Under the new tax plan, the Republicans promised a postcard-size 1040 income tax form, and they (almost) delivered.
The New York Times received a draft version of the new tax form, and it’s significantly smaller than the previous form. However, smaller doesn’t necessarily mean better.
Here’s what you need to know about the new form and how it could impact you.
4 biggest changes you’ll find in the new tax form
Although the changes in the new tax form are significant, chances are you won’t notice them.
According to the IRS, approximately 90% of individual tax returns were e-filed in 2018, meaning they were submitted online. Only about 10% of tax returns were filed on paper.
Most online tax preparation services guide you through the process by asking a series of questions and populating the form for you. If you file your taxes online, the transition to the new tax form should be relatively seamless.
However, there are some changes you should know about.
1. It replaces the 1040, 1040A, and 1040EZ forms
In past years, you had to decide between three forms to complete your return.
1040EZ: You could complete the1040EZ — the simplest form — if you didn’t have dependents, your taxable income was less than $100,000, and you didn’t claim deductions or credits.
1040A: If your taxable income was $100,000 or less and the only adjustments you made to your income were the IRA deduction, student loan interest deduction, tuition and fees deduction, and educator expense deduction, you could complete the 1040A form.
1040: If your taxable income was over $100,000, you claimed deductions, or you were self-employed, you had to complete the more complicated 1040 form.
The type of form affects how much you have to pay for tax preparation. Although 1040EZ filers often could get free tax preparation from services such as H&R Block, those with more complicated returns had to pay a fee.
According to a source who spoke with The New York Times, the new tax form would replace all three forms. Going forward, all taxpayers would complete the same version.
2. It’s shorter (sort of)
The old form was two pages long with 78 line items. The new form is a half-page long with 21 line items.
But the fact that the form is shorter doesn’t mean you should expect to finish your taxes more quickly. In many cases, you’ll have to fill out one or more of six worksheets to complete your return accurately.
3. Claiming deductions is less intuitive
The new tax plan changes the standard deduction form.
Previously, the standard deduction was $6,350 for single filers and $12,700 for those who were married filing jointly. Under the new plan, the standard deduction increases to $12,000 for single filers and $24,000 for those who are married filing jointly.
According to the Tax Policy Center (TPC), that means fewer people will itemize their deductions. The TPC estimates that just 19 million filers will continue to itemize their deductions, making it unlikely you’ll need to do so.
However, if you do intend to claim deductions, the process for doing so on paper might be less intuitive than it used to be.
For example, to claim the student loan interest deduction, you’ll need to complete the Additional Income and Adjustments to Income worksheet, which some people might overlook, causing them to miss out on a valuable tax benefit.
4. Side hustlers will have to fill out separate worksheets
If you have a side gig, you might overlook where you have to enter your income on the new tax form. There isn’t an obvious place to enter your earnings.
Instead, you have to complete a worksheet to calculate your total income — including W-2 forms from employers and 1099 forms for independent contractor work — before entering your income on the new form.
If you file your taxes online, that likely won’t be an issue. But if you use a paper return, it’s good to know that you’ll have to fill out several worksheets to accurately complete your taxes.
Prepare now for tax season
Although tax season might be months away, it’s wise to start thinking about it now. Here’s what you should do now to prepare for tax season.
Get organized: If you don’t have one already, create a system for filing your income statements, receipts, and other tax-related documents.
Research filing options: If you manually prepare your taxes, it might be a good idea to transition to tax preparation software to streamline the filing process. There’s no need to spend a fortune; several free tax preparation programs exist.
Review your withholdings: Review your withholdings to see if you need to make any adjustments. Updating your withholdings now can save you from owing a huge tax bill in April.
Taxes are complicated, and the upcoming tax season might be worse than usual because of the significant changes introduced by the new tax plan.
Seeking help from a tax professional or tax software can simplify the process, ensure accuracy when you fill out the new tax form, and get you the refund you deserve.
For more information on how to file your taxes and why it’s so important to get them right, check out these reasons you should never lie on your taxes.