Posts Tagged ‘Iowa capital gain deduction’

Tax Roundup, 3/19/14: Are taxes turning Iowa red? And: Statehouse Update!

Wednesday, March 19th, 2014 by Joe Kristan

Is Iowa really a red state?  According to personal finance site WalletHub, Iowa is a red state.  But didn’t Iowa vote for Obama the last two elections?  Not that kind of red state.  WalletHub’s map has states with the most burdensome taxes as red states, and those with less burdensome taxes as green:

 

WalletHub

From WalletHub:

 WalletHub analyzed how state and local tax rates compare to the national median in the 50 states as well as the District of Columbia.  We compared eight different types of taxation in order to determine:  1) Which states have the highest and lowest tax rates; 2) how those rates compare to the national median; 3) which states offer the most value in terms of low taxation and high cost-of-living adjusted income levels.

WalletHub says Iowans have a tax burden 26% above the national average.  They note, though, that when the rank is adjusted based on our cost of living, Iowa improves 10 places on their rankings.

This is a different measurement than the Tax Foundations well-known Business Tax Climate Indexwhich places Iowa at 11th-worst.  Either way, it’s not a healthy system.  And nothing major is likely to happen to change it anytime soon.  Still, the The Tax Update’s Quick and Dirty Iowa Tax Reform Plan shows the way!

 

20130117-1Supplies sales tax exemption advances.  The Iowa General Assembly isn’t entirely idle on the tax front.  Sometimes that’s a good thing, as in the House passage yesterday of HF 2443, exempting supplies used in manufacturing from sales tax.  Business inputs in general should not be subject to sales tax, as they are likely to be taxed again when the finished product is sold.

Other than that, there isn’t a lot else to report on the Iowa tax legislative scene.  The speedway tax break remains alive.  The bill to broaden the Iowa capital gain “ten and ten” exclusion hasn’t cleared the committee level.  Silly legislation continues to be introduced, like a 50% state tax credit for payments of principal and interest on student loans (HSB 673).  Let’s encourage crushing student debt burdens!

But sometimes its best when the legislature does nothing.  It’s hard to complain that HF 2770, the bill to pay doctors at their average charge rates with tax credits for “volunteering,” has languished.

 

Former IRS Commissioner Shulman, showing how big is legacy is.

Former IRS Commissioner Shulman, showing how big is legacy is.

The TaxProf notes the Death of Former IRS Commissioner Randoph Thrower; Was Fired for Refusing President’s Request to Audit His Enemies, quoting a New York Times story:

The end came in January 1971, after Mr. Thrower requested a meeting with the president, hoping to warn him personally about the pressure White House staff members had been placing on the IRS to audit the tax returns of certain individuals. Beginning with antiwar leaders and civil rights figures, the list had grown to include journalists and members of Congress, among them every Democratic senator up for re-election in 1970, Mr. Thrower told investigators years later. He was certain the president was unaware of this and would agree that “any suggestion of the introduction of political influence into the IRS” could damage his presidency, he said.

Mr. Thrower received two responses. The first was a memo from the president’s appointments secretary saying a meeting would not be possible; the second was a phone call from John D. Ehrlichman, the president’s domestic affairs adviser, telling him he was fired.

I’ll just note here that Doug Shulman, worst commissioner ever, left on his own terms.

 

David Brunori, Hawaii Tax Credit Craziness (Tax Analysts Blog):

According to some excellent reporting in the Honolulu Civil Beat, the Legislature is considering a slew of tax incentives to promote manufacturing in the state. Yes, there are those (particularly established manufacturers) who would like to promote something other than tourism, hosting of naval bases, and pineapple production. The main proposal (SB 3082) would provide tax credits for employee training and some equipment purchases. The goal is to turn Hawaii into 1960s Pittsburgh or Flint Mich., in their heyday. I have my doubts. 

I don’t think that really plays to Hawaii’s strengths.

 

20120817-1Howard Gleckman, A Terrible Response to the Internet Tax Mess (TaxVox)

Under the plan, the federal government would let retailers collect tax based on the levy where the seller is located, no matter where the purchaser resides. This would apply to all retailers, as long as they had no physical presence in the consumer’s state.

A firm could base its “home jurisdiction” on the state where it has the most employees, the most physical assets, or the state it designates as its principal place of business for federal tax purposes.

Given the nature of online sellers, changing locations to a no-sales-tax state would be fairly easy.

Interesting.  I wonder if a “universal mail order sales tax rate” might ultimately be the answer.  You could set this universal rate at, say, the average national sales tax rate, collect it from all buyers, and remit it to the delivery state through a clearinghouse run by the state revenue agencies.

 

Paul Neiffer, Cash Rents Equals Extra 3.8% on Sale. “However, once you are done farming and are simply renting the ground to other farmers (including relatives), then the rental income will be subject to the tax and even worse, selling the farmland for a large gain will result in extra tax.”

Jana Luttenegger, Filing From Home, and Health Insurance Reporting on W-2s (Davis Brown Tax Law Blog)

TaxGrrrl, Taxes From A To Z (2014): J Is For Jury Duty Pay   

 

Everything is spinning out of control! Suburban Cleveland Councilman Denies Getting in Brawl With Liberty Tax Sign Spinner (Going Concern)

 

Share

Tax Roundup, 12/3/2012: Medicare 3.8% tax guidance issued. Meanwhile, to the cliff!

Monday, December 3rd, 2012 by Joe Kristan

The IRS issued proposed regulations for the 3.8% Obamacare tax on investment income Friday.  I will do detailed posts on the in the coming days as I study them.

I’ll note two important items from my first overview of the proposed rules:

  • The rules allow taxpayers a free opportunity to redo their activity “grouping” elections for the passive loss rules for 2013. “Passive” business activities are subject to the the 3.8% tax.  Because “passive” status often depends on how much time a taxpayer spends working in a business, how different operations or locations are grouped can determine whether they are passive.
  • The rules appear to allow you to pro-rate state income taxes in determining “net” investment income.  That’s taxpayer-friendly, but it adds another level of complexity.

For an initial take on the rules, see Anthony Nitti at Forbes.

Related:   Obamacare: it’s a tax!

 

David Brunori of Tax Analysts on the fiscal cliff discussion:

     Everyone knows that taxing the very rich will have no perceptible effect on the deficit. It’s all for show. The president and Democrats in Congress can say they stuck it to the millionaires and billionaires. Fairness will abound. The Republicans can tell the world that they are reasonable people willing to compromise on issues as important as taxes. But Americans will still get more government than they are willing to pay for.

     Some liberals have called for us to go over the cliff and to raise taxes across the board. Like Norquist, they are miscalculating. If everybody had to start paying more, there would be a lot more questioning of massive defense spending, egregious subsidies for industries, and entitlements run amok. But for now, we must be content with the rich paying more so we can get more than we deserve from our government.

You can’t pay for mass welfare benefits with a class tax.  The mania for taxing “the rich” is a distraction from the enormous tax increases on everybody that will be required.  The Rich Guy’s not buying.

 

Why the fiscal cliff is such a big fall.  The Bush Tax Cut Issue in One Chart (Ed Krayewski, Hit and Run):

He adds:

And for those who would say “well of course the government has to spend more when the economy is hurting” only one question applies: has it helped? If you think so, I’ve got a tiger-repellant rock to sell you.

Related:  ‘Fiscal Cliff’ follies: Why it may pay to take deductions early.  My latest post at IowaBiz.com, the Des Moines Business Record blog for entrepreneurs.

Nobody’s serious I:  No ‘fiscal cliff’ deal without higher rates, Geithner says (CNN via Going Concern)

Nobody’s serious, II: Grassley and King push for extension of Wind Energy Tax Credit

 

Iowa admits its capital gain forms were a mess.  A protest rejection released by the Iowa Department of Revenue highlights how badly the Iowa 1040 has been designed with respect to the Iowa deduction for capital gains on the sale of businesses an business real estate.

The taxpayer had excluded regular capital gains from a brokerage account on her tax return.  Iowa properly rejected the deduction, but admitted her mistake was understandable:

Your position relies on the Department’s instructions for completing the tax return.  We found that you are not the only one that made this mistake, so our instructions now clarify that these types of capital gains do not qualify for the deduction as shown above.  In any event, the instructions are not controlling.

Iowa now has better wording on the deduction line and a flow chart to walk taxpayers through whether they should claim the deduction.  It’s a big improvement, but it should be better.  There should be a separate form to compute the deduction, with a checklist to complete to demonstrate eligibility.

The state examines every capital gain exclusion claim.  Taxpayers should be able to submit the information the state asks for with their returns to preclude the examination; even if it would have to be paper-filed, it would save the state the time and money spent on unneeded exams.

Related:  Iowa Capital Gain Break: how it works when you rent property to your business

 

NY Times: States and Cities Shovel $80 Billion/Year in Tax Incentives to Companies, With Little Proof of Their Effectiveness  (TaxProf):

A Times investigation has examined and tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every corner of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.

It’s a chump’s game, and we taxpayers are the unwilling chumps.  These things are to economic growth what steroids are to long-term fitness.

 

When you don’t remit withheld taxes, it might not just be a matter of getting your payments caught up.  A New Jersey couple that ran an engineering firm failed to remit over $500,000 in withheld taxes to the IRS.  They were sentenced last week to 44 months in prison after being convicted of charges arising out of the nonpayment.  From the Department of Justice Press Release:

Evidence was also introduced that the DeMuros converted withheld funds for their business and personal use, including more than $280,000 in purchases from QVC, Home Shopping Network and Jewelry Television.

No doubt it was of the best-quality.  Oh, and the couple still has to pay over $1.3 million in restitution to the IRS.

Doug Shulman is no longer IRS Commissioner, but his legacy remains:

 ABC News: Alarming Rise in IRS Refund ID Thefts, Few Prosecuted: GAO Report

Dayton Daily News,  IRS says tax fraud attempts up 39 percent

Greg Mankiw,   Some Advice on Tax Planning

Richard Morrison,   The Tax Rate Paid by the Top 1% Is Double the National Average (Tax Policy Blog)

The Critical Question:  Will the Payroll Tax Cut Fall Silently Off the Cliff? (Elaine Maag, TaxVox)

Kay Bell:  Time to spend down your medical flexible savings account (FSA)

Paul Neiffer,  Senator Baucus Urges Extension of Current Estate Tax Laws

Jim Maule,  Passing the Tax Responsibility Buck

Peter Reilly,  Who Should Be Accelerating Income Into 2012?

Patrick Temple-West,  Most Americans face lower tax burden than in 1980, and more (Tax Break)

Robert D. Flach,  DAMNED IF THEY DO AND DAMNED IF THEY DON’T.

Tragedy:  Lindsay Lohan Has Yet To Settle Tax Bills With IRS, Faces Account Seizures (TaxGrrrl)

The Tax Update is also on Twitter (@joebwan) and Facebook!

Share

Iowa’s Capital Gain Deduction: your capital gains probably don’t qualify

Tuesday, January 31st, 2012 by Joe Kristan

Taxpayers have for years been confused by Iowa’s capital gain deduction. It’s only available for certain business sales when the owner has held the business for at least ten years and has “materially participated” in it for that long. But until this year, there was no indication it was so hard on the face of Iowa’s 1040.
The Iowa Department of Revenue last week released a protest resolution involving one such confused taxpayer (my emphasis):

The Department reviewed your 2006, 2007, and 2008 individual income tax returns and denied the capital gains deduction. The issue in this protest is whether your capital gains from investments, i.e., stock sales, dividends, and distributions reported on forms 1099-B and 1099-DIV qualify for the Iowa capital gains deduction.
The Department

Share

Iowa needs a tax court

Tuesday, August 9th, 2011 by Joe Kristan

humpty.jpg

“When I use a word,” Humpty Dumpty said in a rather scornful tone,” it means just what I choose it to mean — neither more nor less.”

An Iowa district court has ruled that the Iowa Department of Revenue can take the Humpty Dumpty approach to the tax law.
The case covered the pre-1997 version of the Iowa Capital Gain Exclusion. This break exempts some capital gains from income when a taxpayer has both “held” a business asset for 10 years and has also “materially participated” in the business for 10 years
IDOR regulations cooked up a definition of “held” for this purpose that doesn’t appear anywhere else in the tax law — one that ignores holding periods that carry over for other purposes, like gifts or tax-free exchanges. The legislature overrode the IDOR interpretation for post-2006 years, but did not address the pre-2006 regulation.
The Department’s regulation is abusive and ridiculous. As we noted in 2005,

Iowa has had no difficulty adapting federal holding period rules for other “unique” Iowa purposes. For example, Iowa has a special exclusion for farmers for sales of cattle or horses held for 24 months. The Department adopted federal holding period rules for this deduction, which has no direct federal counterpart. (Subrule 40.38(2))
If the legislature doesn’t provide a specific definition of a word when it passes a tax law, the sound and sensible assumption is that it means the same thing that it means elsewhere in the tax law.

Even so, the Iowa District Court upheld this ridiculous reading (footnotes omitted, emphasis added):

This term was not defined within the statute at the time the petitioners filed the return in question. In addition, the term has substantive meaning within the special expertise of the agency relating to when or to what extent an asset is considered a capital asset. This, along with the aforementioned rulemaking and enforcement authority delegated to the agency by the legislature, leads the court to conclude that the interpretation of the term “held” in 422.7(21)(a) has been clearly vested with the agency. Accordingly, the court will affirm the agency unless it concludes that its interpretation of the term is irrational, illogical or wholly unjustifiable.

It is all three, but the court sided with the Department anyway.

(more…)

Share

Department of Revenue: CRP land can qualify for the capital gain exclusion

Tuesday, June 14th, 2011 by Joe Kristan

Good news for gentleman farmers everywhere. From a protest ruling by the Department of Revenue:

The protester owned a share of farmland that was sold in 2005, and claimed a capital gain deduction on the Iowa individual income tax return. The Department denied the deduction and issued a Notice of Assessment. The reason for denial was the protester did not meet the material participation requirement for the deduction.
Our review finds the land was held in CRP for the ten years immediately prior to sale. Department rule 701 IAC 40.38 states that if individuals actively manage farmland placed in the CRP program by directly participating in seeding, mowing, and planting the farmland or by overseeing these activities, the owner will be considered to have had material participation in the farming activity. Therefore, the protester qualifies for the deduction. The Department will cancel the assessment.

Iowa doesn’t tax capital gain income from the sale of a business or of business real estate if the seller has held the property for ten years and has “materially participated” in the business for ten years. This low threshold for CRP land will be very helpful for a lot of taxpayers.
Cite: Parman, Doc. Reference 11201011
Related: Iowa Capital Gain Deduction: an illustration

Share

Iowa Capital Gain Exclusion: You have to own the business for 10 years, not the asset.

Monday, April 19th, 2010 by Joe Kristan

Iowa has a special capital gain exclusion for businesses that hang in there for a long time. If you sell the assets of a business that you have owned at least 10 years, and in which you have materially participated for ten years, you can exclude the capital gain from your Iowa taxable income. This normally requires a sale of “substantially all” of the business assets, but you can also exclude from income gain on business real estate owned in a qualifying business without selling the other assets.
A newly-released letter from the Department of Revenue clarifies that you don’t have to own each asset for ten years for the gain on the sale to qualify. From the letter:

On February 19, 2010, the Department issued a Notice of Assessment for individual income tax. The reason for the assessment was a denial of the capital gains deduction claimed on the 2006 Iowa return. More specifically, the capital gain was from the sale of an asset that had been held less than ten years.
Our review finds the Department erred. The statutory requirements for the deduction are that the business must have been held ten years and the taxpayer must have met the material participation requirements. Rule 701 IAC 40.38(1) addresses the sale of the assets:
b. Assets of a business. Those assets of a business which may qualify for capital gain treatment under rule 40.38(422) if the assets are sold or exchanged under the conditions described in this rule are real property, tangible personal property, or other assets of a business which were held by the business more than one year at the time the assets were sold or exchanged. However, for purposes of this subrule, tangible personal property of a business does not include cattle or horses described in subrule 40.38(2), other livestock described in subrule 40.38(3), or timber which is described in subrule 40.38(4).

(emphasis added)
The rule does not require each individual asset be held more than ten years. Since the asset was held more than one year, the deduction should have been allowed. Therefore, the Department will cancel the assessment.

So: if you liquidate a ten-year business, you can exclude all gain from property held by the business owned at least one year — not just assets held for ten years. And if you sell real property out of your ten-year business, you don’t have to have a ten-year holding period for that property.
Related: IOWA’S SUPER-LONG TERM CAPITAL GAINS DEDUCTION: IF YOU QUIT, DON’T WAIT TOO LONG TO RETIRE
Reblog this post [with Zemanta]

Share