Think taxes are difficult? The 2018 tax season may be the most difficult of all — particularly for Minnesotan taxpayers.

What is the problem? Minnesota’s income tax is largely based on the definition within federal return forms of “taxable income.” This definition is not the same this year as it was last year.

What is different? Lawmakers changed how they define “taxable income” for federal tax return purposes with the passage of the Tax Cuts and Jobs Act. Various deductions were removed and the federal returns now recognize certain tax breaks that Minnesota state tax returns do not. As a result, the “taxable income” used in federal tax returns may be different than the one used for Minnesota state returns.

Unfortunately, Minnesota state law currently fails to take the federal changes into consideration. Although the state legislature took a proposal into consideration to adjust the state’s definition to fall in line with the federal definition, the governor ultimately vetoed the proposal.

How will this impact Minnesota taxpayers? Minnesotans may have gone through the year under the presumption they would take advantage of the increased standardized deduction. This could have led to a relaxed approach to saving documentation of items needed to support standardized deductions. A failure to retain needed documentation will make it difficult to defend itemized returns during a pending review by the Minnesota Department of Revenue.

Could things change? Minnesota’s Taxes Committee Chairman recently stated it would be unlikely for lawmakers to pass any changes before the Internal Revenue Service (IRS) begins accepting returns for the 2018 tax year. However, the state legislature could make changes that apply retroactively and issue refunds in the future.