For some, the 2021 tax season (2020 tax year) is a distant memory and the 2022 filing season (2021 tax year) is highly anticipated for all the unexpected surprises that may come. Some may wonder “will the 2022 filing season be normal?” That’s a tough question!
As many will agree, COVID-19 left its imprint on the tax profession, including tax law changes, staff shortages, new technology to work remotely (perhaps permanently) and changing how we conduct business so we could continue to serve clients. We are not currently hearing any indicators that the 2022 tax filing deadline will be extended, but as we are all too familiar, anything is possible. Add to the mix possible year-end legislation enactment and we have the makings of another abnormal 2022 tax season. Or is this the new normal?
In the midst of change and uncertainty, one thing is for sure, the 2022 tax season will be upon us before we know it. As of the date we published this blog, the 2021 Form 1040 was still in draft form. As a reminder, major changes from recent legislation that may impact your clients 2021 return include:
Proposed 2021 Form 1040 changes and updates
Unnumbered line changes
The first proposed change we see is to the unnumbered line dealing with virtual currency. The proposed question states “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
It is a minor change from 2020, which states “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The word “send” was removed and “acquire” was changed to dispose of.
Line 8, other income from Schedule 1
For 2021, other income is coming from Line 10 rather than Line 9 of Schedule 1, and Schedule 1, Line 8, has 17 sublines that detail the various other income types and sources.
Line 8
Schedule 1, Line 8
Line 10, adjustments to income from Schedule 1, Line 26
For 2021, less common adjustments are listed on Schedule 1, Line 24a through k, with a 24z being a catch-all. For 2020, these adjustments were in the instructions but not listed on the form.
Line 10
Schedule 1, Line 24
Line 12b, charitable contributions if you take the standard deduction (see instructions)
The cash charitable contribution for non-itemizers moved from Line 10b to a new line, 12b. The deduction is no longer an adjustment to income as it was for 2020. For 2021, the deduction for cash charitable contributions is no longer an above-the-line deduction for taxpayers who claim the standard deduction.
For 2020, the deduction was an above-the line charitable deduction, meaning it may have reduced a taxpayer’s adjusted gross income (AGI). A taxpayer’s AGI is the starting point for determining eligibility for certain tax benefits, such as credits and taxability of Social Security benefits. For 2021, the charitable deduction does not impact AGI, and therefore, some may see some tax consequences in 2021 due to the change.
Line 13, qualified business income deduction
The line number stayed the same from 2020 to 2021. For 2021 the line states “Qualified business income deduction from Form 8995 or Form 8995-A.” The word attach was removed from the instruction.
Line 20, amount from Schedule 3, Line 8
Reported here are the nonrefundable credits from Schedule 3. Line 6 of this schedule was updated¬¬ to list additional credits such as the adoption credit (6c), credit for elderly or disabled (6d) and the qualified electric vehicle credit (6i).
Schedule 3 was also expanded to two pages, where the second page has other payments or refundable credits listed as sublines (for reference, this was Line 12 on the 2020 schedule).
Line 27, earned income credit (EIC)
Three separate lines are used to report the entries.
Line 23, other taxes, including self-employment tax, from Schedule 2, Line 21
The 2021 Schedule 2 adds to the other taxes line items and is now a second page, with the inclusion of new additional taxes (Line 17a through q) of less common items, plus a catchall (Line 17z) at the end. Many of the items listed on the second page of Schedule 2 are not that common.
Other modifications were made to these forms that we did not address here, including, but not limited to, line numbering changes. Full draft versions of these forms are available now on the IRS’s website:
2021 Form 1040
2021 Schedule 1 (Form 1040)
2021 Schedule 2 (Form 1040)
2021 Schedule 3 (Form 1040)
It is also possible the IRS may make changes to the 2021 Form 1040 and the three schedules we discussed before a final version is issued.
It’s always a good idea to preview the upcoming year’s forms. If you see an item you would like to comment on, the IRS is always looking for feedback on its draft and final forms, as well as its instructions and publications.
Changes to the 1040 is not the only item practitioners need to be aware of. Form 7203 will impact the 1040s of S corporation shareholders and Form 8915-F will impact those with disaster and 2020 COVID distributions. See the quarter one’s TAXPRO Journal CPE article for additional information, which will be available in February 2022.
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The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.