Iowa Admin. Code r. 701-50.9
EXAMPLE 1. The following example is based on the following facts. The taxpayers are a husband and wife who have two dependent children. Their income consists of husband's wages of $50,000; rental loss ($5,000); wife's S corporation income of $500,000; joint interest income of $35,000. They have Iowa itemized deductions of $20,000, and an out-of-state tax credit of $1,150 on the S corporation income. The actual cash distribution from the S corporation was $289,840, none of which has been previously taxed by Iowa. Federal income tax paid during the year totals $191,214. The S corporation is a value-added corporation which carries on business within and without Iowa with 10 percent of its sales in Iowa.
| Wages | $50,000 |
| S corporation income | 500,000 |
| Interest | 35,000 |
| Rent | (5,000) |
| Total income | $580,000 |
| Less federal tax deduction | (191,214) |
| Subtotal | $388,786 |
| Less itemized deductions | (20,000) |
| Taxable income | $368,786 |
| Tax | $35,378 |
| Less personal credits husband & wife & two dependents | (120) |
| Subtotal | $35,258 |
| Less out-of-state tax credit | (1,150) |
| Iowa individual tax | $34,108 |
| computation of refund | |
| Total income | $580,000 |
| Less S corporation income | (500,000) |
| Subtotal | $80,000 |
| Add the greater of cash distributions not previously taxed, $289,840 less 50% federal taxes on S corporation income of $82,420 = $207,420, or income attributable to Iowa sources $50,000 | 207,420 |
| income attributable to Iowa sources | $287,420 |
| Total income | $580,000 |
| Taxable percentage | 49.5552% |
| Iowa individual tax before credit | $35,258 |
| Credit percentage | 50.4448% |
| Subtotal | $17,786 |
| Less out-of-state tax credit | (1,150) |
| S corporation tax credit | $16,636 |
| Amount of refund | $16,636 |
computation of 50 percent of federal income tax attributable to S corporation income: 50% x $191,214 X $500,000 / $580,000 = 50% x $164,840 = $82,420.
computation of percent of income attributable to Iowa sources: 100 x $287,420 / $580,000 = 49.5552%.
computation of percent income attributable to non-Iowa sources: 100 - 49.5552% = 50.4448%.
| Spouse | Taxpayer | |
| Wages | $50,000 | -0- |
| S corporation income | -0- | $500,000 |
| Interest | 17,500 | 17,500 |
| Rent | (5,000) | -0- |
| Total income | $62,500 | $517,500 |
| Less federal tax deduction | (20,613) | (170,601) |
| Subtotal | $41,887 | $346,899 |
| Less itemized deductions | (2,156) | (17,844) |
| Taxable income | $39,731 | $329,055 |
| Tax | $2,638 | $31,410 |
| Less personal credits taxpayer & spouse & two dependents | (100) | (20) |
| Subtotal | $2,538 | $31,390 |
| Less out-of-state tax credit | (-0-) | (1,150) |
| Iowa individual tax | $2,538 | $30,240 |
| computation of refund | |
| Total income | $517,500 |
| Less S corporation income | (500,000) |
| Subtotal | $17,500 |
| Add the greater of cash distributions not previously taxed $289,840 less 50% of federal taxes on S corporation income of $82,420 = $207,420, or income attributable to Iowa sources $50,000 | 207,420 |
| income attributable to Iowa sources | $224,920 |
| Total income | $517,500 |
| Taxable percentage | 43.4628% |
| Iowa individual tax before credit | $31,390 |
| Credit percentage | 56.5372% |
| Subtotal | $17,747 |
| Less out-of-state tax credit | (1,150) |
| S corporation tax credit | $16,597 |
| Amount of refund | $16,597 |
Taxpayer's computation of 50 percent of federal income tax attributable to S corporation income: 50% X $170,601 X $500,000 / $517,500 = 50% x $164,832 = $82,416.
Taxpayer's computation of percent of income attributable to Iowa sources: 100 x $224,920 / $517,500 = 43.4628%.
Taxpayer's computation of percent income attributable to non-Iowa sources: 100 - 43.4628% = 56.5372%.
EXAMPLE 2. The following example is based on the following facts. The taxpayers are a husband and wife who have three dependent children. Their income consists of husband's wages of $100,000; wife's wages of $30,000; husband's S corporation income of $400,000; wife's S corporation income of $200,000; joint interest income of $82,000; joint dividends of $5,000. They have Iowa itemized deductions of $40,000 and an out-of-state tax credit of $1,700 on the S corporation income. The actual cash distribution from the S corporation was $210,000, none of which has been previously taxed by Iowa. Federal income tax paid during the year totals $263,722. The S corporation is a value-added corporation which carries on business within and without Iowa with 60 percent of its sales in Iowa.
| Wages | $130,000 | ||
| S corporation income | 600,000 | ||
| Interest | 82,000 | ||
| Dividends | 5,000 | ||
| Total income | $817,000 | ||
| Less federal tax deduction | (263,722) | ||
| Subtotal | $553,278 | ||
| Less itemized deductions | (40,000) | ||
| Taxable income | $513,278 | ||
| Tax | $49,796 | ||
| Less personal credits husband & wife & three dependents | (160) | ||
| Subtotal | $49,636 | ||
| Less out-of-state tax credit Iowa individual tax | (1,700) | ||
| computation of refund | $47,936 | ||
| Total income | $817,000 | ||
| Less S corporation income | (600,000) | ||
| Subtotal | $217,000 | ||
| Add the greater of cash distributions not previously taxed $210,000 less 50% federal taxes on S corporation income of $96,838 = $126,043, or income attributable to Iowa sources $360,000 | 360,000 | ||
| income attributable to Iowa sources | $577,000 | ||
| Total income | $817,000 | ||
| Taxable percentage | 70.6243% | ||
| Iowa individual tax before credit | $49,636 | ||
| Credit percentage | 29.3757% | ||
| Subtotal | $14,581 | ||
| Less out-of-state tax credit | (1,700) | ||
| S corporation tax credit | $12,881 | ||
| Amount of refund | $12,881 |
computation of 50 percent of federal income tax attributable to S corporation income not to exceed cash distribution not previously taxed: 50% x $263,722 x $600,000 / $817,000 = 50% x $193,676 = $96,838.
computation of percent of income attributable to Iowa sources: 100 x $577,000 / $817,000 = 70.6243%.
computation of percent income attributable to non-Iowa sources: 100 - 70.6243% = 29.3757%.
| Spouse | Taxpayer | |||
| Wages | $30,000 | $100,000 | ||
| S corporation income | 200,000 | 400,000 | ||
| Interest | 41,000 | 41,000 | ||
| Dividends | 2,500 | 2,500 | ||
| Total income | $273,500 | $543,500 | ||
| Less federal tax deduction | (88,294) | (175,428) | ||
| Subtotal | $185,206 | $368,072 | ||
| Less itemized deductions | (13,392) | (26,608) | ||
| Taxable income | $171,814 | $341,464 | ||
| Tax | $15,718 | $32,649 | ||
| Less personal credits taxpayer & spouse & three dependents | (60) | (100) | ||
| Subtotal | $15,658 | $32,549 | ||
| Less out-of-state tax credit | (567) | (1,133) | ||
| Iowa individual tax | $15,091 | $31,416 | ||
| computation of refund | ||||
| Total income | $273,500 | $543,500 | ||
| Less S corporation income | (200,000) | (400,000) | ||
| Subtotal | $73,500 | $143,500 | ||
| Add the greater of cash distributions not previously taxed, $210,000 less 50% of federal taxes on S corporation income of $96,838 = $126,043, or income attributable to Iowa sources, $360,000. Attributable 66.6667% to husband and 33.3333% to wife | 120,000 | 240,000 | ||
| income attributable to Iowa sources | $193,500 | $383,500 | ||
| Total income | $273,500 | $543,500 | ||
| Taxable percentage | 70.7495% | 70.5612% | ||
| Iowa individual tax before out-of-state tax | ||||
| credit | $15,658 | $32,549 | ||
| Credit percentage | 29.2505% | 29.4388% | ||
| Subtotal | $4,580 | $9,582 | ||
| Less out-of-state tax credit | (567) | (1,133) | ||
| S corporation tax credit | $4,013 | $8,449 | ||
| Amount of refund | $4,013 | $8,449 |
computation of 50 percent of federal income tax attributable to S corporation income not to exceed cash distribution not previously taxed:
Husband: 50% x $175,428 x $400,000 / $543,500 = 50% x $129,109 = $64,555.
Wife: 50% x $88,294 x $200,000 / $273,500 = 50% x $64,566 = $32,283.
Husband's computation of percent of income attributable to Iowa sources: 100 x $383,500 / $543,500 = 70.5612%.
Husband's computation of percent income attributable to non-Iowa sources: 100 - 70.5612% = 29.4388%.
Wife's computation of percent of income attributable to Iowa sources: 100 x $193,500 / $273,500 = 70.7495%.
Wife's computation of percent of income attributable to non-Iowa sources: 100 - 70.7495% = 29.2505%.
This rule is intended to implement Iowa Code section 422.5, subsection 1, paragraph"j. "
Iowa Admin. Code r. 701-50.9