Iowa Admin. Code r. 701-403.10
EXAMPLE. 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 | $31,696 |
Less personal credits husband & wife & two dependents | (160) |
Subtotal | $31,536 |
Less out-of-state tax credit | (1,150) |
Iowa individual tax | $30,386 |
Computation of credit | |
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 100% of federal taxes on S corporation income of $164,840 = $125,000, or income attributable to Iowa sources $50,000 | 125,000 |
Income attributable to Iowa sources | $205,000 |
Total income | $580,000 |
Taxable percentage | 35.3449% |
Iowa individual tax before credit | $31,696 |
Credit percentage | 64.6551% |
Subtotal | $20,493 |
Less out-of-state tax credit | (1,150) |
S corporation tax credit | $19,343 |
Computation of 100 percent of federal income tax attributable to S corporation income: $191,214 × $500,000 / $580,000 = $164,840.
Computation of percent of income attributable to Iowa sources: 100 × $205,000 / $580,000 = 35.3449%.
Computation of percent of income attributable to non-Iowa sources: 100 - 35.3449% = 64.6551%.
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 | $2,293 | $28,128 |
Less personal credits taxpayer & spouse & two dependents | (120) | (40) |
Subtotal | $2,173 | $28,088 |
Less out-of-state tax credit | (-0-) | (1,150) |
Iowa individual tax | $2,173 | $26,938 |
Computation of credit | ||
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 100% of federal taxes on S corporation income of $164,840 = $125,000, or income attributable to Iowa sources $50,000 | 125,000 | |
Income attributable to Iowa sources | $142,500 | |
Total income | $517,500 | |
Taxable percentage | 27.5362% | |
Iowa individual tax before credit | $28,128 | |
Credit percentage | 72.4638% | |
Subtotal | $20,383 | |
Less out-of-state tax credit | (1,150) | |
S corporation tax credit | $19,233 |
Taxpayer's computation of 100 percent of federal income tax attributable to S corporation income: $170,601 × $500,000 / $517,500 = $164,832.
Taxpayer's computation of percent of income attributable to Iowa sources: 100 × $142,500 / $517,500 = 27.5362%.
Taxpayer's computation of percent of income attributable to non-Iowa sources: 100 - 27.5362% = 72.4638%.
This rule is intended to implement Iowa Code section 422.8, subsection 2, paragraph "b."
Iowa Admin. Code r. 701-403.10