New Forms, New Questions, New Instructions, More Work
Practitioners must be aware that 2018 was an easy year since the IRS was late with information or did not issue guidance regarding key issues from the 2017 Tax Cut and Jobs Act (TCJA) before the filing deadlines. For example, there was no form or instructions regarding Section 199A or Section 163(j) regarding business interest limitations for the 2018 filings. That has changed for 2019 with Form 8995 or 8995-A for the Section 199A deduction and Form 8990 for the Section 163(j) interest limitation. This article will outline some of the major changes BUT will not be able to cover ALL the changes. You and your preparers will have to read this year’s instructions to be certain that your filings comply with the published statutes and pronouncements.So here let us begin. I have tried to group by return type. My comments are based on what the IRS had shown on their draft forms webpage.
Individual
New form 1040-SR for seniors. Must be over the age of 65 to use this form. There are no income limitations. Congress mandated the form in the BBA of 2018.
Forms 1040 A and EZ have been eliminated.
Form 1040 for 2019 is now two-thirds of a page on each side with three of last year's six schedules making it back onto the Form 1040.
Beware of Schedule 1, new question regarding cyber currency. There is no need to file the FBAR form, but the Form 8938 may be required.
Flow-through entities (This will include Form 1065, Form 1120S and Form 1041.)
Section 199A now requires an explanation of how the amount was calculated. This explanation will be done on new Form 8995 (no limitations) or Form 8995-A if there are any limitations. Taxpayers may receive this form from a flow-through entity for their share of the 199A items. These must be combined according to taxpayer elections when filing the individual 1040.
Form 1120-S. Qualified business income code in Box 17 is a V. and requires attachment of Form 8995 or 8995-A.
Qualified Opportunity Zones fund investment made by the S corporation is required to be reported on Form 8997.
New questions have been added to Item J checkboxes if there was an aggregation of activities or a grouping for the Section 199A of the passive activity rules.
New lines 18 and 19 have been added to the K-1; this is a reminder concerning the new forms regarding Section 199A.
Partnership
Form 8986 Partners Share of Adjustment(s) to Partnership Related Items. Should the partnership undergo an examination and changes proposed, this is the form that reports these results to the individual partners.
Form 1065 B-1 requires disclosure of all partners owning 50 percent or more either directly or indirectly.
Form 1065 K-1
Item E. The partners social security number or tax id number is entered at this point. If the owner is a disregarded entity, then the individual social security number should be entered not the number of the entity.
Item F. Enter the name and address of the person whose number appears in Item E.
Item H-2. A new checkbox to indicate whether the partner is a disregarded entity. If yes, enter the entity name and number.
Item J. A new checkbox has been added to indicate if there had been a reduction in the ownership percentages due to a sale of an interest.
Box 20, Code Z, indicates a Section 199A amount with the requirement to attach the Form 8995 or 8995A.
There are several other changes regarding foreign income or ownership.
The only method to determine capital will be the tax basis, meaning that a schedule will have to be attached, if utilizing another method in prior filings.
Other Forms and Changes to Note
New Forms 8995 and 8995-A. These are the forms that require explanation of how the Section 199A amounts were determined. When used with a flow-through entity, there must be one of these forms attached to the K-1 so that the owner can determine the amount of the deduction on their Form 1040.
New form 8996 – Limitation on Business Interest Expense Under Section 163(j). Use this form to determine the amount of business interest expense you can deduct. A taxpayer with business interest expense, a disallowed business interest expense carryover must file this form unless an exclusion applies. A taxpayer is not required to file form 8990 if the taxpayer is a small business and does not have excess business interest from a partnership.
Form 990 requires electronic filing by exempt organizations beginning on or after July 2, 2019. Further IRS issued interim guidance to taxpayers to determine the amount of parking expenses for qualified transportation fringes. They are also used to determine the amount of UBIT. Reminder a deduction for expenses for on-premises athletic facilities is disallowed if it discriminates in favor of highly compensated employees.
Form 1041 and instruction for the K-1. Section 199A Schedule K-1, box 14, Code I. Statements must be attached as to how the Section 199A amounts have been calculated.
2020 Publication 15-B. Check the cents per mile rate. The monthly parking exclusion is $270, and the monthly exclusion for commuter highway vehicle transportation and transit passes is $270. Contribution limit on a health flexible spending account – for plan years beginning in 2020, a cafeteria plan may not allow an employee to request salary reduction contributions for a health FSA in excess of $2,750.
2020 Publication 15. New withholding tables and a new Form W-4. The new wage base for FICA for 2020 is 137,700.
New Form 1099-NEC. This is a new form to report nonemployee compensation paid in 2020. This form is due on February 1, 2021. For 2019 continue to use Form 1099-MISC.
Changes Coming for 2020 Already Announced
Changes regarding Form 1099-MISC and Form 1099-NEC. NEC is to be used for non-employee payments; this will provide better matching for the IRS.
New Form 2848. Power of Attorney. Authentication Alert. Representatives with a POA must pass authentication procedures when calling and speaking with the IRS.
New Form SS-4 and new procedures for obtaining new Employer Identification Numbers. This form was revised in December 2019.
There are many other changes to other forms, but space requirements do not permit the full listing. Needless to say, you all have your work cut out for you this upcoming busy season.
Arthur Auerbach, CPA, CGMA is an independent tax consultant located in Atlanta, Ga., specializing in tax consulting and estate and financial planning for individuals and closely held businesses. He is affiliated with the Asbury Law Firm as a consultant.