Arizona Lawmakers Debate Changing State Tax Laws
LAUREN GILGER: Tax reform at the federal level kicks in for the first time this tax season. But Arizona lawmakers are still deciding whether to adjust the state tax law. The federal legislation results in higher state taxes for some Arizonans if lawmakers here don't make changes. That's because the federal changes could leave taxpayers with a higher adjusted gross income on their federal returns. And that's the numbers used to start the state tax form. So lawmakers need to make a choice. Let Arizona pay higher state taxes and use that extra money, or change the state law. Gov. Doug Ducey has made his position clear, he would like to see that windfall go to the states rainy day fund. But GOP lawmakers disagree. Yesterday, Senate and House committees passed two bills that aim to offset the dollars the state would gain. Here's House Republican Ben Toma explaining his yes vote.
BEN TOMA: I agree with my Republican colleagues that taxpayers should be able to decide their own fate when it comes to the dollars that are spent.
GILGER: Democrats oppose the bills arguing they would only favor the wealthiest Arizonans. I'm joined now by Tom Gorczynski, a federally licensed tax specialist here in Phoenix, to help us understand what all of this means for Arizona taxpayers. Tom, what are you advising your clients to do right now with all of this up in the air?
TOM GORCZYNSKI: Well I'm advising clients to definitely get a draft of their returns prepared earlier rather than later. One, just because at the federal level we have uncertainty with some of the changes the withholding tables and it's anticipated there's going to be a lot of folks who have reduced refunds that might owe money this year compared to prior years. And so we want to put those numbers up front and early so there's no surprises in April. And second, with Arizona however they ultimately decide to go if the draft of the return is already prepared. It's easier if something happens and we know a determination before the deadline that they can just, if the software updates properly, go ahead and file their return. Having already put in their information and already having most of the data necessary. And just doing the tweaks depending on whatever the legislature passed.
GILGEROK. So you're saying get the draft of the taxes done early so that you're prepared but not telling people to go ahead and file right now.
GORCZYNSKI: That's correct. Again, it depends on what's on their return, right. If they have tax items on their return that I don't think are going to be impacted in any way by any of this, go ahead and file. But there's a significant amount of people who could be impacted and for them, I don't have any problem and just holding it and then filing it later time when we have more certainty that some of these questions.
GILGER: There are a lot of changes over the last year in terms of taking the standard deduction with the state or to itemize. Walk us through how you were helping your clients make that decision.
GORCZYNSKI: Well, now, that at the federal level there's a much higher standard to itemized deductions, I'm finding it much more common that folks are going to actually take the standard deduction at the federal level and itemize at the state level and then it's completely allowed under the law. And really what what you need to do is don't assume because you're not going to itemize at the federal level. You'll just take the standard state deduction because there are certain things, most notably there's no limit on medical deductions on the Arizona return whereas they are severely limited and the federal return, that could even make it more advantageous to itemize on the state return.
GILGER: And then as you mentioned at the federal level we've got a different scenario swirling. I want to talk about the shutdown aspect of this though, do you anticipate that federal returns will be delayed because of this?
GORCZYNSKI: They recently just came out and said the IRS is going to take a year to just catch up from the shutdown. I have hope that the IRS is going to issue refunds and process 2018 returns timely. I have my doubts. I think there will be at least some minor delays. I'm really concerned about the rest of IRS administration. As somebody who does a lot of work representing taxpayers before the IRS. The huge backlog in cases with people with big audits and collection issues now or tax court litigation is tremendous. It's really going to tamper our ability to get some peace of mind and some resolution with the IRS in these matters.
GILGER: Do you have any concerns about another shutdown since this is a temporary reopening of the government that we're in right now?
GORCZYNSKI: I don't even want to think about that because a shutdown in the middle of February would cause tremendous delays and problems during tax season. I'm just going to be an optimist and say it's not going to happen.
GILGER: OK. I wonder then lastly, Tom, can you tell us how out of the ordinary is all of this for tax season at the federal level and at the state level to be so up in the air this late in the game?
GORCZYNSKI: Well, unfortunately Arizona has a strong history of not dealing with conformity until tax season is underway. And whether or not the legislature does that correctly or if it's really a good idea, I won't pass judgment on it makes life a lot difficult in these years when there are significant tax changes that the legislature needs to consider. On the federal side, I will say this is probably one of the most challenging years in recent memory. The tax changes are so significant at the federal level. There's a new deduction for example that's going to impact almost all returns of business owners rental owners and some investors that the IRS just published final regulations on last week. And they're literally using those regulations published last week for returns being filed now. So I just think it's going to be a hectic season a little chaotic but that's why we're in this because we enjoy it.
GILGER: I'm glad you enjoy it! That's Tom Gorczynski, an enrolled agent a federally licensed tax practitioner. Tom, thank you so much for your time.
GORCZYNSKI: Thank you very much.
GILGER: And if you're worried about having to file an amended return if the law changes the Arizona Department of Revenue told KJZZ that any taxpayer who files now will not be required to file an amended return at the proposed GOP legislation is signed into law. The department says it will take care of the tax correction and you will get your refund.