Tax Guy: Meet the new IRS tax form specially designed for people 65 and older

Tax Guy: Meet the new IRS tax form specially designed for people 65 and older

8 Feb    Finance News

For the 2019 tax year, your friends at the IRS have introduced the new Form 1040-SR (U.S. Tax Return for Seniors). This exciting development is proof that the Feds care deeply about the tax-filing needs of older folks. Not quite. Actually, Congress required the IRS to develop a new form that was simpler and easier for senior taxpayers. The IRS response with new Form 1040-SR was the least they could do. Literally.

What you need to know about the new form

You can only use Form 1040-SR if you were born before January 2, 1955. In other words, you had to be age 65 or older as of the first of this year (1/1/20).

To say that the new Form 1040-SR closely mirrors the 2019 version of the “regular” Form 1040 is an understatement.

* The only differences on page 1 of the two forms is that Form 1040-SR has bigger print, bigger spaces for the information and numbers that senior taxpayers must enter, and a more easily-decoded standard deduction table with bigger print. Because, you know, some seniors have poor vision.

* Page 2 of Form 1040-SR continues with the bigger print and bigger spaces theme. Otherwise, it’s identical to page 2 of the regular Form 1040.

* Instructions for both the new Form 1040-SR and the 2019 version of the regular Form 1040 are included in the same document (TAX YEAR 2019 1040 and 1040-SR INSTRUCTIONS). The instructions for each line item pertain equally to both forms.

So, if you as a senior taxpayer choose to use the regular Form 1040 instead of the new 1040-SR, the information and numbers you must fill in on each line will be exactly the same. But you have a bit more space to work with. This is the government’s idea of proactively addressing the special needs of senior taxpayers.

Other things to know about 2019 returns

For both the new Form 1040-SR and the 2019 version of the regular Form 1040, IRA distributions and income from pensions and annuities are reported on separate lines on page 1 of the forms. Use lines 4a and 4b to report total IRA distributions and the taxable amount, respectively. Use lines 4c and 4d to report total pensions and annuities and the taxable amount, respectively.

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For both the new Form 1040-SR and the 2019 version of the regular Form 1040, report net capital gain or loss on page 1, line 6.

For the 2019 tax year, there are only three numbered supplemental schedules for both Form 1040-SR and the regular Form 1040, instead of the six supplemental schedules that pertained to the 2018 version of the regular Form 1040.

* Schedule 1 (Additional Income and Adjustments) is used to report things like business income from Schedule C, E, or F and deductions that you need not itemize claim — like alimony paid pursuant to a pre-2019 divorce agreement, the deductible portion of self-employment tax, and HSA contributions). The 2019 version of Schedule 1 is essentially the same as the 2018 version.

* Schedules 2 and 4 from 2018 were combined into new Schedule 2 (Additional Taxes) for 2019. Use Schedule 2 to identify any additional taxes that must be reported on line 15 of Form 1040-SR and line 15 of the regular Form 1040 (such as the alternative minimum tax (AMT) for the few that still owe it, self-employment tax, the 0.9% additional Medicare tax for higher-income folks, and the 3.8% Net Investment Income Tax for higher-income folks).

* Schedules 3 and 5 from 2018 were combined into new Schedule 3 (Additional Credits and Payments) for 2019. Use Schedule 3 to identify any tax credits that are not claimed directly on page 2 of Form 1040-SR or page 2 of the regular Form 1040 (such as the higher education credits and the residential energy credits).

* Schedule 6 (Foreign Address and Third Party Designee) has been eliminated for the 2019 version of the regular Form 1040 and is not required for the new Form 1040-SR.

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Mind the recently enacted extenders legislation

Late last year, the new Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Act) became law. That legislation retroactively resurrected and/or extended a bunch of individual federal income tax breaks often called the extenders. The extensions generally go through 2020, so keep the extenders in mind when preparing your 2019 Form 1040-SR.

The bottom line

Larger print on Form 1040 would be nice for many of us. But it’s only available if you qualify to file the new Form 1040-SR. Big news? No. The legitimate big news is the list of extenders that can potentially be claimed by seniors on their large-print Forms 1040-SR. See the sidebar below for more information. The other news is that the IRS just announced that 2019 returns are now being accepted. So, if you have all your 2019 tax info on hand, go for it.

Sidebar: The extenders

No, this is not the name of a new Netflix NFLX, -0.05%   series. It’s the shorthand description for a bunch of tax breaks that our beloved Congress habitually allows to expire before re-upping them for another year or two at the last possible minute. Here are the important extenders for individual taxpayers.

Itemized medical expense deduction threshold. The deduction threshold was scheduled to increase to a daunting 10% of AGI for 2019 and beyond. The Act extends the more-taxpayer-friendly 7.5%-of-AGI threshold through 2020.

College tuition write-off. This deduction can be up to $4,000 annually at lower income levels or up to $2,000 at middle income levels. It expired at the end of 2017. The Act retroactively resurrects it to cover qualified college expenses incurred in 2018 and extends it to cover costs incurred in 2019 and 2020.

Break for forgiven principal residence mortgage debt. The Act retroactively resurrects the break that allows you to treat up to $2 million of forgiven principal residence acquisition debt as a tax-free deal ($1 million for married individuals who file separately). So, the break is now available for eligible debt cancellations that occur in 2018-2020.

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Mortgage insurance premium write-off. Premiums for qualified mortgage insurance on debt to acquire, construct, or improve a first or second residence can potentially be treated as deductible qualified residence interest. The Act resurrects this break to cover eligible premiums paid in 2018-2020. The deduction is phased out at higher income levels.

$500 credit for energy-efficient home improvements. The Act resurrects the federal income tax credit of up to $500 for the installation of certain energy-saving improvements to a principal residence. This break is now available for qualifying improvements installed in 2018-2020.

Key point: The $500 amount is a lifetime limitation. So, if you claimed the credit for some year before 2018, the $500 lifetime limit may preclude any further credit. Sorry!

Credit for fuel cell vehicles. You can claim a federal income tax credit for vehicles propelled by chemically combining oxygen with hydrogen to create electricity. The base credit is $4,000 for vehicles weighing 8,500 pounds or less. An additional $1,000 to $4,000 credit is available for cars and light trucks to the extent their fuel economy numbers meet federal standards. The Act extends the credit to cover qualified vehicles purchased in 2018-2020.

Credit for plug-in electric motorcycles. The federal income tax credit for the purchase of qualifying electric-powered motorcycles can be worth up to $2,500. The Act extends the credit to cover eligible purchases in 2018-2020.

Credit for alternative fuel vehicle refueling equipment. The Act retroactively extends the federal income tax credit for up to 30% of the cost of installing non-hydrogen alternative fuel vehicle refueling equipment (including electric vehicle recharging units) to cover eligible equipment placed in service in 2018-2020.

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