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.
Chris Cooksey is the senior director of advanced analytics at Guidewire Software, the leading provider of P&C Insurance core operating systems. He previously served as Chief Actuary at EagleEye Analytics and spent more than a dozen years at Nationwide Insurance as a research director and pricing analyst.
Keith is a principal analyst in Celent's North American insurance practice. He has extensive industry experience and is a seasoned expert in process automation, business transformation, back-office operations, and mergers and acquisitions for both property/casualty and life/health/annuities. His previous roles also include Vice President of Research and Consulting at Novarica, Practice Partner–Digital Success at MVP Advisory, CIO/COO of Futurity First Insurance Group; AVP of Distribution Systems and Field Technology for Mass Mutual; CIO of Trumbull Services, a wholly owned subsidiary of The Hartford Insurance Group; Head Principal Consultant for Life and Annuities in North America at HCL Technologies; and CIO of FPI, a software development and service company.
Keith most recently has focused his authoring on the topic of process automation including robotic process automation (RPA) and artifical intelligence (AI). He has assisted a number of insurance organizations with strategic technology roadmap development, go-to-market strategy, core platform replacement selection and IT and operational due diligence on acquisition opportunities. Keith has authored a number of industry artifacts and blogged on a number of industry topics with focus on innovation and digital transformation. Keith speaks annually at insurance industry events, such as Insurtech Connect and DIGIN.
Jetpack Workflow CEO and business evangelist David Cristello founded Jetpack in 2016 with the vision to help customers deliver their best work— from developing software solutions that help professionals solve their painful workflow problems, to personalized and fun onboarding and training, to curating helpful and informative resources through the company's podcast and blog. The company now serves over 7,000 customers in more than 18 countries, which collectively completed over 5 million client projects on time.
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.
