Tucked away in a budget bill passed in the spring legislative session were changes to Kansas’ personal income tax rules that could mean some people will pay more when they file their 2015 returns.
State taxpayers will be able to deduct just 50 percent of what they paid in 2014 for mortgage interest and taxes on real and personal property. Charitable donations can be deducted at 100 percent, and all other deductions have been eliminated.
The changes will affect only those who itemize deductions on their federal income tax returns.
“Unless they itemize on the federal, they do not itemize on the state,” tax preparer Mary Meisinger, of Meisinger Tax Service in Marion, said. “If they can’t come up with enough to itemize on their federal return, then they can’t itemize for the state.”
Fewer people have been itemizing deductions on federal returns because the standard deduction has been going up, Meier Tax Service’s Melody Freeman said. That’s made it more difficult for people to benefit from deducting mortgage interest.
“You’ve got to realize interest rates are really down,” Freeman said. “There are people who are disappointed because they don’t qualify to deduct their mortgage interest because the standard deduction is higher.”
Meisinger said she has seen a drop in the number of people who itemize deductions.
“Unless they have a big mortgage or give a lot of donations, a lot of people don’t itemize on the federal,” she said.
Small business owners are more likely to itemize because of deductible business expenses, Freeman said. Sales people and independent truck drivers with over-the-road expenses also itemize more frequently.
Decreasing the deductible amounts on mortgage interest and property taxes could have an impact on home sales, Freeman said.
“I have friends and clients that are real estate sale people who are saying, ‘What are they doing to us?’” she said.
While the changes in deductions will affect some clients, Freeman and Meisinger said there are other issues that could trip up some taxpayers.
There are higher penalties for people who haven’t had health insurance coverage in 2014, Freeman said.
“People better really watch if they don’t have health insurance with what they’re going to get stuck with,” she said.
An adult without health coverage for the entire year will be penalized $325, and an additional $162.50 is due for every uncovered child 18 and younger. That’s up from $95 and $47.50, respectively.
Meisinger said people shouldn’t automatically expect to be able to deduct medical expenses. Taxpayers under 65 years old can deduct just the amount of expenses that exceed 10 percent of their adjusted gross income.
“A lot of people can’t deduct because they can’t meet the threshold,” she said.
Meisinger took issue with a quirk in Kansas tax law for business owners. Businesses that make a profit don’t have to pay income tax, but if they lose money, they could end up paying something on the loss.
“If you have a loss on a rental or a business, it becomes an addition to your federal gross income,” she said. “I think this will be the third year. It’s a mess.”
Freeman does taxes with her mother, Wanda Meier, who runs Meier’s Tax Service, and Freeman said recent changes have been maddening.
“Wanda and I have both been appalled with what they’ve done with taxes,” she said. “It doesn’t make any sense.”
Increasing complexity has made computer-based tax preparation a necessity, Meisinger said.
“I pray daily that my software program is up to date,” she said.