Ready or not, the tax return changed again during the 2020 tax season. In 2018, the IRS significantly reduced the Form 1040, completely revising the previous traditional version and introducing additional programs that transmit information to the Form 1040, although the IRS has not changed Form 1040. In 2019 through Form 1040 was modified in such drastic fashion, there are substantial differences, particularly in the way capital gains are reported.
Below is aa summary of the main points of the income statement for managers and employees who earn compensation income in shares, such as stock options, restricted shares, or an employee share purchase plan or who have a turnover of the company's shares. Don't forget to submit your application before April 15, 2020.
• The numbered tables (additional forms) of Form 1040 have been reduced to three (tables 1, 2, 3).
• A new income tax return, form IRS 1040-SR ("Income tax return for the elderly") is available to taxpayers born before January 2, 1955. It is large and easy to read and includes a standard deduction table so that taxpayers do not have to access the instructions. However, Appendix A is still available for itemized deductions.
• The Law on Tax Reduction and Employment, the primary tax legislation that entered into force in 2018, continues to affect tax rates and regulations, including the specific deduction limits. However, for those who pay tax on children, the SECURE law (adopted at the end of 2019) has modified the tax rates applicable to income that does not work for a child over $ 2,200.
The current IRS Form 1040 form has 24 lines. Stock compensation, such as the acquisition of shares with restricted shares, or the exercise of unqualified purchase options (NQSO) as well as income from salaries and cash bonuses, are recorded in line 1 form 1040.
Earnings from the salaries of employees from all sources are added to Table 1 of W-2. If you are not sure which parts of the W-2 profits will result from the compensation of the shares, your company can voluntarily specify them in Table 14; For unqualified and ESPP stock options, your company should do so in Table 12. These compensation records will also appear in Table 5 for Medicare wages, and Table 3 for Social Security wages up to a yearly maximum of $ 132,900 in 2019( this maximum increased to $ 137,700 in 2020).
Appendix 1 shows the income from compensation for employee shares that are not shown on the W-2 form. It is on line 8, with a brief description of the income declared. This Schedule 1 report has been modified from line 21 for 2018 income tax returns to line 8 for 2019 income tax returns.
If you sold shares in the 2019 fiscal year, enter each sale on Form 8949 and report the total capital gain or loss in Schedule D. This total in Schedule D is reported directly on line 6 of Form 1040. This is something else. Report from last year, in which the total capital gain or loss was included in Schedule 1, not in Form 1040.
Reporting capital gains on Form 1040 was a smart decision of the IRS. The last fiscal year did not directly report capital gains and losses on the Form 1040 income tax return. However, the total capital gains from Schedule D for fiscal 2018 were reported on the newly created schedule 1, with the totals for this schedule in the revised Form 1040.
Now, in Form 1040 for fiscal 2019, the total gains (or losses) are returned to the body of the form of line 6 and not the schedule.
Last year's experience with the declaration of capital gains was unpopular. The IRS has been criticized for the confusion it has caused. However, the agency has come under heavy political pressure to plan a "postal card-sized" tax return to coincide with federal tax reforms introduced in 2018.
Concern for anyone with incentive stock options (ISO), the AMT (Alternative Minimum Tax) is no longer directly published on Form 1040 from the calculation of Form 6251. Instead, the calculation of AMT form 6251 now enters line 1 of Schedule 2 ("Tax") "). This is a change from last year's report in Schedule 2 (which was on line 45). Attach Form 6251 to Schedule 2.
Other aspects of reporting when you have an ISO exercise that activates AMT and when you sell ISO shares:
The totals in Part I of Schedule 2 refer to the total from line 12b of Form 1040 (formerly line 11).
• Form 6251 had not changed since last year when its lines were revised. The difference in the ISO exercise for calculating the AMT is presented in line 2i. When the ISO shares that triggered the AMT are sold, the difference with the common tax is indicated on line 2k.
• The AMT credit generated for an ISO exercise that activates the AMT is recovered using form 8801, as it was in the past. The amount from line 25 of Form 8801 now goes to Attachment 3 ("Non-refundable receivables") of line 6 (box b). The totals in Part I of Schedule 3 refer to line 13b of Form 1040.
Regarding share sales, there is still no change in the IRS rules on how cost-based information is reported on Forms 1099-B and 8949. For Subsidies paid in 2014 and beyond, brokers are prohibited from including capital tax income (shown on Form W-2) based on the cost presented in Form 1099-B.
This creates complications in the tax return and the risk of paying excessive taxes since only the cost of the year appears in 1099-B. This means that, for restricted stocks, the cost base declared on Form 1099-B is zero, or the box is left empty. However, the correct cost base is the value of the shares at the time of purchase. This is what must be reported on Form 8949.
Get advice on the tax return report for stock compensation and company stock sales, including the charts listed on Form W-2, Form 8949, Schedule D, Form 3921, and form 3922.
