What's New on the 2018 Form 1040NR: Small Changes, Big Impact!
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Well, it was around this time that I discovered Tax Law and found it quite fascinating. I started to prepare our own taxes which involved Form 1040NR's, India-US Treaty knowledge and the rest is rather choppy history which is reserved for another post because today we need to talk to about this 2018 Form 1040NR.
For the longest time ever this foreign cousin of the good ol' Form 1040 had a rather mundane existence, nothing usually changed on it. Tax geeks got all excited when the Form 1040NR finally entered the digital age in 2017, we had hardly settled down from that when the BIG 2017 Tax Reform happened and everything pretty much is different now.
Just so we are clear, the Form itself has not changed much but if you have to file the NR, your bottom-line will change due to the following:
1. No Personal Exemption: First off, the personal exemption has been removed, so that nice $4,050 that reduced your taxable income? Not available to you anymore.If you file a Form 1040NR, your taxable income will be higher.
2. Standard Deduction is Higher: Now this is the twist in the Treaty tale I was talking about earlier, the higher standard deduction will only help students and researchers from India. Why? Because they are the only non-resident aliens who are allowed to claim the standard deduction on their Form 1040NR per the India-US Tax Treaty. Students/ student-trainees/ researchers from India on an F1/ J1 visa will be able to lower their taxable income. All others see #3.
3. Itemized Deductions Have Changed: The great Mahatma Gandhi marched to protest the Salt Tax imposed by the British Empire, this was a turning point in the Indian struggle for independence from the British. There was no such momentum with the SALT cap protest by the people in the US and many states. SALT here my dear readers stands for "State And Local Taxes". Those non-resident aliens who cannot take the standard deduction ( See #2), had the opportunity to write off state and local taxes they paid as part of the Itemized Deductions on Schedule A, that is now capped at $10,000.
I have not seen many foreign students or researchers earn a lot of money (been there, done that), so the above may be non-consequential to most. However, adding salt to injury (too much?), Miscellaneous Deductions have been removed from Schedule A as well.
Any personal casualty loss or loss from theft is also no longer allowed unless they occurred in federally declared disaster areas.
Some solace: These disallowances are temporary through 2025.
4. Moving Expense Cannot Be Deducted Any Longer: So you are a non-resident alien who moved to the United States in connection with your employment or are self-employed? You can no longer deduct your moving expenses to the US. You can now deduct your moving expenses only if you are a member of the Armed Forces.
The 2017 Tax Reform has many changes and many forms and instructions are still work-in-progress. The Instructions to the 2018 Form 1040NR at the time of posting still has a draft watermark. Do not attempt to do this by yourself, hire a tax professional to help you navigate the Law.
Consult with a Circular 230 Tax Professional for your unique needs and make sure your questions are answered. Please read my disclaimer here. If you have any questions regarding this issue or other tax matters, all of my contact information is on my website, www.mntaxbiz.com.