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Hold Your Horses on Filing AZ Taxes

Hold your horses Arizona!

AZ residents may want to delay filing their AZ taxes. (Actually, many software packages do not yet permit filing AZ electronically yet.) Historically, AZ will sign a bill to conform to any Federal tax law changes, so the Arizona Department of Revenue prepared the 2018 tax forms with the Federal tax changes in mind.

State lawmakers mean well, but throw a monkey wrench in the tax filing season.

However, when the State lawmakers put the conformity bill on Gov. Ducey's desk they added a "small" tax cut of $150 million according to the Arizona Star. Lawmakers believe that the changes in the Federal tax code could result in Arizonans paying $150 million more in Arizona taxes. Wanting to avoid a windfall to Arizona, they proposed a tax rate cut to fix the problem. Unfortunately, this retroactive tax cut would require changes to software programming involved in e-filing and THAT is no small feat in an already complicated tax season. Therefore, Gov. Ducey refused to sign the bill stating "Let me be VERY CLEAR on this point: I will veto any budget that doesn't align with these tax forms."

What is at the heart of the problem?

Generally, Arizona permits the same deductions as used for the Federal tax return. When the federal tax code changed, eliminating or limiting some deductions in favor of a higher standard deduction, Arizona law did not change. Arizona must sign a bill to conform to the federal tax code. However, Arizona has not raised it's standard deduction, therefore, if Arizona conforms to eliminate many deductions, without raising the standard deduction, Arizonans will pay more in income taxes.

Lawmakers could have fixed the problem last year.

Lawmakers knew that had to pass the conformity bill last year, just as they know every year that there is a change to the federal tax code - which is almost every year. However, the lawmakers adjourned in 2018 without taking any action. Enrolled Agents visited the legislature in January to request that lawmakers take action as soon as possible to conform to federal law. Now, lawmakers want to take action and retroactively add a tax cut.

Can AZ use the windfall to give teachers a bonus?

I am not a fan of Arizona income tax increases caused by changes to the federal tax code. I understand the lawmakers position on the issue which could have been addressed last year. However, unless Arizona wants to unduly delay the filing season, we need to move forward. Perhaps Arizona could use the $150 million anticipated windfall and divide it between our 90,000 teachers as a one time bonus of $1667. Or, maybe fix the bone-jarring section of AZ Highway 69 southbound right before Humboldt, AZ.

What happens if you file your AZ tax return now?

Unfortunately, my approach is unlikely to be even considered. In the meantime, Arizonans are still awaiting a conformity bill before we can begin filing AZ taxes. If you choose to file your AZ taxes before the bill is approved, you may have to amend your AZ tax return.

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Please Note: We are NOT attorneys and do NOT provide legal advice. Your information is confidential, but we do not have attorney-client privilege. If you need legal advice, you will be referred to an attorney.

Arlene Rheinfelder, EA, CP AZCLDP

"I help solve people's problems. There is nothing more rewarding than helping someone through a difficult situation, and helping them to find a good resolution." 

 

Melissa Hill, AZCLDP

I love the challenge of finding a way to help each person's unique situation. It is never the same because each person is different with their own needs and wants.

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