Form 1040 – Smaller But is it Better?
The IRS released a copy of their draft 1040 for 2018. It has shrunk the old two page 79 line form to only 23 lines and can be folded over into a postcard size form to be mailed (however, I am pretty sure most taxpayers will still put it in an envelope for security reasons). Here are my initial thoughts on the new form:
- The form lists only the following items of income – wages, interest, dividends, IRAs and pensions and social security income. All other sources of income will be reported on Schedule 1. This means all farmers will now need to prepare Schedule F first and then have this income flow to Schedule 1 and then flow to Form 1040. This would be for a sole proprietor farmer. Other flow-through farmers would still have to prepare Schedule 1 to report their income.
- Schedule 2 now needs to be filled out to show the amount of gross tax owed by the farmer. For those that are self-employed, you then have to fill out Schedule 4 to list the amount of self-employment tax owed (or other taxes).
- If the farmer has federal fuel tax credit, this now goes on Schedule 5.
- And if the farmer has kids under age 17, they will now need to prepare Schedule 3 and perhaps Schedule 5 for the refundable part of this credit.
- The new Section 199A deduction is listed as the last deduction on Form 1040, line 9 right before line 10 – taxable income.
Although Form 1040 is now smaller, it now likely requires at least 4 if not 5 more schedules to be prepared by taxpayers. Likely this will automatically be done by a computer, however, it will result in even more pages for a farmer and their preparer to review.
Certain members of Congress continue to tout that fact that taxpayers including farmers no longer need to prepare depreciation schedules. I wish they would stop saying this. We know that you will continue to prepare these schedules due to the following reasons:
- Any state with an income tax will likely not allow 100% expensing,
- Taxpayers will many times elect to not take 100% bonus depreciation on certain classes of assets,
- Local counties require personal property tax filings which are normally based on these schedules,
- Farmers who file GAAP financial statements need to prepare these schedules anyway, and
- Farmers still have carryover depreciation from previous years that need to be updated.
The bottom line is the IRS is trying to make a “postcard” size tax return form. For those people who do not itemize and do not have any farm income, it might work. Even for those people, there will be at least one to five new additional schedules to be attached to this postcard. I think that might defeat the purpose of the postcard.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
What a marketing tool, as if people are going to revert to paper filing after e-filing for so long. Maybe a postage stamp size would even be better, and we just send in exactly what we make. You as I know this will be a new mess and even IRS has no staff to answer questions and make it flow right.
Having to go back and compute the percentage adjustment that is tied to the assets in service, even if fully depreciated, will be a push in many cases eating up time. There will be arising issues in that arena.