by Michael Lodge
Every year there are changes on the form 1040. Here is a discussion on the new changes on the draft of the 1040. For tax preparation services call our office at: 877.778.1770 and make an appointment.
The IRS has released on its website a number of draft tax forms and instructions for the 2016 tax year, including Form 1040 and its related schedules.
This article highlights key changes made on the 2016 return. This first part examines the draft Form 1040 itself. Part II will cover the related draft forms and schedules.
Form 1040—Items Not Specific to Lines on the Form
No new or changed lines. The 2016 draft Form 1040 contains no new lines and no lines with changed captions.
Extensions. Taxpayers can obtain an automatic six-month extension by no later than the return due date, either by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, or by making an electronic payment.
Delivery services. Eight delivery services have been added to the list of designated private delivery services. For a complete list of private delivery services, see page 8 of the draft Form 1040 instructions.
Electronic Filing PIN. Electronic Filing PIN, an IRS-generated PIN used to verify the signature on self-prepared, electronic tax returns, is no longer available. To validate the signature on such a return, the taxpayer must use his prior-year adjusted gross income or prior-year self-select PIN.
Form 1040—Adjusted Gross Income
Line 23. Educator expenses. Beginning in 2016, this up-to-$250 per educator deduction can include certain expenses for professional development courses related to the curriculum, or to the students, that the educator teaches.
Line 26. Moving expenses. The 2016 standard mileage rate for moving expenses is 19¢ per mile.
Line 32. IRA deduction. In general, an individual who isn’t an active participant in certain employer-sponsored retirement plans, and whose spouse isn’t an active participant, may make an annual deductible cash contribution to an IRA up to the lesser of:
1.A statutory dollar limit, or
2. 100 percent of the compensation that’s includible in his gross income for that year.
For 2016, the statutory dollar limit is $5,500, plus an additional $1,000 for those age 50 or older. If the individual (or his spouse) is an active plan participant, the deduction phases out over a specified dollar range of modified AGI. For 2016, a taxpayer may be able to take an IRA deduction if he was covered by a retirement plan and his 2016 MAGI is less than $71,000 ($118,000 if married filing jointly or qualifying widow(er)). If the taxpayer’s spouse was covered by a retirement plan, but the taxpayer was not, he may be able to take an IRA deduction if 2016 MAGI is less than $194,000.
Form 1040—Tax And Credits
Line 40. Itemized deductions or standard deduction. For 2016, the standard deduction is $6,300 for single filers and for married persons filing separately, $12,600 for joint filers and qualifying widow(er)s, and $9,300 for heads of household.
Line 42. Exemptions. The amount of each exemption for 2016 is $4,050. Exemptions are reduced for taxpayers with AGIs in excess of the “applicable amount” ($311,300 for joint filers or a surviving spouse, $285,350 for a head of household, $259,400 for a single individual who isn’t a surviving spouse, and $155,650 for married filing separately).
Line 45. Alternative minimum tax. Under Code Sec. 55(d), the alternative minimum tax exemption amount for 2016 is $53,900 ($83,800 if married filing jointly or a qualifying widow(er); $41,900 if married filing separately). The AMT exemption amount is reduced if alternative minimum taxable income is above statutorily defined amounts that depend upon filing status.
Line 54. Other credits. For 2016, the maximum adoption credit is $13,460 per eligible child for both non-special needs adoptions and special needs adoptions. The amount begins to phase out if modified adjusted gross income (MAGI) is in excess of $201,920 and is completely phased out if MAGI is $241,920 or more.
Form 1040—Other Taxes
Line 57. Self-employment tax. Maximum amount of self-employment income subject to FICA tax is $118,500; there is no ceiling on Medicare wage base.
An individual may use the farm optional method only if:
a. His gross farm income was not more than $7,560 or
b. His net farm profits were less than $5,457.
Using this method, farm self-employment earnings equals the smaller of:
1. Two-thirds of gross farm income, or
An individual may use the nonfarm optional method only if:
a. His net nonfarm profits were less than $5,457 and also less than 72.189 percent of his gross nonfarm income and
b. He had net earnings from self-employment of at least $400 in 2 of the prior three years.
Individuals may compute their self-employment earnings as the smaller of two-thirds of gross nonfarm income or $5,040.
A self-employed individual with both farm and nonfarm incomes is allowed to use both optional computation methods if the farm income qualifies for the farm optional method and the nonfarm income qualifies for the nonfarm optional method. If both optional methods are used to compute net earnings from self-employment, the maximum combined total net earnings from self-employment for any tax year can’t be more than $5,040.
Line 61. Health care: individual responsibility. As was the case in 2015, a taxpayer must either:
• Indicate on line 61 that he, his spouse (if filing jointly) and his dependents had health care coverage throughout 2016;
• Claim an exemption from the health care coverage requirement for some or all of 2016 and attach Form 8965; or
• Make a “shared responsibility payment” if, for any month in 2016, he, his spouse (if filing jointly) or his dependents did not have coverage and do not qualify for a coverage exemption.
However, the monthly shared responsibility payment amount has increased for 2016. For 2016, it is the lesser of:
i. The sum of the monthly penalty amounts for months in the tax year during which one or more failures occurs, or
ii. The sum of the monthly national average bronze plan premiums for the plan.
The monthly penalty amount is equal to 1/12 of the greater of $695 per family member (up to a ceiling of $2,085) or 2.5 percent of the amount by which the taxpayer’s household income exceeds the filing threshold.
Form 1040—Payments and Refunds
Line 66. Earned income tax credit (EITC). The maximum credit is higher, and the AGI-based phaseout figures are revised.
Line 71. Excess social security and RRTA tax withheld. Maximum Social Security (OASDI) tax for 2016 is $7,347 (computed on the first $118,500 of wages) for purposes of credit for excess tax withheld.
Line 73. Credits. Line 73, box b is labeled as “Reserved”. The draft instructions contain no information on this box. The final version of 2015 Form 1040 also had this box labeled as “Reserved”.
Lines 74-77. Refund. Effective for credits or refunds made after Dec. 31, 2016, the IRS can’t issue refunds before February 15 (thus, before Feb. 15, 2017 for 2016 returns) for returns that claim the earned income credit and/or the additional child tax credit. This rule applies to the entire refund, not just the portion associated with those credits.
Line 78. Amount you owe. The Form 1040 instructions reflect the fact that IRS2GO is the IRS mobile application; taxpayers can access “Direct Pay” or “Pay By Card” by downloading the application.
And, cash is a new in-person payment option for individuals. This option is provided through retail partners of the IRS and has a maximum of $1,000 per day per transaction. To make a cash payment, a taxpayer must first be registered online at officialpayments.com/fed. There is a fee associated with this payment method.
Jeffrey Pretsfelder is a senior analyst with Thomson Reuters Checkpoint within the Thomson Reuters Tax & Accounting business.