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Individual tax strategies
Minnesota Tax Bill Offers Relief for Business Owners and Individuals
The Minnesota Legislature passed a tax bill on Friday, March 21, that provided much needed clarity for businesses and individuals. The bill aligns important provisions of Minnesota’s tax laws with the federal system, and provides significant relief for business owners affected by the business to business sales tax passed in 2013.
"Many individuals and businesses are poised to benefit from this bill, which has already been signed by the governor" Ellen McCabe
The bill eliminates sales taxes on storage and warehousing services that were set to become taxable on April 1, 2014. The bill also repeals sales taxes on repair labor for commercial and industrial equipment (including farm equipment) and on repair labor for electronic and precision equipment.
It also expands sales tax exemptions on capital equipment to cover items used to provide telecommunications and pay television services, including poles, wire, cable, fiber, and conduit, starting March 31, 2014.
However, the bill delays the implementation of the “up-front” exemption on sales tax for capital equipment that was set to take place September 1, 2014. Industrial producers are currently required to pay sales taxes on capital equipment at the time of purchase and apply for a refund later in the year. That was set to change in 2014, but producers will now be required to continue paying sales tax on the purchase until July 1, 2015.
"Business owners involved in production activities should contact their tax professional to make sure they are paying only the necessary amount of sales taxes and receiving the appropriate refunds from the state" Ellen McCabe
Gift and estate tax changes
The bill repeals the Minnesota gift tax retroactively as of December 31, 2013. Accordingly, no transfers made during the short existence of the provision, which passed just a year earlier, will be considered taxable. The Minnesota gift tax is repealed retroactively to the date of enactment. In addition, the total exemption amount for Minnesota estate tax will increase from one million to two million dollars gradually from 2014 to 2018, providing some tax relief for high net worth taxpayers.
"We are pleased to see the repeal of the gift tax and the increase in the Minnesota estate tax exemption," says Nick Houle, a private client tax principal with CliftonLarsonAllen. "This will allow more Minnesotans the ability to escape transfer tax in implementing their estate plan."
The tax bill also extends welcome relief to individual taxpayers, mostly by aligning Minnesota’s tax laws with the federal system. The bill eliminates the “marriage penalty” by expanding the standard deduction for married joint filing taxpayers to be equal to twice the amount of a single person’s. This policy is already effective at the federal level, but will have to wait until the 2014 tax year for married filers in Minnesota.
The bill also expands several federal tax benefits for families with college tuition costs, by increasing the dollar amount that families can save for college tax free through an education savings account up to $2,000 per year. It also extends the tuition expense deduction up to $4,000 and increases the amount that individuals can deduct for student loan interest payments.
Finally, the bill expands the working family credit, increases deductible expenses for certain adoptions, excludes from gross income discharges of indebtedness on principal residences, and provides for an itemized deduction for mortgage insurance premiums.
What taxpayers should do
In an interview on KSTP, CLA Principal Virginia Harn says the Minnesota Department of Revenue will be reviewing tax returns that have already been filed to determine refund eligibility. If the state can make the calculation based on your existing return, no action will be required on the part of the taxpayer. In other cases, the state may request additional information from taxpayers to make the calculation, and some taxpayers will have to amend their return. Right now, it's a waiting game while the state reviews the submitted returns. Consult a tax professional if you have questions.