Tax Year 2010 Income Tax Changes for Iowa Taxpayers

Changes for tax year 2010 Iowa Income Tax filing became effective April 12, 2011 with the enactment of Senate File 512.  This legislation couples Iowa tax provisions with federal provisions retroactive to January 1, 2010 in the areas listed below.  In addition, effective May 11, 2011 with the enactment of House File 652, Operation New Dawn was added to the list of operations for which there is an income tax exemption for active duty pay.

NOTE: Iowa did not couple with the bonus depreciation provisions allowed for federal tax purposes for the 2010 tax year.

Taxpayers who are impacted by these changes and have already filed returns for tax year 2010 may want to consider filing an amended Iowa tax return.  Amended returns may be filed within three years of the original due date.  Impacted taxpayers also have the option to report changes related to educator expenses, tuition and fees deduction, and section 179 expensing by making the appropriate adjustments on their Iowa return for tax year 2011. 

Iowa taxpayers who have not yet filed for tax year 2010: If you plan to file electronically, check to see if your tax software has been updated to reflect these changes.  If you plan to file on paper, review the instructions related to these tax changes.

Tax Changes for Individual Income Tax Filers Only:

Deduction of Educator Expenses
Tuition and Fees Deduction for Higher Education
Election to Deduct State Sales/Use Tax as an Itemized Deduction in lieu of State Income Tax
Earned Income Tax Credit (EITC)
Tax Free Distribution from an IRA to Certain Charities for Individuals 70½ and Older
Operation New Dawn

Tax Changes for Individual Income Tax Filers as well as Corporate Income Tax (including S Corporations), Partnership, Fiduciary and Franchise Tax:

Section 179 Asset Expensing
Alternative Simplified Research Credit
Deduction Related to Small Business Health Insurance Credit
Start-up Expenditures

How do I file an amended return?

 
I already filed electronically
I already filed on paper
What to do Taxpayers who filed their individual income tax returns electronically are encouraged to file an amended return electronically. The electronic return would be filed as a “state only” return.
Taxpayers who filed their individual income tax returns on paper can either file an amended return on paper or electronically. The electronic return would be filed as a “state only” return.
Individuals Here are electronic filing options to file an amended return. If filing on paper is preferred, use the IA 1040 and write "amended" at the top, or use the IA 1040 X amended return. File on paper using the IA 1040 and write "amended" at the top, or use the IA 1040X amended return. Here are electronic filing options if you prefer to electronically file an amended return. 
Corporations File on paper using the IA 1120X amended return. File on paper using the IA 1120X amended return.

 

Deduction of Educator Expenses 

Taxpayers who meet the requirements of an eligible educator in 2010, can deduct up to $250 of qualified expenses he or she paid in 2010 and claimed on line 23 of the federal return.  This deduction is claimed as an Other Adjustment on line 24 of the IA 1040.

Tuition and Fees Deduction for Higher Education

Taxpayers who paid qualified tuition and fees for themselves, a spouse, or dependent(s) are able to take this deduction as claimed on line 34 of the federal return.  This deduction is claimed as an Other Adjustment on line 24 of the IA 1040.

Election to Deduct State Sales/Use Tax as an Itemized Deduction in lieu of State Income Tax 

Taxpayers will have the option of claiming an itemized deduction for either other state and local income taxes, or general sales taxes as claimed on the federal Schedule A, line 5.  Iowa 1040 Schedule A has been modified to incorporate this change and is available on the Department Web site.

For Iowa purposes, the itemized deduction for state sales and use tax paid is allowed only if the taxpayer claimed an itemized deduction for state sales and use tax paid on the Federal return. If a taxpayer claimed state income taxes as an itemized deduction on the Federal return, or claimed the standard deduction on the Federal return, the taxpayer cannot claim an itemized deduction for state sales and use tax paid on the Iowa return.

Earned Income Tax Credit (EITC)

The refundable Iowa credit is simply 7% of the federal credit, and there is no longer a need to recalculate the federal credit.

Tax Free Distribution from an IRA to Certain Charities for Individuals 70½ and Older                                                                                                                                                

Taxpayers age 70½ and older can distribute up to $100,000 from their individual retirement account to certain charitable organizations without including the distribution in gross income.

Operation New Dawn

Operation New Dawn was added to the list of operations for which there is an income tax exemption for active duty pay received by a person in the National Guard or armed forces military reserve. It joins Operation Iraqi Freedom, Operation Noble Eagle, and Operation Enduring Freedom.

Section 179 Asset Expensing 

An increase in the Section 179 expense deduction changes the cap for Iowa taxpayers from $134,000 to $500,000 for tax years beginning in 2010.  This phases out when purchases exceed $2,000,000.  This brings the limit in line with the federal provisions.

Alternative Simplified Research Credit

Tax form IA 128S immediately replaces the Iowa Alternative Incremental Research Activities Credit, IA 128A, for tax years beginning on or after January 1, 2010.  Electronic filing of this form will not be accepted by the Department until April 26, 2011.

Deduction Related to Small Business Health Insurance Credit

For federal tax purposes, taxpayers claiming this credit must reduce the deduction for health insurance premiums by the amount of the credit. Since the deduction is disallowed for federal tax purposes, neither will it be allowed as a deduction for Iowa purposes and no adjustment can be made on the Iowa return.

Start-up Expenditures

Iowa adopts the increase in the amount of start-up expenditures from $5,000 to $10,000 for 2010.

 

04/13/11