Tax Simplification? The 2018 Form 1040 "Postcard" draft released

At the end of June, the IRS released a draft version of the revised form 1040.  As "promised" by politicians, the form is the size of a postcard but in order to facilitate that size for the form, the IRS had to introduce supplemental schedules that support lines on the postcard. (Insert obligatory comment about government efficiency of taking a 2 page document and making it into 2 half pages and 6 supplemental pages to "simplify" the form).

The draft of form 1040 page 1 is above.  A few things to note on this page, the first page of the 1040 is mostly demographic information and contains no calculation related to the taxes.  The filing status indication goes from 5 check boxes to 3 with the IRS assuming that if just 1 name is listed that indicates that the taxpayer is single unless one of the boxes in the top right corner are checked (Married Filing Separate return, Qualifying Widow(er) or Head of household).  Check boxes indicating whether taxpayer is over age 65 or blind are now listed on the front of the form, just beneath the name of either the taxpayer or the spouse.

Interestingly, the check box to indicate health care coverage for the full year is on the front section, under the Tax Cuts and Job Act passed in December 2017, the penalty for not having health coverage goes to zero starting in 2019 so the IRS has proposed to move this to a more prominent location on the front of the page (previously located on line 61, second page of the 1040).

The signature section of the tax return is moved to the front for both the taxpayer(s) and their paid preparer, if utilizing one.  I like this change for the mere fact that taxpayers can confirm that their preparer is listing their information, as a legitimate tax professional is required to notate.  Some unscrupulous people have left this box blank which indicates to the IRS that it is a self prepared tax return.

The draft 1040 page 2 copy above shows lines that many are familiar seeing but note that the income section now has 6 lines versus the 16 lines for income previously.  Missing income line items include capital gains income, business income, rental and passthrough income, also missing from the new 1040 are adjustments to income, such as IRA deductions, student loan interest, educator expenses, HSA contributions and along with the other allowed deduction items. The missing income and deductions are now lumped into the Line 6 Additional Income and Adjustments, which is detailed on Schedule 1 and required to be attached.

There is reference to attaching Schedule A if eligible to itemize deductions, otherwise claim the higher standard deduction ($12,000 for single, $24,000 for married filing joint, additional amounts if taxpayers are blind and/or age 65 or over).

Schedules 2, 3, 4 & 5 are used to calculate taxes, credits (refundable vs. non-refundable appear to require different schedules due to different documentation and additional schedules or forms to be completed as well) and other taxes (for example, self-employment tax or penalty taxes such as early retirement distributions).

The draft form reduces the size of the form 1040 but the complexity of the tax system does not accommodate this form being useful in the smaller size.  Fortunately, most taxpayers prepare and file their tax return electronically, whether they use a tax professional or not. Many of these form changes will not be seen by the general population as many are mainly concerned by the results (refund due to them or balance owed).