A closer look at the next Form 1040

A closer look at the next 1040

Published October 23, 2017 4:22 PM

Updated July 29, 2019 2:30 PM

1 Min Read

The Internal Revenue Service has made a draft of the Form 1040 for the 2017 tax year available on its Web site.

Jeffrey Pretsfelder, a senior analyst with Thomson Reuters Checkpoint, highlights some of the key changes. (A text version of these changes is also available.)

Due dates and mailing addresses

1040s for the 2017 tax year will be due on April 17, and residents of Connecticut, the District of Columbia, Maryland, Pennsylvania, Rhode Island and West Virginia who mail in their returns will need to send them to a different address. The addresses are listed under “Where do you file?” in the form instructions.

Gross income

In Line 21, “Other income,” the exclusion from gross income where "qualified principal residence indebtedness" is discharged only applies to discharges that took place before Jan. 1, 2017, or were subject to an arrangement that was entered into and evidenced in writing before Jan. 1, 2017. Unless Congress extends this provision, most discharge of "qualified principal residence indebtedness" in 2017 will not be excluded from gross income.

Adjusted gross income

For Line 26, “Moving expenses,” note that the 2017 standard mileage rate for moving expenses is 17 cents per mile.

For 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 the statutory dollar limit, or 100 percent of the compensation that's includible in his gross income for that year. If an individual (or their spouse) is an active plan participant, the deduction phases out over a specified dollar range of modified AGI. For 2017, a taxpayer may be able to take an IRA deduction if he was covered by a retirement plan and his 2017 MAGI is less than $72,000 ($119,000 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 or she may be able to take an IRA deduction if 2017 MAGI is less than $196,000.

Line 34 is now “Reserved for future use; it used to be "Tuition and fees," but unless Congress acts to extend it, the tuition and fees deduction has expired.

For Line 35, “Domestic production activities deduction:” The domestic production activities deduction is allowed for various trade or business activities conducted in the U.S. Unless Congress acts to extend it, the rule that allowed Puerto Rico to be considered part of the U.S. for purposes of the DPAD expired effective Dec. 31, 2016.

Tax and credits

On Line 40, “Itemized deductions or standard deduction,” for 2017, the standard deduction is $6,350 for single filers and for married persons filing separately, $12,700 for joint filers and qualifying widow(er)s, and $9,350 for heads of household.

For Line 42, “Exemptions:” The amount for each exemption for 2017 is $4,050. Exemptions are reduced for taxpayers with AGIs in excess of the "applicable amount" ($313,800 for joint filers or a surviving spouse, $287,650 for a head of household, $261,500 for a single individual who isn't a surviving spouse, and $156,900 for marrieds filing separately).

For Line 45, “Alternative Minimum Tax”: Under Code Sec. 55(d), the AMT exemption amount for 2017 is $54,300 ($84,500 if married filing jointly or a qualifying widow(er); $42,250 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.

For Line 50, “Education credits from Form 8863,” in order to claim the American Opportunity Tax Credit, a taxpayer must provide the educational institution's employer identification number on Form 8863. A taxpayer should be able to obtain this information from Form 1098-T (Tuition Statement) or the educational institution.

More tax and credits

For Line 53, “Residential energy credit,” note that as of the time this article was written, the residential energy credit had expired and thus, unless legislation is enacted to extend the credit, no entry should be made on this line.

On Line 54, “Other credits:” For 2017, the maximum adoption credit is $13,570 per eligible child for both non-special needs adoptions and special needs adoptions. The amount begins to phase out if MAGI is in excess of $203,540 and is completely phased out if MAGI is $243,540 or more.

A large series of energy credits expired at the end of 2016 and thus are not available for 2017 unless Congress takes action. Included among those credits are the credit for certain nonbusiness energy property under Code Sec. 25C(g); the qualified fuel cell motor vehicle credit under Code Sec. 30B(k)(1); and the alternative fuel vehicle refueling property credit under Code Sec. 30C(g).

Other Taxes

For Line 57, “Self-employment tax,” note that the maximum amount of self-employment income subject to FICA tax is $127,200; there is no ceiling on Medicare wage base.

Individuals may use the farm optional method only if their gross farm income was not more than $7,560 or their net farm profits were less than $5,631. Using this method, farm self-employment earnings equals the smaller of two-thirds of gross farm income, or $5,200.

Individuals may use the nonfarm optional method only if their net nonfarm profits were less than $5,631 and also less than 72.189 percent of their gross nonfarm income, and they had net earnings from self-employment of at least $400 in two of the prior three years. Individuals may compute their self-employment earnings as the smaller of two-thirds of gross nonfarm income or $5,200.

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 $5,200.

Demonstrators outside the Supreme Court in advance of the court's rulling that the ACA was constitutional

A demonstrator in support of U.S. President Barack Obama's health-care law, the Affordable Care Act (ACA), holds up a "ACA is Here to Stay" sign after the U.S. Supreme Court ruled 6-3 to save Obamacare tax subsidies outside the Supreme Court in Washington, D.C., U.S., on Thursday, June 25, 2015. The U.S. Supreme Court upheld the nationwide tax subsidies that are a core component of President Barack Obama's health-care law rejecting a challenge that had threatened to gut the measure and undercut his legacy. Photographer: Andrew Harrer/Bloomberg

Andrew Harrer/Bloomberg

Other taxes – the ACA

Don’t forget Line 61, “Health care, individual responsibility.” As was the case in 2016, taxpayers must either:

• Indicate on Line 61 that they, their spouse (if filing jointly) and their dependents had health care coverage throughout 2017;
• Claim an exemption from the health care coverage requirement for some or all of 2017 and attach Form 8965; or,
• Make a "shared responsibility payment" if, for any month in 2017, they, their spouse (if filing jointly) or their dependents did not have coverage and do not qualify for a coverage exemption.

And the monthly shared responsibility payment amount is also the same as it was for 2016. For 2017, it is lesser of the sum of the monthly penalty amounts for months in the tax year during which one or more failures occurs, or 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.

Payments and refunds

For Line 66, “Earned income credit,” a taxpayer who has a qualifying child for the EIC, where that child is claimed as a qualifying child by another taxpayer, may be able to qualify for the EIC under the rules for taxpayers without a qualifying child.

On Line 71, “Excess Social Security and RRTA tax withheld:” The maximum Social Security (OASDI) tax for 2017 is $7,886.40 (computed on the first $127,200 of wages) for purposes of this credit.

For Line 73, “Credits,” Box B is labeled as "Reserved." The draft instructions contain no information on this box. The final version of 2016 Form 1040 also had this box labeled as "Reserved."