One of my senior clients telephoned about his tax return of USA for 2019 but with emphasis on 1040 SR. I was not taken aback since for one well versed with US Taxation, change is spice of life. We as CPAs are forced to update our knowledge by CPE stipulations.
I am very happy to deal with 1040 SR as it reveals gems for seniors like myself.
Now form 1040 SR and more….
Though 1040 and 1040-SR seems to tally with each other in all manner with even all serial items, I shall deal with the later 1040-SR today in extensive style to welcome its arrival and also to celebrate a senior like myself in an unprecedented scale worshipping his/her ____________ unflinching commitment to USA taxation making it one of the greatest income producer of the world.
Form 1040-SR can be seen in the following web address:
https://www.irs.gov/pub/irs-pdf/f1040s.pdf
Most of the seniors who become American citizen due to sponsorship or by birth but live in India by occupation, are expected to file tax returns. Most of them being seniors do not bother to read or understand the instructions.
With the tightening of rules at all levels, both in India and USA, ignorance may not be bliss. I had a case of an Indian, but of USA citizenship and naturally their passport never bothered to submit tax returns since his father took care of the matter.
Only when he applied for renewal of his passport for visiting the graduation ceremony of his son, the embassy was kind enough to take the passport and refused to return citing some improprieties as the citizen of USA.
When he met me and explained his story, I have to work in close liaison with IRS to file the returns and meet their requirements.
Yes, he got his passport again but the moral of the story is that many green card holders from India never bother to file tax returns.
Tax returns of green card holders containing Indian income are substantial in many cases. Recently immigration authorities have started questions whether the tax payer visiting USA wants to make USA a permanent residency and whether they file tax returns for USA. These instances show the essential emergency of filing taxes on a timely basis and if necessary, carry the copies of latest tax returns and usage of professionals like CPAs so that any tax return can be retrieved at any point of time.
Form 1040, has been explained in details in earlier articles for the tax year 2018. Not much change has been observed.
The website for form 1040 is given as under:
https://www.irs.gov/pub/irs-pdf/f1040.pdf
The instructions for filling up the above form are as under from their web site.
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
This 108-page document, a legendary work was explained threadbare in my earlier articles. One can read them from Taxguru.in.
Itemized deduction has however undergone a sea change which will be explained in detail in the following paras.
Schedule A – Itemized deductions
Itemized deductions appear as serial number 8 of page 2 of new 1040 form. Let us analyze the additions, retention or removal of items.
The above schedule one of the oldest survivors of the schedules now has 18 serial items as per the list given below:
- Serial number 1, Medical and dental expenses
- Serial number 2-4 calculations
- Serial number 5, State and local taxes
- Serial number 6, other taxes
- Serial number 8, Home mortgage interest and points
- Serial number 9, Investment interest (To attach form 4952, if needed)
- Serial number 10, some calculations
- Serial number 11, gifts by cash or check
- Serial number 12-14, Total gifts calculations including carry overs from earlier year
- Serial number 15, Casualty and theft losses
- Serial number 16, Other list items
- Serial number 17, To add the total amounts
- Serial number 18, If one itemizes even though it is less than standard deduction, it is to be checked here (items 17 and 18 indicate total of itemized deductions)
The writer hopes to write a separate essay on itemized deductions in future and hence detailed explanations have not been given.
Let us answer various questions that arise during tax seasons, particularly now when every tax instruction seems to have been changed. One needs to hear about them in this globalized world.
- What about Schedule C which has been used by sole proprietor? A copy of
- above schedule is available at
https://www.irs.gov/pub/irspdf/f1040sc.pdf.
- A separate article addressing various issues related to above schedule will be written in near future.
- Tax Form 1065 and its applicability – can we have some information?
- Form 1065 is an information return used to report the income, gains, losses, deductions, credits, and other information from the operation of a partnership. A partnership doesn’t pay tax on its income but passes through any profits or losses to its partners. Partners must include partnership items on their tax returns. Form can be assessed at
https://www.irs.gov/pub/irs-pdf/f1065.pdf
Since partnership is a conduit, partners ultimately pay the taxes.
The new instructions being issued on Form 1040, are equally applicable on the partners who would file their individual tax returns.
- Form 1120 and whether any change in the structure for filing of tax returns?
What’s New Tax rates. For tax years beginning after 2017, the Tax Cuts and Jobs Act (P.L. 115-97) replaced the graduated corporate structure tax structure with a flat 21% corporate tax rate. The instructions for Schedule J may be studied.
- If the corporation had gross receipts of at least $500 million in any one of the 3 tax years preceding the current tax year, Form 8991 has to be completed.
- Domestic production activities deduction (DPAD): The DPAD has been repealed for tax years beginning after 2017 with limited exceptions.
- To assess form number 1120, one may view at
https://www.irs.gov/pub/irspdf/f1120.pdf.
- New taxation instructions for individuals under form 1040, has obviously impacted the members of S corporation in form 1120S.
We are aware that 1120S is a conduit for its members, just like a partnership firm.
- Purpose of Form: Usage of Form 1120S is to report the income, gains, losses, deductions, credits, and other information of a domestic corporation or other entity for any tax year covered by an election to be an S corporation.
- A corporation or other entity must file Form 1120S if (a) it elected to be an S corporation by filing Form 2553, (b) the IRS accepted the election, and (c) the election remains in effect. After filing Form 2553, the tax payer should have received confirmation that Form 2553 was accepted.
- Termination of an election: “Once the election is made, it stays in effect until it is terminated. If the election is terminated, the corporation (or a successor corporation) can make another election on Form 2553 only with IRS consent for any tax year before the fifth tax year after the first tax year in which the termination took effect”. This has been quoted directly from IRS instructions issued on 1120S.
- Charitable organizations use form 990 which consist of schedules, that result as a complicated return. One must use the appropriate Form 990 for the tax period for which one is filing. Penalties may be assessed for failing to file the proper version of Form 990 for the tax period of the return. I intend writing a separate article on this subject,
- Form 990 has to be checked for its accuracy of EIN, tax period, group exemption number (GIN). One filing the form has to ensure completion of all parts 1-9. Until the column indicating the signature under part 2 of the signature block is completed, it may not be accepted by IRS. An officer of the organization has to complete this form.
Conclusion
It is a pleasure to know the introduction of form 1040-SR. Though nothing new could be enforced, this makes seniors who are the backbone of American taxation, a new recognition and an enviable position.
American government, popularly known as Federal Government created history by completely changing the relevant tax codes and reduced the tax rates from the tax year 2018 onwards. Corporations had massive reduction in tax rates which enabled them to make American economy to scale up its size and helped more industries return to USA.
For 30 years only cosmetic changes were made but these recent changes had quietly shaken up the tax payers of all sizes. With 21% tax rate for big corporations, the whole world has woken up to face tough competition from the first ranked economy in the world, undoubtedly USA. USA gained the lowest unemployment rate which also helped the current government to challenge the Chinese and other countries to agree for new trade agreements.
Please do avail the services of top CPA professionals to file your tax returns, get tax refunds on time and face IRS enquiries boldly without any trepidation.
For Indian professionals, this is my fervent request that please read articles on taxation in USA and other countries to widen your knowledge and acquire power to guide the world. Let us not look like novice if a foreign company calls one for discussion.
Reference
Form 1040: https://www.irs.gov/pub/irs-pdf/f1040.pdf
Form 1040 instructions: https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
Forms like 1065, 1120, 1120S have been discussed by quoting the sources from IRS instructions.
An attempt has been made to quote as much as possible from IRS web site https://www.irs.gov/.
But with a simple layman’s language, as usual.
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