Dear Neighbor,
There was a time when many of us could crawl under the hood of the ol’ family car and make repairs. Maybe we would then fill out our tax form. They both used to be pretty simple.
Unfortunately, both projects have become more complicated over the decades. Do-it-yourselfers are becoming increasingly rare. We now bring our vehicles to the shop for services we once handled ourselves. Taxes? Reports indicate around 90 percent of American filers either pay someone to prepare their forms or use software assistance.
Democrats in St. Paul made things even more difficult - and more costly - for Minnesota taxpayers. They failed this year to match state tax provisions with federal guidelines. This means Minnesota taxpayers will not be able to claim on state forms deductions they file on federal returns.
This will add work, confusion and cost us money. Here is a sampling of deductions we are set to lose:
Federally, you are not taxed on the principle sale amount of a home in foreclosure, but any taxpayer who had this type of debt forgiven in the past now must pay the full amount in Minnesota.
Minnesota families are allowed to deduct the cost of home mortgage insurance premiums on their federal return but must pay the full amount on their state tax return.
Marriage penalties occur when a family filing jointly enters a higher tax income bracket than if they had filed separately. An estimated 650,000 Minnesota families will pay on average $120 more per year in taxes because Democrats rejected an amendment to lift this burden.
On a federal tax return, families can deduct $3,000 for the first child and $6,000 for two or more children for child care expenses. However in Minnesota those amounts are $2,400 for one and $4,800 for two or more children.
When a family donates canned goods or other food items to a food shelf they are allowed to take a deduction on their federal taxes that is not included in Minnesota taxes.
Workers may exclude up to $240 a month in employer-provided transit or parking benefits on their federal taxes. That amount at the state level is only $125, leaving a gap of more than $1,300 per employee.
Students and educators also face the loss of deductions, including:
Those of us who claim an above-the-line deduction for tuition and fees on federal forms will need to add that amount back onto your income on state filings. Furthermore, Minnesota did not fully adopt the federal exclusion for employer-provided education assistance. Many Minnesotans will now have to report this income on their state filings.
Teachers often use their own money to make sure their classrooms have all of the necessary class supplies. Educators are allowed to deduct the first $250 in out-of-pocket expenses for purchasing classroom materials on their federal returns. Minnesota teachers will not be able to deduct these expenses on state forms.
You may exclude awards you receive from a number of national scholarship and financial assistance programs from your income on federal returns. Now these awards – including some for military veterans – will be taxed by Minnesota and must be included as income on state forms.
The federal government allows taxpayers to deduct distributions from a Coverdell Education Savings Account for elementary and secondary schooling. Minnesota taxpayers now must add these distributions to their income if used for K-12 education expenses.
Several federal provisions allow deductions for student loan interest. Minnesota taxpayers will not be able to deduct this interest when it’s paid either voluntarily or after the first 60 months that interest payments are required on the loan.
You may say some or all of these deductions should be altogether eliminated. That would be part of a bigger plan to simplify our tax code, something we should consider. For now, it would have been easy to resolve these differences so these state and federal deductions could match.
It makes you wonder why some Minnesota legislators refused to support tax conformity. Maybe it’s as simple as they want to keep our money to pay for more government spending.
Sincerely,
Mark