Introduction
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Welcome to Traction with the Tiger. I am your host and tax tiger Chris Wittich. I focus on moving myself, my clients, my firm, and the profession forward. Today, the tiger roars alone.
Our topic is breaking news of sorts that Minnesota has passed a tax bill.
So, I’ve got my notes up so that I don’t make a mess of this, but Minnesota passed a tax bill about 10 days ago. the legislature passed it and I believe the governor signed it today on May 28th, 2026. So, I believe it was signed into law this morning. If you look, at least as of today, if you look on the Department of Revenue website, you won’t find anything. The instructions to the forms, they’re not updated. Your tax software, certainly mine, is not updated yet. That stuff will take a couple of weeks, but wanted to talk about what’s in the bill, what’s not in the bill, what you should be thinking about.
So, there’s a lot of stuff in the bill. Most of it is there’s lots of volume of sort of small immaterial things that seem very rare. And I’m not going to talk about any of those things. If you want to read the bill yourself, it’s about a 100 pages. probably half of it has nothing to do with taxes, so you can skip all that stuff. But there’s a couple of big ticket items and a couple of I’ll say surprising things that seem like they would have broad applicability that I want to get through today.
Charitable Contributions and 529 Plans
So, first one on my list, I think one of the more surprising ones. We’ll start with a few small surprising ones and we’ll work up to the big big ones. First thing on the list is the charitable contribution deduction.
So in the federal bill and the big beautiful bill there is a new floor of 0.5% of AGI for people who itemize their deductions in order to claim charitable contributions. That starts in 2026.
And so Minnesota saw that and rather than conform to it, they made up their own limit which is now 1% of sort of the AGI. So you’re going to have this sort of trim or haircut that you get on charitable contributions on the federal return if you’re itemizing, but for Minnesota purposes, it’s going to be twice as large. So it’s 1% instead of a half a percent. That seems needlessly complicated.
Not really sure why they did that, but something to note because a lot of people itemize the people who are itemizing certainly uh they’re going to have charitable contributions as as part of that.
Something I I think is very small, but I thought was interesting. Minnesota has not conformed to the expanded definition of what’s allowed for 529 plan distributions.
So, in the big beautiful bill last summer, they expanded the use of 529 plans to include things like a CPA license. So, post secondary credentials. CPA license is just my favorite example, but lots of different things can qualify. So, the federal is saying, hey, you can use 529 plan money for this to pay for the exams.
Minnesota is saying you can’t. So, you’re going to have potentially tax-free distributions on your federal return, but taxable distributions on your Minnesota return. For the first time, there’s going to be really a Minnesota difference that is related to 529 plan distributions. So, very strange, but thought that was worthy of of highlighting.
Research and Development Expenses
As we get into the bigger thing, a big one here is going to be the R&D expenses. So research and development expenses is also sort of called section 174. This was a very very big problem on federal returns in 2022, 2023, 2024.
The big beautiful bill sort of cleared that up and it allowed people a couple of different avenues to deduct what they had been forced to capitalize as 174 expenses. Minnesota has decided to conform to that new treatment but only for pass through entities not for C corps.
Why did they make a distinction on CC corps versus flow through entities? I have no idea why. So for these flowth through entities, for the S corps, for the partnerships that have R&D expenses, whatever federal treatment that they receive as a result of the big beautiful bill, they are also going to have that on their Minnesota return.
So that’s very helpful for the C corps. the problem is now actually going to persist indefinitely. So for Minnesota purposes, even though this is not true for federal, but for Minnesota purposes, you are going to have an adback of your section 174 expenses and then amortize it over basically a 5-year period.
So, I think that’s going to be super annoying for any CC corps doing business in Minnesota that also have some R&D expenses, but sort of a strange carve out where it’s good news for the flowth through entities, but out of left field, some bad news for the CC Corp entities.
Sorry about that for all of our CC Corp listeners out there.
Opportunity Zones and Other Conformity Changes
So, lots of other things, you know, there’s conformity, which is good. with lots of small items.
If you are involved in opportunity zones, I think you’ll want to look very specifically at the Minnesota law. I’m not going to get into that in detail, but there’s some stuff in there about opportunity zones, how that’s going to be handled, how some foreign income is going to be handled. So, that’s very niche for the the clients with foreign income or 5471 filings.
Pass Through Entity Tax
But the next big topic and really the last one we’re going to talk about here is the pass through entity tax. Maybe we should have started with this. This is definitely the lead story when you read about the tax bill, but the pass through entity tax had expired in 2025. And as part of this bill, there’s lots of conformity to federal changes, but then this pass through entity tax is being extended.
Bad news is the extension only lasts for 2 years. It’s not permanent. It’s not indefinite. So, it expired at the end of 25. PTE is now extended for Minnesota in 26 and 27.
Hopefully, we don’t have to deal with this again in two years, but I suspect we probably will with this uh expiration.
So, if you are a flowth through entity and you file a Minnesota tax return, good news is that PTE is back for 26 and 27.
So, the I think the question a lot of people would have is well, PTE wasn’t a thing, so I didn’t make any estimated tax payments. like I haven’t been making I didn’t make my first quarter estimated tax payment for PTE because it wasn’t it wasn’t around and so there is a specific thing in the law that says basically we know you didn’t make your first quarter estimate we will not charge you any interest if you get caught up by second quarter and so the second quarter estimates are due June 15th and so you know if your PTE E was, let’s say, $40,000 for the year. Your first quarter estimate would have been $10,000, but you skipped it.
Your second quarter estimate, if you do $20,000 for your second quarter, that means you’re caught up, and the state of Minnesota will not charge any underpayment interest on that. So, you should be in good shape.
Then, you know, your third quarter would be 10,000 and your fourth quarter would be another 10,000. But you basically got to double up here on your second quarter PTE payment so that you get caught up with the state of Minnesota and then they’ll wave the interest.
So, you really aren’t harmed by the fact that they were slow to get this done. But for a lot of people, that means they need to revisit their estimates. A lot of people, they do their estimates, you know, in in the spring and they sort of set them up for the year. They set up their reminders or they schedule the payments.
You need to go and revisit this and consider, hey, is PTE going to be a good idea? If so, I got to get caught up and do two quarters worth. and you’ve got, you know, basically 2 weeks or so to get that done because the second quarter payment is due June 15th.
What to Do With Already Filed 2025 Returns
So that’s the definitely the headline here. And I would say the takeaway for our session here today is good news. There’s conformity on all sorts of things which had caused all of these nonconformity items. There’s an entire form in the Minnesota return called form M1NC for nonconformity. Most of those items have gone away.
So, that’s the good news. The challenge is, well, what do I do with these returns? Cuz I already filed my 2025 return, many of you. And so, you really have two approaches.
You can do nothing and wait for the state of Minnesota to adjust your return. They have not announced that they will do that, but in the past this has happened and the department of revenue has just gone through and adjusted returns themselves and either sent notices saying you owe money or sent out refund checks.
So, I would say if it is a small dollar amount that you are impacted by nonconformity items, you know, you’re probably better off just doing nothing, letting Minnesota handle it for you. And I’m not sure how long that will take. We’re not even 100% sure they’ll do that, but I would anticipate they will update those returns themselves, you know, probably in the next 6 to 12 months.
But if you think the difference is, you know, a,000 bucks, I would probably just let them adjust it, I think there’s a decent chance they will adjust it before you might be able to get an amended return processed. So, that’s the first option.
And the second option is to file an amended return. And if you have a significant adjustment or it’s an area where Minnesota is sort of partially conformed or you’ve got, you know, a handful of flowth through entities all combining together, the more complex your situation, the bigger dollar amounts, I think the more you would consider filing an amended return to fix those.
That being said, I would wait probably a couple of weeks at least for the forms themselves to be updated because the Department of Revenue, they’re going to have to update the forms. You know, could you go and file an amended return tomorrow? I suppose you could, but I think you’re just going to confuse them trying to explain what’s going on and then overriding forms that aren’t set up for that.
So, personally, I would if you’re going to file an amended return, I would probably wait a couple of weeks and just see that the forms have updated, the instructions are updated, the Department of Revenue is going to know what to do with this amended return once you get it. And then your software, you know, they’ll that’ll be up to date as well.
The more that you can eile amended returns, the better off you’ll certainly be. So, that’s that’s my advice anyways.
Final Thoughts
So just to wrap up and and revisit lots of conformity PTE has been extended for 2026 and 2027 and so it is time the time is right now in the next 2 weeks where you need to revisit your tax planning and revisit your estimated taxes both personally and with the PTE to get your PTE payments caught up for second quarter 2026 which is due June 15th.
If I hope you found this interesting and I hope you found it useful. If you did, uh, please share with a friend and subscribe for more Traction with the Tiger content. Thanks everybody.