As a result of the Omnibus Tax Bill which was passed during Minnesota’s recent legislative special session, then signed by Governor Walz on Friday, May 31, 2019, Minnesota individual income tax law will now largely conform to federal tax law.
Our Tax Team will be actively analyzing the changes and will be working with CCM clients in the remainder of 2019 to help optimize your tax situation. In the meantime, following is a summary of the key takeaways from the 2019 Omnibus Tax Bill to be aware of that impact individual taxpayers:
- The starting point for the calculation of Minnesota taxable income will be federal adjusted gross income which is a change from Minnesota tax law prior to 2018 when the starting point was federal taxable income. Changing the starting point will allow Minnesota to adopt its own rules for purposes of calculating provisions such as personal/dependency exemptions, standard deduction vs itemized deductions, etc. which will provide greater flexibility in the future.
- The bill reduces the second tier tax rate from 7.05% to 6.80%.
- Single filer = Minnesota taxable income from $26,521 to $87,110
- Married filing joint = Minnesota taxable income from $38,771 to $154,020
- Minnesota will conform to the new higher federal standard deduction. In 2019, the standard deduction will be $12,200 for a single filer and $24,400 for a married couple filing jointly. Additional standard deduction amounts will be allowed for those age 65 or older and/or blind as under prior law.
- Minnesota will allow a dependent exemption deduction of $4,250 per dependent in 2019. Personal exemption deductions for the taxpayer and spouse have been eliminated. Federal tax law no longer allows for dependent or personal exemptions.
- Minnesota itemized deductions are allowed if they exceed the Minnesota standard deduction and will be determined as follows:
- Medical expenses that exceed 10% of adjusted gross income
- Taxes of up to $10,000 to include property taxes and personal property taxes
- Mortgage interest deduction will conform to federal tax law
- Charitable contribution deduction will conform to federal tax law
- Unreimbursed employee business expenses which exceed 2% of adjusted gross income
- Other miscellaneous itemized deductions such as investment management fees and income tax preparation fees will no longer be allowed in conformity with federal law
- Minnesota will allow a personal casualty deduction as under prior law.
- Minnesota will continue to allow for a partial charitable contribution deduction for those that utilize the Minnesota standard deduction.
- Minnesota will continue to require that 80% of certain federal accelerated depreciation (i.e. Section 179, bonus depreciation) be added back to Minnesota taxable income and then deducted pro-ratably over five years.
- Minnesota will tax the earnings on a distribution from a 529 plan account which is used to pay for K-12 education expenses.
- Minnesota will not allow a QBI (Qualified Business Income) deduction that is allowed under federal law.
- The maximum Minnesota Social Security subtraction will increase by $450 for married couple filing jointly and $360 for single filers.
A full summary of the bill is located here on the Minnesota Legislature website. As always, be sure to reach out to your advisory team, or any one of us on the CCM Tax Team, if we can assist you with questions specific to your situation. Again, note that we will be taking all of these new provisions into account as we conduct financial planning and tax planning with Minnesota clients for the remainder of 2019 and into the 2020 tax season.
NOTE: The information provided in this post is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.