msatp_admin – MSATP

The Maryland Society of Accounting and Tax Professionals (MSATP) has long been a stalwart advocate for ethical practices in the tax preparation industry. Our recent triumph in supporting the passage of the Stop Scam Tax Preparers Act (Senate Bill 675) underscores our commitment to protecting Maryland taxpayers from fraudulent tax preparers who exploit the most vulnerable populations.

The Need for the Stop Scam Tax Preparers Act
Fraudulent tax preparers pose a significant threat to the financial well-being of Marylanders, especially minorities, low-income families, and ethical tax professionals. These scam artists often promise inflated refunds or engage in other deceptive practices, leaving taxpayers to face the consequences of incorrect filings, including fines, audits, and even criminal charges. The Stop Scam Tax Preparers Act aims to curb these practices by instituting stricter regulations and enforcement mechanisms.

Key Provisions of the Act
The Act introduces several critical measures to ensure the integrity of tax preparation services in Maryland:

Code of Ethics and Professional Conduct: The State Board of Individual Tax Preparers is mandated to publish a comprehensive code of ethics and rules of professional conduct by January 1, 2026. This code will be developed with input from the tax preparer community to ensure it addresses real-world challenges and ethical considerations.

Enhanced Reporting and Enforcement: The Board is required to notify the Comptroller and the Field Enforcement Bureau of the Comptroller’s Office within five business days of any disciplinary action or alleged violation. This rapid reporting mechanism ensures swift action against violators.

Penalties for Violations: The Act introduces stringent penalties for tax preparers who engage in fraudulent activities or operate without proper licensing. Convicted individuals may face fines up to $10,000 or imprisonment up to five years, with each false return constituting a separate violation.

Support for Low-Income Taxpayers: Fines collected under the Act will be directed to the Tax Clinics for Low-Income Marylanders Fund. This fund supports legal clinics that assist low-income residents with tax-related issues, ensuring they have access to professional help and advocacy.

MSATP’s Role in Advancing the Legislation
MSATP’s journey from proposing the Stop Scam Tax Preparers Act to witnessing its passage has been marked by unwavering dedication and proactive advocacy.

Advocacy and Testimony
Gigi Hawkins testified before the legislative committees, sharing firsthand accounts and data on how fraudulent tax preparers exploit vulnerable communities. Her compelling testimony highlighted the need for robust regulatory frameworks and stringent enforcement to protect taxpayers and uphold the integrity of the tax preparation profession.

Collaboration and Support
MSATP collaborated with key stakeholders, including the Office of the Comptroller and the State Board of Individual Tax Preparers, to draft and refine the provisions of the Act. Our members provided valuable insights and feedback, ensuring the legislation addressed practical concerns and industry-specific challenges.

Raising Awareness
In addition to legislative advocacy, MSATP launched a comprehensive awareness campaign to educate the public and our members about the dangers of scam tax preparers. We organized workshops, published informative articles, and utilized social media to disseminate critical information on how to identify and avoid fraudulent tax services.

Celebrating the Passage
The passage of the Stop Scam Tax Preparers Act marks a significant victory for Maryland taxpayers and the tax preparation industry. On May 16, 2024, MSATP’s Executive Director Gigi Hawkins, Committee on Professional Regulation Chair Betty Stehman, Legislative Review Chair John Salan, and Committee on Professional Regulation member and Board Delegate Nicole Moore proudly attended Governor Wes Moore’s bill signing ceremony. Their presence at this momentous event underscored MSATP’s pivotal role in advocating for and securing the passage of this critical legislation.

Looking Ahead
The passage of the Stop Scam Tax Preparers Act is a significant victory for Maryland taxpayers and the tax preparation industry. However, our work is far from over. MSATP will continue to monitor the implementation of the Act, advocate for necessary adjustments, and provide ongoing support to our members and the broader community.

We remain committed to fostering an ethical, inclusive, and professional tax preparation environment in Maryland. Together, we can ensure that all Marylanders receive the honest, competent, and reliable tax services they deserve.

For the 2023 tax year, Maryland has updated its rules regarding the state tax cap on federal returns and what to do for Maryland returns. Here’s the updated information compiled from the MarylandTaxes.com website:
Instructions for FORM 502 — itemized deduction calculation:
“Copy the amount from federal Form 1040, Schedule A, line 17, Total Itemized Deductions, on line 17a of Form 502. Certain items of federal itemized deductions are not eligible for State purposes and must be subtracted from line 17a. State and local income taxes used as a deduction for federal purposes must be entered on line 17b.”

New for 2023:
Maryland has passed legislation (Senate Bill 523) to allow a workaround for the federal SALT deduction cap. This allows pass-through entities (partnerships and S corporations) to elect to pay state income taxes at the entity level, which can be deducted on the federal return without limitation. The taxes paid by the entity are then passed through to the individual owners as a state tax credit.

This Means…
For individuals not eligible for the pass-through entity workaround, the instructions remain largely the same as before. Start with the maximum state and local taxes (SALT) as per your federal return. Treat as much of the $10,000 federal deduction as property tax up to the total amount of property taxes paid, and the rest of the federal deduction is the state income tax. This limits the Maryland addback because only the state income tax is “added back” — i.e. not deductible for Maryland.

Example:
If the state income tax withheld is $8,000 and the property tax paid is $4,000 for a total of $12,000 paid, the deduction for state and local taxes (SALT) for federal taxes is $10,000. The Maryland total deduction starts with the $10,000 allowed on the federal return. $4,000 of this is treated as the full amount of the real estate tax paid, and $6,000 is treated as the state income tax paid and is therefore not deductible on the Maryland return ($10,000 less $4,000). So, the $4,000 is the net Maryland itemized deduction for taxes.

Since the introduction of the $10,000 state and local tax (SALT) deduction cap as part of the Tax Cuts and Jobs Act (TCJA) in 2017, Maryland has made several changes to its Form 503 to address the treatment of relevant deductions. Here’s a summary of the changes:
1. 2018-2020: Maryland initially followed the federal SALT cap, limiting the deduction for state and local taxes to $10,000 on both federal and state returns. This resulted in a significant increase in tax liability for many Maryland residents who itemize deductions.
2. 2021: Maryland passed the RELIEF Act, which allowed residents to subtract the amount over the $10,000 SALT cap from their Maryland adjusted gross income. This provided some relief to taxpayers by allowing them to claim the full amount of their state and local taxes paid on their Maryland return, even if they were limited on their federal return.
3. 2022: Maryland continued to allow the subtraction of the amount over the $10,000 SALT cap from the Maryland adjusted gross income, providing ongoing relief to taxpayers.
4. 2023: Maryland passed Senate Bill 523, which introduced a workaround for the federal SALT deduction cap. This legislation allows pass-through entities (partnerships and S corporations) to elect to pay state income taxes at the entity level, which can be deducted on the federal return without limitation. The taxes paid by the entity are then passed through to the individual owners as a state tax credit. For individuals not eligible for this workaround, the treatment of SALT deductions remains largely the same as in previous years.

Throughout these changes, Maryland has required taxpayers to add back any state and local income taxes deducted on their federal return when calculating their Maryland itemized deductions. This ensures that taxpayers do not receive a double benefit for these taxes at the state level.

Author: msatp_admin

The Stop Scam Tax Preparers Act: Safeguarding Maryland Taxpayers with MSATP’s Advocacy

Maryland SALT Cap (2023 Update)