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Big tax changes for Iowa Farmers

Starting in 2023 Iowa would reduce tax brackets from nine to four with a top rate of 6.5% instead of the current 8.43%.

Bob Krogmeier, CPA

June 29, 2021

2 Min Read
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On June 16th, Governor Kim Reynolds signed Senate File 619 into law for the State of Iowa. The final form of the bill has been out since May 2021. The bill contains some major tax items that will be beneficial to Iowa Farmers:

  • Coupling with federal bonus depreciation

  • Income exclusion for COVID-19 grants

  • Expansion of the Beginning Farmer Tax Credit

  • Lowering of individual income tax rates

Today, we’ll talk just a little about each item and what it will mean for farmers in Iowa.

Most farmers are familiar with utilizing Section 179 and bonus depreciation to accelerate depreciation expense for capital assets. Iowa coupled with federal Section 179 rules in 2020 and now couples with bonus depreciation. The major benefit of coupling with depreciation rules is that it reduces variances between federal and Iowa taxable income; reducing administrative burden of tracking differences between federal and Iowa basis and – ultimately – reducing cost.

In 2020, Iowa issued grants as COVID-19 relief for many businesses. The main grants for farmers were the Livestock Producer Relief Fund and Iowa Beginning Farmer Debit Relief Fund under the Iowa CARES Act. While grants issued under the Iowa Small Business Relief Grant program were not taxable income for Iowa income tax purposes, the Iowa CARES Act grants were. SF 619 definitively allows these grants to receive the tax-free treatment that they were originally designed for. Unfortunately, this wasn’t cleaned up until after most farmer’s tax returns were filed. Talk to your tax preparer to determine if it will be necessary to amend your 2020 return. The Livestock Producer grant was capped at $10,000 so you could be looking at a refund of up to $843 on your Iowa tax bill.

Related:Supreme Court denies review of Prop 12

One of the major items that the bill adjusted was removing contingencies necessary to enact tax rate changes from the 2018 tax reform legislation. Starting in 2023, Iowa would reduce its tax brackets from nine to four; with a top tax rate of 6.5% instead of the current 8.43%. By decreasing the top tax rate and tax brackets, Iowa is looking to simplify it’s tax structure to make it more appealing to businesses and individuals looking to become residents.

The Beginning Farmer Tax Credit are for taxpayers that lease ground and farm structures to beginning farmers. Previously, taxpayers were eligible for 10-years in the program with one beginning farmer per year and maximum of $50,000 in credits per year. The bill:

  • increases the program limit from 10 to 15 years,

  • allows taxpayers to lease assets to multiple beginning farmers

  • allows $50,000 per year, per lease agreement

Related:Management practices to add value

Tax law – at both the federal and state levels – is an ever-changing environment. Talking with your CPA regularly can help keep you up to date with the changes and help you and your CPA prepare for what is coming. Subtle changes in taxes can have a major benefit – or major burden – to your operations and cashflow.

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About the Author(s)

Bob Krogmeier

CPA, CliftonLarsonAllen LLP

Bob Krogmeier is a CPA at CLA (CliftonLarsonAllen LLP) in Eastern Iowa. This blog – “By the Books” – is geared to the why and how of farm accounting transactions and the information they convey for farm management, taxation, and succession/transition planning.

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