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.
Tom Neill was managing shareholder of Finney, Neill & Co. His 40-plus years in public accounting primarily focused on assurance and attest services as well as financial statement preparation and business consulting experience in a large variety of industries. His experience also includes working with business and individual tax matters. He also teaches continuing education courses in regulatory ethics.
He is a member of the AICPA's National Pipeline Advisory Group; current chair of the AICPA Uniform Accountancy Act Committee; and a member of the NASBA Peer Review Compliance Committee. He spent nine years on the Washington State Board of Accountancy (including two years as board chair); and is a past-member of the NASBA Ethics and Professional Issues Committee, a past member of the AICPA Professional Ethics Executive Committee, and past president of the Washington Society of CPAs. He graduated from the University of Washington in 1980 and received his CPA license in 1983.
Denise M. Tyson is the CEO and founder of Schaefer City Technologies. Tyson is a financial and operational management executive with extensive experience in the insurance industry, including insurtech startups, mergers/acquisitions, reorganizations, and financially challenging situations. She has held C-level positions with multiple insurance companies since 2000. She was the founder of Simplicity, Inc. an insurtech startup focused on pay-as-you-go personal auto insurance; the president of Go Insurance Company, part of a fully integrated insurtech organization; and the first EVP and CFO of Doma (fka States Title, Inc.) an insurtech company transforming the title industry.
Tyson started her finance and accounting career in public accounting in New York City working for KPMG and went on to work with PwC in Los Angeles as a Senior Manager leading their Financial Services team before launching into the insurance and insurtech industries. Tyson is a Certified Public Accountant. She holds a Bachelor of Science in Accountancy from Villanova University and an MBA from the UCLA Anderson School of Management.
Nurasyl Serik is the Co-Founder & CEO at Remofirst, a startup transforming global payroll and compliance for remote teams, with a mission to simplify and streamline the future of work.
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.
