The Internal Revenue Service has released a draft version of the Form 1040 for tax year 2020 with several significant changes probably in store for next tax season.
They include moving the question about virtual currency from the attached Schedule 1 to near the top of the main form, right under the name and address, asking, “At any time during 2020, did you receive, sell, exchange, or otherwise acquire any financial interest in any virtual currency?” The question comes at a time when the IRS has made it more of a priority to crack down on cryptocurrency investors who haven’t been reporting their gains on their tax filings, including by issuing summonses to major cryptocurrency exchanges like Coinbase and Bitstamp in recent years seeking information on their customers who trade in digital currency such as Bitcoin and Ethereum.
Another big change, as Kelly Phillips Erb of Forbes noted, is the inclusion of a question about charitable contributions on the main tax form for taxpayers who claim the standard deduction. Normally, taxpayers who claim the charitable deduction have to itemize it on Schedule A, but the CARES Act this year includes a provision for taxpayers to deduct up to $300 in charitable contributions even if they’re only claiming the standard deduction. That’s why there is now a line 10b for “charitable contributions if you take the standard deduction” on the draft Form 1040. Instructions will be provided for taxpayers and tax preparers, according to the form.
The flip side of the form includes a number of changes, including splitting the federal income tax withheld line into separate entries from W-2, 1099 and other forms, as opposed to a single line for federal income tax withholding. This suggests to Erb that the IRS may be planning to do extra scrutiny of gig workers and the self-employed.
A new line has been added to page 2 for the “recovery rebate credit,” which will be reporting the economic impact payments or stimulus checks that went out from the IRS this year as a result of the CARES Act. That too will be explained in the instructions for Form 1040, and Erb says there will be a separate reconciliation schedule that will carry over to that line on the form.
Nic Johnson is the founder of ListWise.
Previously he spent 17 years at PIMCO, where he managed over $30 billion in commodity and real estate portfolios. He is the coauthor of "Intelligent Commodity Indexing," published by McGraw-Hill. Prior to entering financial services, he was a research fellow at NASA's Jet Propulsion Laboratory, where he researched new methods for autonomous navigation for future Mars missions.
Lei Zhang is the founder and has served as the chief executive officer and chairman of the board of Cheche Group (NASDAQ: CCG). Before that, he served as chief executive officer of CloudPower Technology Co., Ltd. from 2010 to 2014. He was a senior manager in the global technology service department at Huawei Technologies Co., Ltd. from 2001 to 2006. Zhang received a bachelor's degree in computer science and technology from Wuhan University of Technology in 2001.
Amy Glorioso joined Kelly Benefits Payroll in 2022 with nearly 30 years of experience in the payroll industry. In her current role as Vice President of Client Engagement, Amy is responsible for ensuring that all payrolls are delivered timely and accurately as well as team development and client retention. Using her expertise in payroll procedures, best practices and compliance, she also is tasked with identifying and implementing process improvement and enhancements that ensure the best experience possible for clients.
The “Amount You Owe” section of the form includes a new cautionary note, saying, “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.” Schedule3, line 12e is new, according to Erb, and corresponds to another provision of the CARES Act allowing employers to defer their portion of the payroll tax for Social Security.
The form so far does not seem to include a line for the new payroll tax deferral for the employee’s share of Social Security taxes under President Trump’s recent executive order or memorandum. The draft form is likely to change before it’s finalized, though, as the IRS receives comments from the tax practitioner and accountant communities, as well as others.
