What Minnesota taxpayers need to know about nonconformity
June 7, 2018 | Carolyn LaViolette
Health care access. Affordable higher education. Funding roads and bridges. No matter how politically involved (or uninvolved) you are, there are probably one or two political issues you can list off as most important to you.
One issue that probably doesn’t come to mind: tax conformity.
In short, tax conformity is when Minnesota’s lawmakers decide which parts of the federal tax code to adopt whenever there are changes made in Washington, D.C. It’s something that’s debated every session, but hardly an issue that rises to the top of political ads and literature. At least, not until recently.
Congress made sweeping changes to the federal tax code when it passed the Tax Cuts and Jobs Act (TCJA) in December 2017. With credits changing and certain deductions disappearing at the federal level, Minnesota had to carefully evaluate how the TCJA would impact state tax returns and make important decisions about conformity. In short, conformity became one of the biggest issues of the 2018 session that people knew so little about.
Where did we end up? Unfortunately, the 2018 session adjourned and the governor vetoed two tax bills that would have provided conformity. That means this coming tax season is going to be more complicated than ever.
We identified the top three issues caused by Minnesota not passing a tax bill to conform with the TCJA.
Filing taxes will be more difficult
The Minnesota Department of Revenue recently granted some flexibility for the 2018 tax season -- allowing taxpayers to take the standard deduction on their federal return and itemize on state returns. But, this means taxpayers will need to take the added step to determine which option works out better in their favor. For some, their federal tax bill will be lower if they take the new standard deduction under the TCJA. But, for those same people, it may be more beneficial to itemize on their state return. This is a complex step for those who haven't had to trouble with itemizing in previous tax seasons.
In addition, Cynthia Bauerly, commissioner for the Minnesota Department of Revenue, said that “the state will have to draft over 80 pages of new income tax instructions.” And, at least 10 new forms and schedules could come into play when people sit down to complete their tax returns.
So, if you thought filing income taxes in recent years was complicated, wait until you attempt to file for 2018.
You must continue to keep records
The new federal law eliminated the miscellaneous expenses from itemized deductions. However, since Minnesota is still operating on the old tax law, it is important to keep record of your expenses, such as:
- Unreimbursed employee expenses.
- Tax preparation fees.
- Investment expenses.
- Gambling losses.
They won’t be deductible on the federal forms, but they may continue to be for Minnesota.
Plan on paying more
Minnesota taxpayers calculate state income tax starting with their Federal Taxable Income. The main issue with this is that under the new tax law, the exemption for dependents was eliminated. This results in a higher Federal Taxable Income for some taxpayers, especially families.
Changes were made to the federal tax law, including a decrease in tax rates and expanded tax credits, to help compensate for the elimination of the dependent exemptions. However, with no change in Minnesota’s tax law, Minnesotans will lose out on these benefits. As a result, most will likely end up paying more in Minnesota income tax.
Even if you don’t have children, Minnesotans will likely also see an increase in tax preparation fees or self-prep software costs for filing in Minnesota.
Not having tax conformity impacts nearly all Minnesotans across the state. It’s important to keep track of this issue to help reduce the number of surprises come filing time. Stay in touch with your locally elected officialsto share how nonconformity is affecting your family, and to learn whether a special session will be called to address conformity. And, keep in touch with your certified public accountant to help plan out your financial decisions for the remainder of the year.
If you don’t have a certified public accountant, you may visit the MNCPA’s CPA Referral Service to search for a firm by location or specialty.
Thank you to Lucas Selvig, senior accountant at Boyum & Barenscheer, PLLP for contributing to this post.
Topics: Legislative & Government Affairs, Taxation-Individual, Taxation-Business
Carolyn LaViolette is the MNCPA communications manager, working to enhance members’ professional reputations through content, media relations and public affairs. She is also the MNCPA’s unofficial pianist and has tickled the ivories at multiple MNCPA events. Outside of her love for writing and music, Carolyn spends her time playing with her two daughters, attending Tommie football games with her husband, and memorizing the lyrics to musicals. If you can’t get tickets to Hamilton, she is happy to sing the soundtrack for you. Carolyn can be reached at 952-885-5530 or firstname.lastname@example.org.
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