New Form 1040: Changes to Consider

We are halfway through the tax season and you may have noticed a different form this year.  The Internal Revenue Service (IRS) released a new Form 1040 U.S. Individual Tax Return  for filing tax returns for the 2020 tax year. Some aspects of the form will look the same, but there are a few changes to consider if you are still preparing to file your taxes.

CARES Act Changes

The CARES Act added a few temporary tax changes that will be reflected on the new Form 1040.

• The “Amount You Owe” section now indicates that the form may not represent all taxes owed. Additional taxes may include social security taxes that were temporarily deferred by employers. The deferral also applies to self-employed taxpayers.
• There is a separate line for the “recovery rebate credit” Taxpayers can reconcile any changes that may affect stimulus checks. For example, if a taxpayer made too much money to qualify in 2019, had a child in 2020, or had other changes that impacted their eligibility or amount received from the first economic recovery checks, those changes will be recorded on the new form.
• The new form will also have a place for the temporary above-the-line deduction of $300 for charitable contributions. The CARES Act enabled this one-time deduction for 2020 taxes even for taxpayers who take the standard deduction.

Standard Deductions

The standard deduction and dependents are located prominently on the new form. The updated amounts for the standard deduction have changed for 2020.

• For single taxpayers or married filing separately, the standard deduction changed from $12,200 in 2019 to $12,400 in 2020.
• For married filing jointly and qualifying widow(er), the standard deduction changed from $24,400 in 2019 to $24,800 in 2020.
• For head of household, the standard deduction changed from $18,350 in 2019 to $18,650 in 2020.
• The additional standard deduction for married taxpayers who are 65 or older or blind will be $1,300 (same as 2019). For a single taxpayer or head of household who is 65 or older or blind, the additional standard deduction for 2020 will be $1,650 (same as 2019).

Income Tax Withholding

The Tax, Credits, and Deductions section of the form will now include three separate lines for withholding: W2, Form 1099, and other forms. This will make it much easier to report withholdings.

Estimated Payments & Rebates

The new form also provides a single line on page 2 of the 1040 form for taxpayers to report estimated tax payments and the amount carried over from last year’s return instead of reporting on a separate schedule.

The 2020 tax return instructions include a worksheet that can be used to determine the amount of any Recovery Rebate Credit for which taxpayers are eligible. There is also a new line on page 2 of the 1040 where the amount is claimed.

Virtual currency

The IRS has recently focused on virtual currency to ensure it is reported correctly. On the new form, a question about virtual currency will appear prominently on the main page after the taxpayer’s name and address: “At any time in 2020, did you receive, sell, send exchange, or otherwise acquire any financial interest in any virtual currency?” Taxpayers who received virtual currency should pay special attention to this item.

Accommodations

There are a few areas for taxpayers who want to make changes. Individuals who want to change language for communications received from the IRS can fill out a new Schedule LEP on the 1040 form.

Taxpayers aged 65 and older may choose to use Form 1040-SR, U.S. Tax Return for Seniors. The simplified FORM 1040-SR features a larger font, larger spaces for information, and an embedded standard deduction table, which highlights the increased standard deduction.

Every situation is different, so it is important to consult a tax professional who can help you maximize your tax benefits. For help with the new tax form, tax planning, and preparation, contact the team at Rodefer Moss.