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.
Dominica DeGrandis is director of digital transformation at Tasktop. She teaches technology and business organizations how to optimize workflow across value stream networks. She helps teams reveal mutually critical information using Lean, Kanban and Flow methods. As author of “Making Work Visible - Exposing Time Theft to Optimize Work & Flow,” DeGrandis helps large organizations improve their capability to visualize workflows and create more business value. She blogs at ddegrandis.com and tasktop.com, and tweets at @dominicad.
Leo D’Acierno has two decades of experience managing and consulting to banks, brokerages and other financial services firms. Most recently, he served as a partner in the financial services practice in the New York office of Bain & Company. Mr. D’Acierno founded the bank consulting and information services firm PriMETRIQ in 2003 and later merged it into financial services specialist Novantas, where he led the distribution and sales practice and helped clients maximize the effectiveness of their investments in branch networks, professional sales forces and electronic channels. Mr. D'Acierno previously served in senior executive roles at TDAmeritrade, the online brokerage firm, and Kinexus, a provider of portfolio aggregation services to private banks and wealth management firms. Mr. D’Acierno began his career at BoozAllen and Hamilton, where he served as a partner in the financial services practice working with global banking, credit card and asset management clients. Mr. D’Acierno holds an A.B. in History and Economics from Harvard University.
Jim Leftwich has more than 30 years of leadership experience in risk management and insurance. In 2010, he founded CHSI Technologies, which offers SaaS enterprise management software for small insurance operations and government risk pools.
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.
