Many changes in store for Form 1040 and related schedules.

• Author: McCartney, Dana

Tax forms change every year. Some changes are more significant than others, some make tax return preparation and review simpler, and some make it harder. Everyone should remember the 2018 "postcard" that was multiple pages that wasted paper when printing and made reviewing much harder for those who "knew where things should show up" on a tax return. Well, the IRS may never go back to the old form, but some of the changes this year should make the return easier to review. This item looks at some of the changes on the 2021 draft Form 1040, U.S. Individual Income Tax Return, (available at www.irs.gov) and related schedules to help practitioners prepare for next busy season.

The first change on the 2021 Form 1040 is the wording on the virtual currency question. In 2020, the question was as follows: "At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?" (emphasis added). The question on the 2021 return is as follows: "At any time during 2021, did you receive, sell, exchange or otherwise dispose of any financial interest in any virtual currency?" (emphasis added). This change is a step in the right direction to have the question actually match potential reporting events on the current-year tax return, since the disposition of virtual currency is more likely to be a reportable event than the acquisition of virtual currency.

Changes on page 2 of the 2021 Form 1040 are where one begins to see the theme of the 2021 changes. The 2021 forms and schedules provide reporting locations for items that previously were amounts to be written in on the dotted lines, such as nontaxable combat pay and prior-year (2019) earned income for purposes of the earned income tax credit on new lines 27b and 27c. There is also a description change to line 28, "Refundable child tax credit or additional child tax credit from Schedule 8812," which foreshadows the revised Schedule 8812, Additional Child Tax Credit, which will have to capture the pre-payments of the child tax credits that started being distributed in July 2021. The 2021 Schedule 8812 has been expanded from one page to three, and calculations that were previously done on worksheets are now reported directly on the form. Additionally, Part III of Schedule 8812 calculates the additional tax due to any excess advance child tax credit payments. The remaining changes to the 2021 Form 1040 are primarily updates to the year or a line...