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Postcard Tax Form - Simplification?


For years, politicians across the spectrum have touted “tax simplification” as one of their reform goals. Many have gone so far as to claim that most Americans should be able to file their annual tax returns “on a postcard.” For just as many years, I have laughed in their faces, but now they claim we will be able to do exactly that next year. I decided to grade myself on the various negative predictions I made about the possibility of a shortened Form 1040 resulting in tax simplification.

While nothing is finalized yet, a preliminary draft was released this past week, and today we are taking a look at the veracity of this “postcard tax form” concept. One of my first questions was, very simply, “People still file paper returns?” For years IRS has been encouraging Americans to file their annual obligations electronically, and most of us do exactly that. File size has become pretty much irrelevant. Complexity is what (still) matters.

For those taxpayers who still send paper returns to the IRS, my next question is simple; “Do you want to file your 1040 in an envelope, or would you rather let the world see your name, address, Social Security Number, and signature?”  So, is a postcard placed in an envelope still a postcard?

What will filers of the new 2018 Form 1040 actually find? The 1040 itself, which is currently 2 pages long and single-sided, will next year be a 2-sided form, ½-page large. More than half of the current 78 line items on today’s 1040 are being cut for 2018. A good start, perhaps?

At this point, it may help to remember two changes from the Tax Cuts and Jobs Act of 2017. First, the new Standard Deduction is large enough that many people who were previously itemizing deductions will no longer do so. However, we also discovered that the 2017 changes actually increased complexity for taxpayers who are not able (for whatever reason) to use the new shorter Form 1040.

In Congressional zeal to make the new 1040 Form fit on a half-page, certain items were deleted from the form. These include a few so-called “above the line” deductions such as student loan interest and teaching supplies. What if you are able to claim any of these reductions to income? Not to worry, there are six additional accompanying worksheets, some or all of which you will also have to stuff into your envelope.

But wait – we’re not done yet. What about other forms of income besides wages, salaries & tips, Social Security benefits, interest, dividends, and retirement income? Never fear, there are supplementary forms and schedules for those, as well. The envelope is getting thicker.

What other items will require further forms to be filed? These include:

  • Business income
  • Capital Gains
  • Sub-S business income
  • Sole proprietorship income
  • Partnership income
  • Child care tax credits
  • Retirement savings tax credits
  • Retirement savings contributions

The new form is intended to replace the existing 1040, the 1040A, and the 1040EZ. That, in itself, does nothing to reduce complexity. Further, more taxpayers are expected to file paper returns for tax year 2018, delaying their refunds and increasing costs to the IRS (taxpayers).

What is the bottom line on my prognostications? First, I gave myself a B+ for calling the “postcard form” mostly smoke and mirrors. For taxpayers with uncomplicated financial situations, many will be able to use the new Form 1040 and claim the higher Standard Deduction. That, however, was brought to you by the Tax Cuts and Jobs Act, not through the form redesign. In short, I fail to see any benefit from the alleged “postcard-sized tax form.”

Come to think of it, I should change my grade to A-.

Van Wie Financial is fee-only.  For a reason.