IRS has released the Draft Instructions for the 2018 Form 1040. The new draft version of the 2018 Form 1040 is significantly smaller in size and contains far fewer lines than the 2017 Form 1040 — the reduction in length being countered by six new accompanying schedules. The Draft Instructions note these changes and highlight a number of changes made by the Tax Cuts and Jobs Act (TCJA; P.L. 115-97, 12/22/2017) for the 2018 tax year.
Overview on the new Form 2018. The Draft Instructions (as of Sept. 26, 2018) explain that the 2018 Form 1040 has been redesigned using a “building block” approach. While many taxpayers can file the simplified Form 1040 by itself, taxpayers who have more complex tax returns may need to file one or more additional schedules (i.e., new Schedules 1 through 6).
The Draft Instructions note that Forms 1040A and 1040-EZ are no longer available for a taxpayer to file for his or her 2018 taxes. Taxpayers who used to file such returns in the past will now file the new 2018 Form 1040.
IRS cautions that some forms and publications that were released in 2017 or early 2018 may still have references to Form 1040A or Form 1040-EZ. Taxpayers should disregard these references.
The 2018 Form 1040 is generally to be filed by Apr. 15, 2019. However, taxpayers who live in Maine or Massachusetts have until Apr. 17, 2019 because of the Patriots’ Day holiday in those states and the Emancipation Day holiday in the District of Columbia.
Highlights of TCJA changes. The Draft Instructions alerted taxpayers to some of the major changes under the TCJA affecting returns filed for 2018.
Change in tax rates. For 2018, most tax rates have been reduced. The 2018 tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Standard deduction amount. For 2018, the standard deduction amount has been increased for all filers. The amounts are: $12,000 for single or married taxpayers filing separately; $24,000 for married filing jointly or qualifying widows or widowers; and $18,000 for heads of household.
Personal exemption. For 2018, taxpayers can’t claim a personal exemption deduction for themselves, their spouses, or their dependents.
Child tax credit and additional child tax credit. For 2018, the maximum child tax credit has increased to $2,000 per qualifying child, of which $1,400 can be claimed for the additional child tax credit. The modified adjusted gross income threshold at which the credit begins to phase out has been increased to $200,000 ($400,000 if married filing jointly).
New credit for other dependents. If taxpayers have a dependent, they may be able to claim the credit for other dependents. The credit is a $500 nonrefundable credit for each eligible dependent who can’t be claimed for the child tax credit. A taxpayer uses the Child Tax Credit and Credit for Other Dependents Worksheet to figure this new credit.
Social Security number required for child tax credit. A taxpayer’s child must have a Social Security number (SSN) valid for employment issued before the due date of the 2018 return (including extensions) to be claimed as a qualifying child for the child tax credit or additional child tax credit. If a taxpayer’s child doesn’t qualify the taxpayer for the child tax credit but has a taxpayer identification number issued on or before the due date of the taxpayer’s 2018 return (including extensions), the taxpayer may be able to claim the new credit for other dependents for that child.
Section 199A qualified business income deduction. Beginning in 2018, a taxpayer may be able to deduct up to 20% of his or her qualified business income from the taxpayer’s qualified trade or business, plus 20% of the taxpayer’s qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income.
Itemized deduction changes. For 2018, changes to the itemized deductions that can be claimed on Schedule A include: overall itemized deductions are no longer limited because the taxpayer’s adjusted gross income is over a certain limit; a taxpayer’s deduction of state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately); and a taxpayer can no longer deduct job-related expenses or other miscellaneous itemized deductions that were subject to the 2%-of-adjusted-gross-income floor.
Alternative minimum tax exemption amount. The alternative minimum tax (AMT) exemption amount is increased to $70,300 ($109,400 if married filing jointly or a qualifying widow or widower; $54,700 if married filing separately). The income levels at which the AMT exemption begins to phase out has increased to $500,000 ($1,000,000 if married filing jointly or a qualifying widow or widower.
Section 965 deferred foreign income. If taxpayers own (directly or indirectly) certain foreign corporations, they may have to include on their return certain deferred foreign income. Taxpayers may pay the entire amount of tax due with respect to this deferred foreign income this year or elect to make payment in eight installments or, in the case of certain stock owned through an S corporation, elect to defer payment until the occurrence of a triggering event. Taxpayer should see the instructions for Line 11a; Schedule 1, line 21; Schedule 5, line 74 for more information.
Section 951A global intangible low-taxed income. If taxpayers are U.S. shareholders of a controlled foreign corporation (CFC), they must include their global intangible low-taxed income (GILTI) in their income. If they own an interest in a domestic pass-through entity that is a U.S. shareholder of a CFC, they may have a GILTI inclusion related to that interest, even if they are not a U.S. shareholder of the CFC. The Draft Instructions also note that the Former Code Section 199 domestic production activities deduction (DPAD) has been repealed with limited exceptions
Expired tax benefits. The Draft Instructions note that at the time these instructions went to print, some tax benefits had expired, including the deduction for qualified tuition and fees, the mortgage insurance premium deduction, and the non-business energy property credit.
New schedules. The Draft Instructions outline which taxpayers may need to use the additional new schedules on their 2018 Form 1040.
Schedule 1 (Additional Income and Adjustments to Income) is to used by taxpayers who have additional income, such as capital gains, unemployment compensation, prize or award money, or gambling winnings or have any deductions to claim, such as student loan interest deduction, self-employment tax, or educator expenses.
Schedule 2 (Tax) is to be used by taxpayers who owe AMT or need to make an excess advance premium tax credit repayment.
Schedule 3 (Nonrefundable credits) is to be used by taxpayers who can claim a nonrefundable credit other than the child tax credit or the credit for other dependents, such as the foreign tax credit, education credits, or general business credit.
Schedule 4 (Other Taxes) is to be used by taxpayers who owe other taxes, such as self-employment tax, household employment taxes, additional tax on IRAs or other qualified retirement plans and tax-favored accounts.
Schedule 5 (Other Payments and Refundable Credits) is to be used by taxpayers who can claim a refundable credit other than the earned income credit, American opportunity credit, or additional child tax credit or who have other payments, such as an amount paid with a request for an extension to file or excess social security tax withheld.
Schedule 6 (Foreign Address and Third Party Designee) is to be used by taxpayers who have a foreign address or a third party designee.