The Tax Cuts and Jobs Act of 2017 (TCJA) made major changes to tax laws that led the Internal Revenue Service (IRS) to modify 1040 forms accordingly. This latest post in our financial literacy series covers the 2019 tax forms and key sections to use to assess your clients’ financial situations, lifestyles, and if they file jointly, marital assets.
Basic Changes to the 1040 Form
Like the 2018 form, the 2019 version fills only two-thirds of a page to accommodate the income summary schedule (lines 1 to 11A), which appears on the first page. In this section, Schedule D (capital gains or losses) has reappeared, with the total from that form to be entered on line number six.
The filing status section has returned to the top on front, with spaces for the names of a spouse and non-dependent children for those who classify as married filing separately or as head of household.
Tax Credits, Schedule Forms, and More
Added in 2018, the numbered schedule forms have returned for the 2019 tax year with a few changes.
Other aspects of the updated 1040 and schedules to note include:
- Adjusted gross income (AGI) reporting: this space was moved to line seven on the 2018 1040 return (up from line 37); on the 2019 form, it appears as line 8B. At the bottom of the first page, you’ll find the line for entering taxable income, 11B.
- Tax credits: The 2018 form combined the spaces for several tax credits into one or two lines. Now, certain incentives, such as the Earned Income Credit (EIC) and the additional child tax credit have their own lines on page two.
- Schedule 1: Alimony received and paid for divorce and separation agreements executed before 2019 shows up on this form. It features another line item under “alimony” that requires the date of the original divorce or separation agreement. The IRS added it because under the TCJA, alimony isn’t deductible for the payor spouse or taxable for the receiver under agreements signed on or after January 1, 2019. However, state tax laws vary. For example, New York allows deductibility/taxability, but Illinois and Pennsylvania follow federal tax regulations.
- Schedule 2: This form is now slightly longer and the lines were originally on the main 1040 pages. It’s where filers declare self-employment and other taxes.
- Schedule 3: On this form, which has also expanded, you’ll find information on any refundable and nonrefundable tax credits and other payments, including retirement savings contributions.
Schedule A, B, D, and E remain pretty much the same. Schedule A provides a glimpse into your client and/or their spouse’s lifestyle and assets, such as whether they own high-value homes or expensive vehicles (through high property or personal property taxes) or make charitable donations. Schedule E gives details about business ownership and any of your clients’ rental properties, including income from them and their address(es). You’ll also learn about any earnings from royalties, partnerships, estates, trusts, etc. Schedule B may reveal data about marital investments that yield interest and dividend income, together with bank and brokerage accounts, and other assets. This information will also give you an estimate of their total value.
Schedule D will show if your client has stock options or recently sold real estate or stock and for how much. You can also glean information from box 12A at the top of page two on the 2019 1040 form and its accompanying form 4972 (Tax on Lump-Sum Distributions) on any retirement or executive or deferred compensation accounts (stock options, restricted stock, etc.). If any children involved were under age 19 (or age 24, if they’re full-time students) at the end of 2019 and received interest and dividends and your client qualifies to claim those benefits, they will also appear here.
Knowledge of the changes to recent tax forms will help you gather evidence about your clients’ income and assets. This information not only provides proof, but it can also smooth the sometimes rough terrain of marital asset division. Find out more about tax returns in our Certified Financial Litigators (CFL™) Training course.
Why Financial Literacy is No Longer Optional
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