With a straight face, the IRS recently released the new Form 1040. The form has shrunk from a two-sided letter-sized sheet to post card sized, just as Trump promised. As if size matters. Everyone electronically files these days so it’s not like you will save a few bucks in postage.
Those who shy away from anything pertaining to taxes likely jumped up and down with joy in anticipation of tax simplification. Thing is, it’s a big fat joke. And I’m here to tell you that taxes got more complicated, not simpler.
What the IRS accomplished was the butchering of Form 1040 to fit several line items on a two-sided postcard. The previous line items not included on the new Form 1040 have been added to six, count ‘em, six pages of additional schedules to attach to the “postcard.” When you do the math, you realize that the two-page form is now expanded to eight pages. Simplification indeed.
I was attending the California Society of Enrolled Agents Super Seminar in Reno when the new form was announced on June 27. The collective roar of disappointment and disapproval was followed by many snarky remarks and eventually laughter and plenty of eye rolling.
Just because Congress doubled the standard deduction does not mean we are headed into a new era of tax simplification. In any case, I agree with this move. After all, those who can’t itemize are generally renters because they don’t have the mortgage interest write off. I always felt this was unfair. Doubling the standard deduction levels the playing field and opens up an increased tax savings for those who cannot itemize. But the savings is not as grand as you might think. Sure, if you’re married filing joint you will enjoy an extra $12,000 deduction from income, $6,000 if single, before tax is calculated. However, the IRS gives with one hand and smacks you across the face with the other. How did they do that? They yanked personal exemptions – that’s roughly $4,100 per person. So married filing joint, you net a reduction in income of only $3,800 ($12,000-$8,200) not the twelve grand you may have thought you would enjoy. It gets worse if you have kids because you previously received the $4,100 exemption for each dependent declared on the tax return as well. Now that’s gone.
To make up for pulling the rug out from under for those with children, the IRS introduced a new and improved child tax credit to make up for the lack of personal exemption. Give, take, give, take, slap, without missing a beat.
I picture some malevolent nerd with nothing better to do creating all these complex moves and formulas and “if’s, and’s, and but’s” in some dank basement office. Maybe he’s just trying to keep us tax professionals in business. Keep our heads spinning is more like it. Thank you very much.
And as if things aren’t complicated enough, California does not conform to the new federal regulations. So we all get to memorize another set of tax code in order to comply with state tax law. Part of it is a good thing. For example, the deductions for employee business expenses, investment expenses, tax preparation software costs and preparer fees have been abolished by the IRS. But they are still deductible for CA purposes. so be sure to track those and report them next April 15. These deductions will decrease the amount of state tax you will owe.