Minnesota taxpayers may have their hands full when filing this season.
The 2018 state legislative session ended with the governor vetoing two bills that would have provided conformity between state tax codes and the sweeping changes made to federal taxes in December 2017. This means that Minnesotans need to file their taxes for the 2018 season under two different sets of rules - once under federal regulations and again to comply with state laws.
Karin Nelson, certified public accountant at Nisswa Tax Service, said the state's nonconformity will add another layer of complexity to the filing process.
"Usually, we arrive at the federal result, and we just move that over and make a few adjustments to get the state result," said Nelson. "This year we almost have to start all over."
Tim Roggenkamp, CPA with Roggenkamp Tax and Accounting in Pequot Lakes and Crosslake, agreed that this tax season will be complicated for taxpayers and accountants alike.
"The biggest question we get is whether or not it's worth it to put every piece together," he said.
Even though there is the option for a simplified standard deduction on the federal side, he said, people should not assume that they won't need to fully itemize their return when it comes to state rules.
"I recommend that people still bring their accountants all the things they did before, and to get an early start," he said.
Nelson said due diligence records will be useful, such as birth certificates, medical statements or other documents that can prove a person is eligible for certain tax credits.
Across the board, local accountants are encouraging taxpayers to carefully look over documents they have saved and compile anything that may be useful when creating an itemized tax return.
"We're really going to have to process the whole Minnesota tax return from beginning to end," said Nelson.
More work for accountants
Itemization for state taxes is not the only element that will be more complicated. According to both Roggenkamp and Nelson, the state has produced hundreds of new forms that can be used to reconcile differences between federal and state tax filings. However, some of these forms are still being finalized, causing accounting services to play catch-up on the rules in order to best serve their clients.
"General filing is open, but we can't necessarily start," said Roggenkamp. "I'm not sure everything is finalized."
Nelson said that just a few weeks earlier, Nisswa Tax Service received 256 pages of reading to clarify the new rules, and the staff is taking part in webinars and classes to try to keep up.
"We're putting in perhaps double the time training staff this year," she said. "This is last-minute stuff we're all going to need to know."
Michael Clayton, CPA in Pine River, said he doesn't yet have a very good understanding of where taxpayers stand in the upcoming season because he, too, is waiting to hear some final rulings by the IRS on how changes will be applied.
"It's hard to see how it will actually affect people," he said.
Because the process is much more involved than previous years, clients may see tax service rates increase this season. Nisswa Tax Service has already made the decision to slightly raise prices.
"We struggled with that decision, but we will have to do this," said Nelson.
What to expect when you file
The general consensus among local accountants is that these tax rule changes will affect everyone differently, so it's difficult to say whether they expect certain trends to emerge. However, some accounting services, such as Roggenkamp Tax and Accounting, have used last year's numbers to make some estimations.
Roggenkamp said he took his clients' information from 2017 and applied the new rules for 2018 to get a sense of what was to come. He found that a majority of his clients, using last year's totals, would save money using the updated rules.
Those with a significant amount of unreimbursed work expenses, such as driving mileage, were most likely to see a negative impact on their returns. People with higher income were projected to save more than in previous years.
Nelson with Nisswa Tax Service said that it's a moving target, but she expects several of her clients will be paying more. Following the new federal tax rules, she said, people that can claim children as dependents will most likely be happier with their return.
However, Minnesota's state rules have not been adjusted in the same way, so those benefits from the federal changes will not apply on the other side.
Roggenkamp, Nelson and Clayton all agree that taxes are determined by a high number of variables, so until taxpayers start working on their returns, it's not easy to say what the outcome will be.
"Take time with the process to file," said Nelson. "Look at your results carefully before submitting."
Roggenkamp said that tax policies may use the word "simplification," but taxpayers shouldn't be swayed away from being vigilant.
"Things that say they are simplified may not actually be," he said.
General filing for state and federal taxes opened Monday, Jan. 21, and will continue until Sunday, April 14.