Tax Simplification Explained

George Olsen, MSCPA Legislative Committee Chair, has been asked to represent MSCPA’s tax simplification efforts on Montana Public Radio on Friday, October 17th, during the 5:30 pm newscast. The following is a copy of his speech.  Listen for George on your local public radio station on Friday between 5:30 – 6:00 pm.  And watch for more news about our tax simplification efforts throughout the upcoming months.
George Olsen, MSCPA Legislative Committee Chair

George Olsen, MSCPA Legislative Committee Chair

Hello. This is George Olsen, a Helena CPA, representing the Montana Society of Certified Public Accountants.

The Montana Society of CPAs believes that the current Montana income tax system is unnecessarily complicated and burdensome. Simplifying the process will enable Montana taxpayers to more easily comply with the law.  This may sound crazy from people in the tax preparation business but we think that simplification is good for all taxpayers.

During the 2013 session, the Legislature passed an income tax simplification bill that was ultimately vetoed by the Governor. At least one legislator has indicated that he will again introduce an income tax simplification bill in the upcoming session.

Two important elements of simplification in the bill are that the calculation of Montana income tax will begin with the taxable income from the Federal income tax return and the filing status will be the same as the Federal return. Montana taxpayers will no longer have to decide whether to file as married filing jointly or as married filing separately.  The proposal will include tax rate schedules for single taxpayers, married taxpayers filing jointly and taxpayers filing as head of household.  The rate schedules will be designed to eliminate the current advantage/necessity for married couples to file separately on Montana tax returns.   The bill that passed the 2013 Legislature had two tax rates of 4% and 6% compared to seven rates from 1% to 6.9% under current law.

Under current Montana law there are nearly 50 adjustments to Federal income for taxpayers to consider to arrive at Montana taxable income. This will be reduced to less than 10 potential adjustments.  The higher Federal personal exemption and standard deduction will help compensate for the loss of certain Montana adjustments to Federal taxable income.

Since the Montana income tax return will start with Federal taxable income the first four pages of the Montana return will be reduced to one page. Taxpayers will no longer have to fill out a separate schedule for Montana itemized deductions.  The Montana Department of Revenue had indicated that simplification will reduce the cost of administering the individual income tax law and will reduce the number of errors and resulting need to contact Montana taxpayers.

The bill in this upcoming session will again be designed to be revenue neutral so implementing it will not reduce overall tax revenue to the state. Because of the changes, some taxpayers may notice that their income tax changes slightly.  In any change like this, some taxpayers will pay a little more and some will pay a little less.

The legislature will consider which of the many tax credits currently in the law to retain and which will be eliminated. The proposed legislation contemplates keeping such credits like the popular endowment credit to encourage charitable giving.

The Montana Society of CPAs believes that the simplification will be good for Montana taxpayers and allow Montanans an easier way of fulfilling their tax filing obligation.

Our sincere thanks to George for sharing his time and expertise to make Montana’s accounting profession better and stronger.

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