Thefirst Form 1040 that I did as a paid preparer was the 1971 model (I canactually tell you the name of the taxpayer on the very first 1040 I worked on).There have been tons of changes to the 1040 over the years.
OnPage 1 of the 1971 Form 1040 one would indicate name, address and SocialSecurity numbers of the filer(s). In the case of a return for a married couplethe names were listed as “Richard and Mary Taxpayer” on one line instead of aseparate line for the name of each spouse. The filing status was checked andexemptions were claimed. The taxpayer and spouse could each claim an additionalexemption for being 65 or over and blind. The names, but not Social Securitynumbers, of dependent children were listed, with no indication of whether they“lived with you” or “did not live with you”. The names, but again not SocialSecurity numbers, of “other” dependents were listed on Page 2 of the 1040.
Incomewas reported on Lines 12 through 18 on Page 1, with lines for wages, dividends(no designation of “qualified”), interest (taxable only – no reporting oftax-exempt interest), and “income other than wages, dividends and interest”,the sub-total, total “adjustments to income” and Adjusted Gross Income. TheLine for dividends include (a) for gross dividends and (b) for an exclusionamount. If gross dividends and/or total interest exceeded $100 one would haveto complete and attach Schedule B
Thenet tax liability was reported on Lines 19 through 23. Federal Income Taxwithheld, Estimated Tax Payments, and “Other payments” were deducted and abalance due or refund was indicated.
Line31 of the Form 1040, and not Schedule B, was where the taxpayer was asked aboutforeign accounts.
Page2 of the Form 1040 consisted of Part I where other dependents were listed,along with relationship, months live in taxpayer’s home, did dependent haveincome of $675 or more, amount taxpayer furnished toward support, and amountfurnished by all others, including the dependent, but not the dependent(s)’Social Security number(s).
Specificitems of income, adjustments to income, credits, other taxes, other payments,and the actual Tax Computation were reported on Lines 34 through 64 in Parts IIthrough VII.
SocialSecurity, Railroad Retirement, and Unemployment benefits were totally exemptfrom federal income tax. One could use the “3-year” rule for recoveringemployee contributions to determine the taxable portion of pensions andannuities. This was calculated on Part I of Schedule E.
Adjustmentsto income included –
*“sick pay”,
*Moving expense,
*Employee business expense, and
*Payments as a self-employed person to a retirement plan, etc.
Theonly credits indicated on the 1040 were –
*Retirement income credit,
*Investment credit, and
*Foreign tax credit.
Thepersonal exemption amount was $675. Tax could be calculated by “using Tax RateSchedule X, Y or Z, or if applicable, the alternative tax from Schedule D,income averaging from Schedule G, or maximum tax from Form 4726”. Other taxesincluded a line for “Minimum tax”, not yet alternative.
OnSchedule A –
*medical and dental expenses were reduced by 3% of Adjusted Gross Income (thiswas the only item on the Form 1040 that was reduced based on AGI),
*taxes included state and local gasoline tax (from gas tax tables), generalsales tax (from sales tax tables) and (not or) state and local income tax, withan additional deduction allowed for sales tax paid on “major purchases”,
*contributions were deductible pretty much as they are now, except there was nostrict requirement for documentation,
*interest expense included not only home mortgage interest (fully deductible –no principle restrictions) but also interest on installment purchases andcredit cards, and
*miscellaneous deductions were not reduced by a % of AGI; certain employeebusiness expense, as mentioned earlier, were deductible as an “above-the-line”adjustment to income.
ScheduleD allowed for a 50% deduction for net long-term capital gain – only half ofsuch gains were included in AGI. So if net long-term capital gain (or netcombined long-term and short-term gain if smaller) was $10,000, only $5,000 wasreported as income on Page 2 of Form 1040. The maximum net capital lossdeduction was $1,000.
Thestarting tax rate was 14% and the top was 70%, although the rate for “earnedincome” such as wages was capped at 50% - hence the “Maximum Tax” calculated onForm 4726.
The1971 standard deduction was $1,050 for both a single person and a marriedcouple. The standard deduction was originally 10% of AGI up to a maximum of$1,000. It wasn’t until 1975 that the standard deduction for married was morethan that for single. Click here for a chart of historical standard deductionamounts for single persons and married couples.
Obviouslythe 1971 tax returns were prepared by hand. We didn’t even have photocopiesback then (at least where I worked). The returns were written, or sometimestyped, on 3-copy carbonized forms purchased from Accountants Supply House inValley Stream, New York State.
Sotax rates were higher back then – but there were a lot more deductions allowed.And one could also use either Income Averaging or 10-Year Averaging to cutthousands off a large tax bill.
Howdo I remember all this? My memory is good – but not that good. I have a client,originally a client of my mentor Jim Gill, for whom I have a copy of everysingle Form 1040 filed since 1970 in the file.
Sodo you think the Tax Code is better now, or was it “more better” back then?
TTFN
