My Views on the NEW Form 1040

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After 24 years of the same 1040, President Trump makes good on a campaign promise of making a tax return the size of a postcard, but let me show you where this went wrong. 

Several times on the form, you are asked to attach Schedule 1 or 3 or 4. We have no idea what these schedules look like.  The point is, the new tax form, isn’t exactly a postcard like it was intended. 

When I first went into practice, I used to have a 1917 tax return framed in my office.  The tax return was one page long, with no schedules. 

In today’s world there is no way to take a tax form down to barebones. There is this schedule, and that schedule.  We need to report our income differently, but why is the tax code so complicated that we can’t have a one page tax form?  Very simply, Congress.

I remember when the idea of a Flat Tax was all the rage.  I was just starting out, and the clients I met with would tell me that they were sure that I was against a flat tax.  We started with a flat tax, and here we are.  Let me tell you why tax is so complicated.

I live in Florida, specifically, in Orange County, which encompasses Orlando, but I live in a suburb called Ocoee.  The town exists as a suburb because of the winter of 1991, which killed most of the citrus plants in that city. In fact, when the population of Orlando is given, you are getting the population of Metropolitan Orlando.  Most suburbs in Metro Orlando exist because of the same winter.

However, let’s say I get elected to Congress, and I want to spur citrus cultivation again in Ocoee.  I may attach to a tax bill a special tax credit for citrus farmers.  After all, I want to be reelected.  The bill passes and is now law. My addition of a tax credit has just now added a new schedule to be filled out. Rinse and repeat.

The new “postcard” 1040 looks good, until you see the phrases, attach this schedule and that schedule. We haven’t simplified anything. 

For example, if you are a pass thru entity (sole proprietors included), there is this whole convoluted calculation of a supposed 20 percent deduction.  However, you get the deduction if it is raining and on a Sunday. 

Obviously, I am being facetious, however nothing was done in the tax bill to simplify the code.  It just got more complicated. Then the question would be how do you charge for this new tax form?  I charge by the schedule, but if the schedules are really complex, I’ll just have to increase my fee per schedule. 

The point that I am trying to make is that you can’t just con the American People into thinking their taxes are so simple that you just need a postcard.  The whole change of the form is nothing but a campaign promise.  The tax code is more complicated today than it was in 2016, when the new administration was elected.

Where does this leave us?  Well for me, compliance work is about 25 percent of my revenue.  The rest is planning. I want to know the outcome of a client’s tax situation before it becomes the final bill. 

However, I have always done my client’s children’s returns for free.  Now, I can just tell them it’s a postcard for a simple return and the child can do their own return.

In my opinion, this new postcard is just a ploy to get people to believe the Tax Code has been simplified so much that you can just fill out a postcard.  The form is just the form, the code is still more complicated and with no word on the Schedules will look like…look out!

About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.

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By skecpa
Jul 6th 2018 17:35

100% agree, the accounting principle of substance over form would apply, and the new 1040 is doing form over substance

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Jul 9th 2018 15:31

Excellent analysis.

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Jul 9th 2018 19:09

I am not being critical, just attempting to be factual when I say that we had tax change, but not "tax reform" or "tax simplification." TRA 1986 was the last real tax reform (two tax brackets for individuals, fewer deductions and credits). But that did not last long. As a practical matter, it will require actual tax reform that includes simplification before we can get to a postcard tax return.

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