Everyone's getting a new experience this tax season. Thanks to tax reform, preparing your return involves a brand new set of forms, and for the first time, millions of taxpayers are having to use the full Form 1040 rather than one of the shorter forms that were available in previous years.
Having to use a new form has a lot of taxpayers rattled, but the new 1040 form isn't as intimidating as its predecessors. In fact, many taxpayers who've completed their returns have found the shorter 1040 to be a breath of fresh air -- and a lot easier to navigate than they'd expected. Below, we'll go through the new 1040 form line by line to help give you the confidence you need to get your returns prepared this year.
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Front page: Personal information
The entire first page of the form is dedicated to providing personal information. You'll need your name, address, and Social Security number, as well as similar information for family members like a spouse or children.
Image source: IRS.
Even though dependent exemptions went away in 2018 as part of reform, you'll still need to list any dependents you have on the front of the 1040 form. That will potentially make you eligible for either the child tax credit or the new credit for other dependents if you qualify.
Lines 1-7: Income
The first seven lines of the back page of the 1040 form are devoted to counting your income. Wages go on line 1, while interest and dividends go on lines 2 and 3 respectively. Only taxable interest goes in line 2b on the right, with tax-exempt interest getting reported separately on line 2a. Similarly, total dividend income goes in line 3b, with qualified dividends that get taxed at a lower rate going on line 3a.
Image source: IRS.
Total income from pensions or IRA distributions goes on line 4a, while total Social Security benefits get put on line 5a. The taxable portions of those distributions go on lines 4b and 5b respectively.
Line 6 has you add all those numbers up. If you have other sources of income beyond the five listed on the form, you'll need to include the new Schedule 1 and put that amount in the space indicated.
For line 7, you'll need to look at the available adjustments to gross income. Items like deductible IRA contributions, educator expenses, or student loan interest payments can often reduce your income. Line 7 then gets your adjusted gross income that reflects any reductions.
Lines 8-10: Deductions
Form 1040 has simplified deductions into just two lines. Line 8 is for the standard deduction for most taxpayers, but if you itemize, the final result of your work on Schedule A goes there. Line 9 applies only to those who have business income from a sole proprietorship, partnership, limited liability company, S corporation, or other entity that qualifies for the special 20% deduction for pass-through income.
Once you have those deductions figured out, subtract them from your adjusted gross income to get your taxable income on line 10.
Lines 11-18: Taxes and credits
Line 11 is where your regular tax goes. For most taxpayers, that involves taking the taxable income number and using the tax table to look up the matching tax due. However, some taxpayers owe additional taxes. For them, numbers from Schedule 2 go into the final line 11 amount, while those owing taxes from Schedule 4 will put the appropriate amount on line 14.
The 1040 form also incorporates tax credits into its calculations. Most credits go on line 12, with the child tax credit going into line 12a and others from Schedule 3 getting added in. Refundable credits like the earned income credit, additional child tax credit, and educational credit go on line 17, with Schedule 5 offering more obscure refundable tax credits. Once you put in the amount of tax you had withheld from your paychecks on line 16, you'll have all the numbers you need to calculate your final tax on line 18.
Lines 19-23: Refund or amount owed
Finally, the last part of the new 1040 deals with whether you owe tax or will get money back from the IRS. If you've paid more than your tax liability, then line 19 calculates your overpayment, with line 20a letting you choose how much you want to get back in a refund. The rest of line 20 lets you put in your banking information to have a refund directly deposited if you choose. If you want to use part of your overpayment to apply toward estimated tax payments in 2019, put that amount on line 21.
If you've paid too little tax, then the amount remaining goes on line 22. Penalties can apply if you haven't had enough tax withheld or paid estimated taxes throughout the year, and line 23 is for that amount.
Enjoy the shorter 1040
That might not sound like the simplest tax form possible, but it's a lot better than the 79 lines that the 1040 from 2017 had. Tax reform has made the 1040 much shorter, and in many ways, it's easier to follow the thought process behind taxation with the simpler form.
