Tax time, always busy for Minnesota’s thousands of accountants and tax attorneys, promises more headaches than usual this year for preparers and clients alike.
The biggest tax overhaul in decades, a state-federal tax code disconnect that further complicates Minnesota filings and potential Internal Revenue Service delays after a partial government shutdown have industry veterans bracing for a hectic tax season.
“My sense is that [Minnesota], by not adopting the federal changes, has got to be one of the most complicated states in the country to deal with,” said Mark Salsbury, a partner who focuses on tax planning and merger-and-acquisition transactions at the Ballard Spahr law firm. “It’s a nightmare.”
The tax filing season begins Monday, when the IRS is scheduled to start processing returns for individuals. Many accountants are prepared to work long hours to try to get their clients’ forms in order ahead of the April 15 deadline.
“They’ve kind of rewritten the book on a lot of this in that we have to learn as stuff is either in proposed stages or even final stages along with a lot of new forms, documentation,” said Tyler Hess, a principal who manages the tax practice at CliftonLarsonAllen’s Minneapolis office. “We are still learning.”
In late 2017, President Donald Trump signed the most sweeping federal tax overhaul since the 1980s, spelling dramatic changes in the way individuals and corporations file their taxes.
The bill lowered tax rates, especially for corporations, and changed the tax break landscape for many individuals by: changing certain credits, doubling the standard deduction and capping deductions for local property and income tax or sales tax, which packs a bigger punch in higher tax states like Minnesota.
Last year, Minnesota became one of a handful of states not to enact legislation to conform to new federal tax provisions when Gov. Mark Dayton vetoed a tax bill that capped a bitter legislative session.
“There’s no simplicity for Minnesota,” said Mark Bakko, a partner with the tax group at the Minneapolis office of Baker Tilly. He added, “It’s a complicated difference between federal and Minnesota that we have to keep track of really forever until Minnesota adopts.”
For example, federal tax reform doubled the standard deduction and jettisoned personal exemptions, which included dependents. Minnesota doesn’t have the higher standard deduction, but it keeps exemptions. For Minnesota taxpayers who may have to file taxes in multiple states, the conformity issues could be even more troublesome, said Kevin Smith, a tax partner at KPMG. “We’ve got some messiness,” he said.
Even for certified public accountants, who must take continuing professional education courses annually to maintain an active license, the learning curve has been daunting.
Salsbury said he spent at least 500 hours last year studying the tax act to better help his clients understand the changes in preparation for tax season.
“I can’t charge clients for that; it’s kind of investment time that you have to [do] when there’s dramatic change like this,” Salsbury said.
Deloitte, which operates one of the major accounting firms in the Twin Cities, has been recruiting additional staff and at the same time, it’s been “undertaking specific efforts to train our people at every level of our organization on the local and national tax law changes,” Boake Munsch, office tax managing partner for Deloitte’s Minneapolis office, said in a statement.
Jim Kolar, the central market managing partner at PricewaterhouseCoopers, said similar to years past the firm has made it a priority to keep staff up to date on changes.
Amber Kaibel, a tax supervisor with Mahoney Ulbrich Christiansen Russ P.A. in St. Paul and a spokeswoman for the Minnesota Society of Certified Public Accountants, said accountants are prepared for the onslaught.
“This year there really is a learning curve because it is the most sweeping change in a generation … but that’s really part of what we do as certified public accountants,” she said. “That’s kind of the norm of what we do. It’s simply on a larger scale.”
But even with all the preparation, the tax season is expected to be especially trying for consultants. “It’s one thing learning about it,” Hess said. “Now we have to put it on forms.” Hess said it’s difficult to estimate how many more hours than usual the firm will log this season.
The Treasury Department and IRS are still issuing regulations to provide guidance for different tax provisions.
On Friday, Trump struck a short-term deal with congressional leaders to reopen the government, but the recent absence of a large number of IRS workers could still mean delayed tax refunds.
The IRS recalled 46,000 furloughed employees or nearly 60 percent of its workforce, but hundreds of those employees had gotten permission to stay off the job during the more than monthlong shutdown.
The Trump administration has promised that taxpayers will get refunds on time.
Several local tax experts said they expect there to be more taxpayers requesting extensions to file after April 15, the deadline for most individuals to file. St. Paul nonprofit Prepare + Prosper has trained more than 600 volunteers to help low- to moderate-income individuals prepare their taxes.
“We certainly acknowledge that there were sweeping changes in the federal tax law and those changes will impact people differently,” said Tracy Fischman, the organization’s executive director.