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Sunday, July 1, 2018

Postcard Size Form 1040 for 2018 - What?

Front:

Back:

For many years, some lawmakers and others touted a postcard-size tax return as an indication that tax simplification had been achieved. Professors Hall and Rabushka had one on the cover of their flat tax book released in 1985 (flat tax first proposed in a Wall Street Journal op ed in 1981). Their brief return was truly simple because the flat tax only included a few items in income and only allowed a standard deduction and personal exemption. But you'll see that there was no place to sign. (Also, it's a consumption tax, not an income tax.)

Leading up to the Tax Cuts and Jobs Act (PL 115-97; 12/22/17), a postcard size return was touted by President Trump, Speaker Ryan and others.

Well, this past week, Treasury and IRS released a draft postcard-size Form 1040:
Observations:
  • Unlike a postcard, the form will need to be sent in an envelope since it is 2-sided with tax information and there is no room for the sender's address. Also, you'll likely want to include your address and not want the world to see your Social Security Number on the card. There are several schedules that may need to be attached (all postcard size too). But some of the schedules, such as Schedule 1, refer to forms, such as for capital gains/losses, that also need to be attached and likely won't be postcard size.
  • I asked my graduate students the other day how many had ever sent or received a postcard - about 20% had.  Postcards are really a thing of the 20th and 19th century.
  • Today, about 80% of returns are e-filed (ETAAC 2018 report, page 6).
  • If not e-filed, you may need something larger than a standard letter-size envelope if you don't want to have to fold your "postcard".
  • Most returns are filed via software where it really doesn't matter how many lines are on the return. In fact, software would make it possible to produce a return that only shows the lines you needed. 
  • The postcard lists more than five schedules and there might also be one for the Section 199A Qualified Business Income Deduction. The schedules and attachments (with links to the draft if available):
      • More than 2 dependents
      • Schedule 1 add’l income and adj to income
      • ScheduleA if itemize
      • Section 199A deduction – line on page 2; still waiting to learn if there is a form or worksheet for it
      • Schedule2 - Kiddie tax, AMT, payback any Premium Tax Credit, and likely the alternative tax calculation if have net capital gains
      • Schedule 3 – Non-refundable credits (not required if only credits are child and dependent credits)
      • Schedule 4 – other taxes, such as household taxes, NIIT, individual health insurance mandate (penalty)
      • Schedule 5 – other payments or refundable credits
      • Schedule 6 - foreign address and designee
  • The IRS has also announced that due to these proposed changes to Form 1040, there will no longer be a form 1040EZ or 1040A! Per the IRS: "All filers will use the new Form 1040."
  • Starting for 2019, there must be a Form 1040SR for seniors per legislation enacted in February 2018 (PL 115-123; 2/9/18). As this is required by law, looks like that form will still be needed (but 2019 filings are way off from now!).
What do you think?