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Iowa’s tax reform bill sets forth plan for next five years

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Iowa is the first state to present its own version of tax reform with bill SF 2417, setting forth a plan for the next five years. Governor Kim Reynolds signed off on May 30, 2018.

For 2018, taxpayers can expect to see modest changes. Pending review of revenue targets, much larger changes will come in 2019 and beyond for both individuals and businesses.

Here are the highlights for individuals and businesses over the next five years:

Effective Jan. 1, 2018

  • Section 179 small business expensing limit increases from $25,000 to $70,000 for businesses and individuals
  • No bonus depreciation

Effective Jan. 1, 2019

  • All 9 income tax brackets will receive roughly 0.5 percent rate decrease
  • Section 179 small business expensing limit increases from $70,000 to $100,000 for businesses and individuals
  • Adoption of federal 20 percent pass-through deduction at a reduced amount of 25 percent of the federal value in 2019, and phasing up to 75 percent of federal value in 2022
  • Overall review of corporate tax credits on offer
  • Effective Sept. 1, 2019, geothermal heat pump credit and geothermal tax credit repealed

Effective Jan. 1, 2020

  • Full coupling with the federal 179 limits in exchange for following the federal government in repealing like-kind exchanges

Effective Jan. 1, 2021

  • For corporate returns, repeal of deduction for federal income taxes
  • Corporate AMT repealed
  • Corporate tax rates reduced as follows:
    • 5 percent to $100,000 of income
    • 9 percent from $100,001 to $250,000
    • 8 percent from $250,001 to excess

Effective Jan. 1, 2023

  • Individual brackets consolidated from 9 to 4. The top rate will fall from 8.53 percent to 6.5 percent. New rates will be:
    • 4 percent to $12,000 of income
    • 82 percent from $12,001 through $60,000
    • 7 percent from $60,001 through $150,000
    • 5 percent from $150,001 – excess
  • Repeal of individual deduction for federal income taxes
  • Individual income tax starting point will be federal taxable income, all federal itemized and standard deduction amounts will be incorporated
  • Pass-through deduction increases to the full value of the federal deduction
  • Individual AMT repealed

This is a major step for Iowa toward simplification of state tax laws. You can expect other states to follow with their own overhaul or reform over the remaining months in 2018 and into 2019 as the federal provisions begin to unfold in real time.

For questions on state or federal tax reform, contact your account manager at 888-556-0123 or fill out our form.