This is a guest post by Ben Wacek, Certified Financial Planner® and founder of Guide Financial Planning, where he offers clients Bible-based financial guidance both in-person in Minnesota and virtually throughout the country.
In just a few short weeks, tax season begins! Now, this isn’t like the Christmas season where everyone is giddy, singing, and trying to start it earlier and earlier each year. For most people, tax season is more akin to going to the dentist than to Disneyland.
This year, though, there is more excitement than normal. Why? Because we have new tax forms, thanks to the new law that was passed a year ago.
What, you don’t think that’s exciting? It’s been decades since the Form 1040 has gotten a makeover. She was still wearing bell bottoms, and I mean the ones from the ‘70s, not the ‘90s!
Ok, so maybe new tax forms aren’t your idea of fun, but they are important. You are going to be signing these forms sometime in the next couple of months, so you should probably take a look at them.
In June of 2016, Republicans from the House of Representatives announced that they wanted to simplify the tax code to the point where most people could file their taxes return on a postcard. Did they do it?
Depends on how you define a postcard! They didn’t meet the international standard of a 5.8” x 4.1” card, but they did get it down to a half page. Luckily, the Universal Postal Union is a little bit more flexible and allows for larger postcards. This is what the new 1040 looks like:
Aside from the size, the biggest difference is on the right-hand side. See how the little boxes and math problems for exemptions are gone? That’s because there are no more exemptions, which was one of the key changes in the legislation.
All of the actual numbers were moved to the back, as you can see here:
A lot of familiar lines were removed in order to fit it onto a smaller page, as you can see. Most people’s favorite part of this side is the left-hand column that lists the much higher standard deduction.
What happened with all those other lines? Did they really simplify things that much?
No!
C’mon, this is the US government we’re talking about here! When has simplification ever been one of their strengths?
They simply cut out those lines that don’t apply to everyone and moved them to new forms, or schedules. Six new ones, to be exact. Yep, that means that for me and for some of you, you’ll actually have to fill out MORE forms this year. These are the new schedules:
This is a lot of the stuff that used to be on the lower half of the first page of Form 1040. You will need to fill out this form if you fill out a Schedule C (for money from performing weddings or other ceremonies or special offering you receive not through your church), have capital gains or losses from investments, earn royalties, or have income from rental properties. You will also need to submit this schedule to deduct your IRA or health savings account contributions and half of your self-employment taxes.
You probably aren’t subject to the Alternative Minimum Tax, so you would only need to submit this schedule if you made more than expected and need to refund the government part of the Premium Tax Credit they gave you to purchase healthcare.
You will only need to fill out this form if you are eligible for the foreign tax credit, child and dependent care credit, education credits, retirement contribution credit, or residential energy credit. These credits lower your tax bill but you don’t benefit if the credit amount exceeds your tax liability.
If you haven’t opted out of Social Security, you will definitely have to file this schedule. This is where you enter your SECA taxes from Schedule SE as well as any other taxes you may owe.
If you pay quarterly estimated tax payments, this is the form that you will use to get credit for them. This is also where you will claim your Premium Tax Credit for your 2019 healthcare expenses.
You only need to fill out this form if you have a foreign address or want to give someone else the right to speak to the IRS on your behalf.
Basically, they took the old Form 1040 and cut it into 7 different pieces. You may have noticed some lines on those forms that say “Reserved.” That just means they are saving room so they can add more to these forms in the future.
There you have it. A sneak peek at what filing your tax return will look like this year. Now, when your tax preparer starts talking about schedules with numbers instead of letters (don’t worry, all of those still exist and need to be filed too!), you won’t think they’ve gone crazy or you’re hearing wrong.
