-issued ID, you will be prompted by the software to indicate this. If the taxpayer does not have either a driver license or state-issued ID, marking the check box indicating that they have neither will fulfill the new requirement. We are requiring this information as an additional means of validating the taxpayer’s identification, and not having the information will not cause delays. However, if all other efforts to validate the taxpayer’s identity are unsuccessful, the processing of the refund may be delayed.”

 

The “document number” referenced above is specific to the New York State driver’s license and is typically found in the bottom right corner on the front, or on the back of the license.

 

NJ also asks for a driver’s license number, but it is optional.  Entering a driver’s license is not required for the processing of the NJ state return.

 

The 2016 New York State, and Pennsylvania, tax forms and instructions are now available to download from the state tax agency websites, as are the 2016 federal forms available at www.irs.gov.  God only knows when the NJ forms and instructions will be available.

 

TTFN