Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 50 - Apportionment of Income for Resident Shareholders of S Corporations › Rule 701-50.9 - Examples for Tax Periods Beginning Prior to January 1, 2002

Current through Register Vol. 47, No. 3, July 24, 2024
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.
a.
				computation of tax on a joint return basis.
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%.
b. computation on a separate filing on a
				combined return basis.
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.
a.
				computation of tax on a joint return basis.
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%.
b. computation on a separate filing on a
				combined return basis.
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. "