Submitted by Joel Shabsin, CPA
On August 21st the IRS released a draft version of the 1040 for the upcoming tax season. Although most of the form is similar to the 2019 version there are some significant changes that tell us where the IRS will be focusing their efforts in 2020 and future years.
Last year there was a question on Schedule 1 that asked “At anytime during 2019 did you receive, sell, exchange or otherwise acquire any financial interest in any virtual currency”. The 2020 draft form has moved this question to the top part of the first page of the 1040. As we discussed in a prior IAAI News Flash, the IRS has made it a priority to crack down on cryptocurrency investors and users who haven’t been reporting gains or losses on their tax returns. The IRS has issued summons to several cryptocurrency exchanges in order to get information about their customers.
On the front page of the 1040 form there is a new line, line 10b for reporting and deducting charitable contributions for taxpayers who do not itemize deductions. The CARES Act created an “above the line” deduction of up to $300 per taxpayer and if applicable $300 for the taxpayer’s spouse for charitable contributions made to a 501(c)(3) organization. This deduction gets reported on line 10b for non-itemizers.
There is a change on page 2 of the 1040 for reporting Federal Income Taxes withheld. Line 25 entitled “Federal income tax withheld from:” has 3 sub lines for reporting withholding. Line 25a is for withholding shown or form W-2. Line 25b asks about withholding reported on 1099 forms the taxpayer received and line 25c asks for amounts of withholding reported on other forms. This may have been broken down for the IRS to fulfill their plans to more closely monitor “gig” workers and self-employed individuals and/or for tracking backup withholding for this group of taxpayers.
Line 30 is also new. The title of this line is “Recovery rebate credit. See instructions.” It appears there will be a separate reconciliation schedule that will be carried to this line to reconcile the recovery rebate credit received with what should have been received. Since this line is in the total payments section, if a taxpayer did not receive the full amount they were entitled to receive, the shortfall would be treated as an additional tax payment in calculating the amount of tax payments the taxpayer made during the year.
In the section for “Amount you owe” beneath line 37 the IRS added a note that says “Schedule H and Schedule SE filers, line 37 may not represent all of the taxes you owe for 2020. See Schedule 3, line 12e and its instructions for details”. The line 12e is new and applies to the CARES Act allowing employers to defer their portion of the Social Security payroll tax. Under
the Cares Act, employers, including self employed individuals were allowed to defer paying the 6.2% employer’s share of payroll taxes with ½ of the deferred amount due with the self employed person’s 1040 return for 2020 and the other ½ due with the 2021 return. Instructions for line 12e of Schedule 3 are not available yet and may also include the payroll tax
deferral payment for the employee’s share of Social Security taxes under the president’s recent executive order.
Keep in mind that this is a draft form which is likely to change before it’s finalized. It is a “heads up” into insights as to what the IRS is going to be looking for and looking at in 2020 returns.
More to come as the forms are finalized.