Iowa Administrative Code › Agency 701 - Revenue Department › Title V - Pass-through Entity Income Tax › Chapter 403 - Apportionment of Income for Resident Shareholders of S Corporations › Rule 701-403.10 - Example for Tax Periods Beginning on or After January 1, 2002

Current through Register Vol. 47, No. 3, July 24, 2024
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.
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
$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 Ã— $500,000 / $580,000 =
				  $164,840.
Computation of percent of income attributable to Iowa
				  sources: 100 Ã— $205,000 / $580,000 = 35.3449%.
Computation of percent of income attributable to non-Iowa
				  sources: 100 - 35.3449% = 64.6551%.
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
$2,293
$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 Ã— $500,000 / $517,500 =
				  $164,832.
Taxpayer's computation of percent of income attributable to
				  Iowa sources: 100 Ã— $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."