IRS Releases Draft of 2020 Tax Return (1040)
The IRS released drafts of Form 1040 and Schedules 1 through 3 for 2020 on August 19. These are only drafts of what we can expect in 2021, and are subject to changes. You can take a look at the drafts here:
Schedule 1: https://www.irs.gov/pub/irs-dft/f1040s1–dft.pdf
Schedule 2: https://www.irs.gov/pub/irs-dft/f1040s2–dft.pdf
Schedule 3: https://www.irs.gov/pub/irs-dft/f1040s3–dft.pdf
Below is a summary of the changes made thus far.
In the 2019 1040, the IRS asked taxpayers whether they had received, sold, sent, exchanged or otherwise acquired any financial interest in any virtual currency. Perhaps you missed it. The question appeared at the top of Schedule 1 which is used to list additional income and adjustments. Perhaps in a sign that the IRS is paying even more attention to crypto currency, this question has been moved to the 1040 itself. It appears right below the request for you name and address.
If you recall, the 2017 Tax Act increased the standard deduction. This resulted in fewer taxpayers itemizing deductions since in most cases itemized deductions were lower than the standard deduction. This had a direct impact on charitable giving.
The CARES Act of 2020 provides for a permanent charitable contribution deduction of $300. Although not addressed in the Act, it is assumed that the deduction is per person so that married taxpayers can deduct $600. This charitable contribution is an above-the-line deduction which means no itemization is required. The draft 1040 provides for an adjustment to income for charitable contributions for taxpayers who do not itemize.
Economic Impact Payment (Stimulus)
The stimulus payment, which many taxpayers received earlier this year, is actually a credit against taxes for 2020. Taxpayers, who did not receive the stimulus payment or the full stimulus payment during 2020 because they did not meet the income requirements in 2018 or 2019, will be able to claim the credit, if they qualify, when they file their 2020 return next year. Although the instructions are not yet out, the draft 1040 does contain an entry for calculating the credit. Taxpayers who had a child born during 2020 and qualify for the credit, should also be able to claim the credit for the child on the return.
If you received the stimulus payment and determine that you would not have qualified for the credit due to your 2020 income, do not worry. The law does not appear to provide a mechanism for taxpayers to return an advanced credit to which they are not entitled due to 2020 income levels.
In order to properly determine the tax due by, or the refund due to, the taxpayer, withheld taxes are reported on the income tax return. The withheld taxes reduce the amount of taxes due generating either a balance due or a refund. In past returns the taxes withheld from W-2 and 1099 were combined as one total entry. The draft 1040 provides for separate entries for the taxes withheld from Form W-2, Form 1099 and any other tax form. It is not clear why this change was made.
The draft return cautions that the amount shown to be due on the return may not represent all the taxes owed by the taxpayer. The form refers to line 12e, Schedule 3. This is a new provision to take into account the deferral of deposits and payments of the employer’s share of Social Security tax permitted under the CARES Act. It is part of the 1040 because the deferral was available to household employers and self-employed persons. The payment of these taxes, due during the period from March 27, 2020 to December 31, 2020, is permitted to be made half on December 31, 2021, and half on December 31, 2022. These taxes are not calculated on the 2020 income tax return, but are taxes owed by the taxpayer.
The IRS has prepared drafts of many other returns which may apply to you and which you can view here: https://apps.irs.gov/app/picklist/list/draftTaxForms.html. You can anticipate additional changes to returns as the IRS gears up for next year’s filing season.