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Good Old Days

Julian Block  |  November 21, 2018

SAY “1040” and most of us think of the income tax returns we file each year on April 15. But it’s only because of chance that we fill out 1040s, instead of 1039s or 1041s: That number was up next in the sequential numbering of forms developed by the Bureau of Internal Revenue, the predecessor of today’s IRS.

It all began on Jan. 5, 1914, when the Department of the Treasury unveiled the new Form 1040 for tax year 1913. The feds set March 1, 1914—less than two months away—as the deadline for filing the form with the local tax collector’s office.

Today’s 1040 differs completely from 1913’s. Let’s focus first on tax brackets: 1913’s brackets began at 1% on taxable income of up to $50,000. The next ones were: 2% on income between $50,000 and $75,000; 3% on income between $75,000 and $100,000; 4% on income between $100,000 and $250,000; 5% on income between $250,000 and $500,000; and a top rate of 6% on income above $500,000. Contrast 1913’s comparatively miniscule rates with those set by last year’s Tax Cuts and Jobs Act (TCJA): 10%, 12%, 22%, 24%, 32%, 35% and 37%.

The first 1040 was just four pages. Page No. 1 summarized your income and deductions, and was where you computed your income tax (eight lines). The second page listed the details of your income (12 lines). The third page listed your deductions (seven lines). What was the fourth page? It provided instructions—all on a single page.

Page three’s list of deductions was skimpy, compared to today’s sumptuous array of write-offs. It included a deduction of $3,000 for single taxpayers and $4,000 for married couples. While spouses could file joint or separate returns, in no case could their combined deductions be more than $4,000. (So yes, the marriage penalty—which has been mostly erased—dates back to the first modern return.) The $3,000/$4,000 write-off alone was sufficient to relieve the vast majority of Americans of the need to pay income taxes.

Other authorized deductions included:

  • Personal interest paid (a deduction almost completely deep-sixed by the Tax Reform Act of 1986)
  • Uninsured losses from “fires, storms, or shipwreck” (mostly abolished by TCJA; unsurprisingly, no mention of plane crashes)
  • Business losses (TCJA ended carrybacks for net operating losses and allows only carryforwards)
  • All other taxes paid, including real estate taxes (capped by TCJA at $10,000 for those itemizing their deductions)
  • Bad debts
  • Reasonable depreciation of business property (“reasonable” was replaced long ago by numbingly complex rules explaining how to calculate depreciation write-offs for buildings and equipment)

What remained to be done after taxpayers filled out their forms? In 1914, they had to sign “under oath or affirmation” before “any officer authorized by law to administer oaths.” Nowadays, we simply sign.

Back then, taxpayers filed just over 350,000 1040s. IRS sleuths audited 100% of tax returns. Today, an underfunded IRS is understaffed—and your chances of being audited are slim.

Julian Block writes and practices law in Larchmont, New York, and was formerly with the IRS as a special agent (criminal investigator). His previous blogs include Two’s a Crowd, Stepping Up and Give and Receive. Information about his books is available at JulianBlockTaxExpert.com. Follow Julian on Twitter @BlockJulian.

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