Posts Tagged ‘Section 179’

Tax Roundup, 2/15/2013: Governor couples Iowa taxes to fiscal cliff bill. Also: 19 years for municipal thief.

Friday, February 15th, 2013 by Joe Kristan

20130117-1Governor Branstad has signed the bill conforming Iowa’s tax law to federal changes enacted last month.  The Governor signed SF 106 yesterday afternoon.

The bill allows taxpayers to use several federal provisions in computing their 2012 Iowa taxes, including:

– The federal Section 179 deduction of up to $500,000.

– The federal above-the-line deductions for tuition and educator expenses.

– The exclusion for IRA distributions to charity for taxpayers who have reached age 70 1/2, and the transitional rules for January 2013 charitable rollovers of IRA distributions.

– The optional deduction for state and local sales taxes.

The bill does not conform Iowa to federal bonus depreciation; Iowa filers will normally use federal standard MACRS depreciation instead.

 

Tony Nitti,  Senate Proposal for Tax Reform Part II: Democrats Seek To End S Corporation Payroll Tax Loophole.  It’s similar to nonsensical proposals put forward in prior years to tax S corporation K-1 income when 75% or more of revenues are “attributable” to three or fewer shareholders — an impossible standard to evaluate in many cases, and one that discriminates against the smallest S corporations.  It shows they are lazy — the problems with the approach are well known, yet the won’t make the effort to correct, instead trotting out the same old bill.  It just shows they aren’t serious.

David Cay Johnston finds the cuts to IRS funding that would result from the impending sequester “Particularly Devastating” (Tax.com)

 

Going Concern,  Former Dixon Comptroller Rita Crundwell Gets Nearly 20 Years.  She stole over $50 million from an Illinois municipality of 15,000 people going back to 1990.  And nobody noticed for over 20 years.

Kay Bell,  IRS’ Where’s My Refund? site swamped by impatient refund tracking taxpayers.

Taxpayers overwhelmed with compliance demands, asks government to slow down.  IRS Overwhelmed With Refund Requests, Asks Taxpayers To Slow Down(TaxGrrrl)

Paul Neiffer, Another Bill to Reduce Farm Payments is Introduced!

Jack Townsend, Swiss and US Sign IGA.  An agreement under the “FATCA” foreign bank reporting rules.

Patrick Temple-West, Married couples face tough taxes, and more (Tax Break)

Russ Fox, Nevada Looks to Tax Online Poker Tournaments

Donald Marron,  The Balanced Budget Amendment’s $300 Billion Error

News you can use.  Retire Rich: The Forbes 2013 Antiretirement Guide (Janet Novack)

Nick Kasprak,  Happy Valentine’s Day! Will You Marry Me (For Tax Reasons?) (Tax Policy Blog).

20130215-1

Some people are just incurable romantics!

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2011 year-end tax tip: 100-percent bonus depreciation isn’t renewed

Tuesday, December 27th, 2011 by Joe Kristan

The last tax bill of 2011, the 2-month payroll tax cut extension, has no provision to extend the 2011 tax treatment for fixed assets. As things now stand, 100-percent bonus depreciation and the $500,000 Section 179 deduction limit go away after Saturday. Starting Sunday, January 1, taxpayers placing assets in service will have 50-percent bonus depreciation available. The maximum Section 179 deduction will fall to $139,000.
That means taxpayers dawdling on fixed asset decisions in hopes these provisions would be extended need to get busy. As Paul Neiffer points out, assets have to be “in service” by December 31 to qualify for deprecation or the Section 179 deduction on calendar-year 2011 tax returns. So get busy!
We’re here all week with more 2011 year-end tax tips!

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Payroll tax cut extension imminent?

Friday, December 16th, 2011 by Joe Kristan

The Wall Street Journal reports this morning that the Congresscritters are on the verge of a deal to extend the 2% cut in the employee portion of the Social Security tax (from 6.2% to 4.2%). The deal would also extend the reduction in the Self-employment Tax from 15.3% to 13.3% — so don’t be hasty about accelerating self-employment income into this year.
I see nothing yet on whether the deal will also extend 100% bonus depreciation or the $500,000 Section 179 deduction maximum one more year.
UPDATE, 12/18: Senate passes two-month extension of payroll tax cut.
More Coverage:
Tax.com
TaxGrrrl
Kay Bell

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Year-end tax planning for fixed assets: what changes after December 31.

Monday, December 12th, 2011 by Joe Kristan

As year-end approaches, businesses are scurrying to get assets in service by year-end to take advantage of special tax breaks that expire at year-end:
100% bonus depreciation, and
– The $500,000 limit on Section 179 deductions.
The 100% bonus depreciation rules allow taxpayers to fully deduct their investment in qualifying property in the year it is placed in service. Qualifying property is new (not used) business property with a class-life of 20 years or less. This includes most business equipment and farm buildings.
Next year the tax law reverts to “50% bonus depreciation.” Under 50% bonus depreciation, you can only deduct half of your investment in qualifying property in the year placed in service; the rest is deductible under the normal deprecation rules over a period of years.
The Section 179 deduction also allows taxpayers to fully deduct the cost of otherwise depreciable property. Unlike with bonus deprecation, you can take the Section 179 deduction for used property. But there are more restrictions on Section 179:
– Section 179 is limited to $500,000 per year for 2011, and the deduction phases out dollar-for-dollar as purchases of business property exceed $2 million.
– It is further limited to your taxable income; while bonus deprecation can create or increase a net operating loss that you can carry back to recover prior taxes, the Section 179 deduction cannot.
After this year, the Section 179 limitation is set to decline to $139,000 – phasing out starting at $560,000 in fixed asset purchases.
That means the stakes for getting assets in service by year-end are higher than just getting starting depreciation a year sooner. If you have enough fixed asset purchases, it can be the difference between getting deductions this year and five, seven or even 20 years from now.
Remember, though, that the asset needs to be “in service” this year to qualify for deduction under the 2012 rules. It’s not enough to just have it ordered or paid for this year. That means December 26 is probably too late to get going on this.
Check back for more 2012 year-end tax taps through December 31!

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Year-end planning: what does “placed in service” mean?

Thursday, December 8th, 2011 by Joe Kristan

Two big tax benefits for buying business fixed assets will be trimmed way back starting next year. The “100% bonus depreciation” for 2011 asset additions will become “50% bonus depreciation” starting January 1. The $500,000 annual limit for assets expensed under Section 179 will also be cut way back next year, to about $138,000. So taxpayers are scrambling to get their fixed asset purchase to qualify for the more generous 2011 rules.
An asset normally has to be “placed in service” by year-end to qualify. The tax regulations say:

Property is first placed in service when first placed in a condition or state of readiness and availability for a specifically assigned function…

What does that mean? If your machine is still in shipping crates on your loading dock, it’s not placed in service. But it doesn’t actually have to be generating revenue for you yet, either. If everything is in place and ready to go, your asset may be in service. For example, last year the Tax Court said components of a recording studio purchased in 2002 and 2003 were placed in service in those years because they were set up and tested, even though it wasn’t actually used in the business until 2004, because the pieces were operable on their own.
In contrast, components that need to be interconnected to function may not be placed in service until they are hooked together. For example, a production line might not be considered placed in service if a component machine isn’t in place, even if separate machines purchsed for the line are otherwise ready to go.
December 31 isn’t far away, so if you are counting on bonus depreciation or Section 179 for new equipment for 2011, make sure you get it “in service” before the ball drops.
More 2011 year-end tax tips here through December 31!

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Section 179: when you have too much of a good thing

Tuesday, October 11th, 2011 by Joe Kristan

Paul Neiffer explains how too much Section 179 deduction can actually be a bad thing. The Section 179 deduction allows taxpayers to deduct equipment expenditures that they would otherwise have to capitalize and depreciate over several years. If you have interests in multiple equipment-buying businesses, it can cause trouble:

With the increased Section 179 deduction available in 2011 of $500,000 farmers need to be very careful if they have ownership in multiple partnerships and S corporations that will be purchasing large amounts of used equipment and deducting it under Section 179. The partnership and S corporation have an overall $500,000 Section 179 limitation on deducting at their entity level and when this amount flows through to the farmer, there is another $500,000 limitation level on his tax return.
If more than $500,000 of Section 179 expense flows through to the farmer, then this excess amount is permanently lost as a deduction.

Related: 500K Section 179, extended bonus depreciation enacted

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Airplane deduction crashes

Thursday, September 1st, 2011 by Joe Kristan

Mr. Douglas owns a trucking company S corporation that specializes in “critical timing” deliveries. That business is only as good as your drivers.
He decided that an airplane would be handy to get drivers to where they need to be in emergencies. The S corporation bought a Cessna 172 in 2007 for and Mr. Douglas started taking flying lessons. By the end of 2007 he had not advanced beyond the flying lessons and held only a student pilot’s license.

Flickr image by dimworld under Creative Commons license.
The S corporation took a Section 179 deduction in 2007 for the Cessna’s $135,000 purchase price. Section 179 allows taxpayers to deduct in one year a limited some assets that would otherwise have to be capitalized and depreciated. One catch: an asset has to be “placed in service” by year-end to qualify for the deduction. The IRS said the flying lessons didn’t count, so it was off to Tax Court, where things went badly:

An aircraft cannot be considered ready and available for business use without a suitable pilot to fly it. During 2007 no employees or officers of Bantam held a pilot’s license that would have enabled them to use the aircraft to transport a replacement driver. Petitioners’ vague assertion that there were “stand-by pilots” in 2007 is not credible. There is no evidence in the record, aside from Mr. Douglas’ statement, that there were any “stand-by” pilots for the aircraft; and there is no evidence at all that would support a finding that Bantam had access to standby pilots on an expedited schedule, which was the alleged business reason for the aircraft. There is no evidence in the record of any agreement between a qualified pilot and Bantam that might suggest his or her availability for the purpose of flying drivers to disabled vehicles on short notice.

Decision for IRS. Consolation prize for taxpayer: he convinced the Tax Court that he relied on his preparer in taking the deduction, so no penalties were assessed.
The Moral: No pilot, no deduction.
Cite: Douglas, T.C. Memo 2011-214.
Related: Section 179: First, you have to have a business

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Legislature allows Iowans to take some 2010 deductions on 2011 returns

Thursday, June 30th, 2011 by Joe Kristan

The Iowa Senate yesterday passed a conference committee report to SF 533 allowing Iowans to claim some 2010 Section 179 deductions, Educator Expenses and Tuition Expense deductions on 2011 returns.
This unusual bill is a result of the legislature passing a major tax bill near the end of this year’s tax season. SF 512 conformed 2010 Iowa rules to federal rules for these three items after most 2010 Iowa returns had been filed. SF 512 increased the Iowa Section 179 deduction to $500,000, from $134,000, for 2010. It also allowed Iowans to claim the $250 educator expense deduction and the federal tuition deduction for 2010.
The bill allows Iowans to get the benefit of these belated 2010 tax breaks without having to amend returns. This will save people from the absurdity of amending a return to get a $20 refund for teacher expenses. It will also save pass-through entities the need to have all of their owners amend returns to claim the extra Sec. 179 deduction, with the resulting hassle and expense. Taxpayers can still amend 2010 returns if they prefer to.
The Senate also passed the expansion of the earned income tax credit yesterday (SF 533). The Iowa credit rate rises to 10% for 2011.
The initial version of this post erroneously reported that the amended return relief was not in the bill. I apologize for the error.

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Iowa late changes: should you amend your returns?

Thursday, April 28th, 2011 by Joe Kristan

Iowa’s legislature saw fit to change the rules of the 2010 tax game this month, after most Iowans had probably already tallied their scorecards. So should we amend our Iowa 2010 returns right away?
I understand that the Iowa Department of Revenue is working on a legislative proposal that would enable taxpayers to take some of these fixes on 2011 returns, rather than amending their 2010 returns. The Department isn’t really staffed to handle a flood of amended returns, and many taxpayers would rather not pay to have an amended 2010 return preparered if they can use their new 2010 deductions in 2011.
If you can take your Iowa 2010 $250 educator expense in 2011, it’s hardly worth filing an amended return to claim a $17 refund. Even a big additional Section 179 deduction might be worth waiting for if it is coming out of an S corporation or partnership on a batch of K-1s, where each individual owner would also have to file an amended return.
Iowa may also come out with a streamlined amended return process for 2010 refunds. So it may well be worth waiting two or three weeks to see what the legislature and the Department of Revenue come up with before filing your refund claims.

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Conference Committee agrees to bonus depreciation for Iowa for 2011

Saturday, April 16th, 2011 by Joe Kristan

It looks like Iowa will couple with bonus depreciation for 2011 after all.
The long-dormant conference committee working to reconcile the differing versions of the indigent defense appripriation bill (SF 209), passed over a month ago in each house, finally came to an agreement yesterday. We’ve confirned through a conference member that, in addition to finally paying the public defenders, the bill links allows federal bonus depreciation on Iowa returns for assets placed in service in 2011.
Just last week the Governor enacted the “code coupling” provisions of SF 512. These provisions had originally been included in SF 209, but were enacted separately when that bill bogged down in conference. SF 512 couples federal law for Iowa with the Internal Revenue Code as of January 1, 2011, except for bonus depreciation; it allows the $500,000 Section 179 limit for 2010 and 2011 assets on Iowa returns.
The conference bill text isn’t yet available; we will link to it when it is. It is expected to pass both houses next week.
Related: Iowa Department of Revenue issues release on new Iowa rules enacted yesterday

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Governor uses item veto on SF 512; ties Iowa law to federal tax law for 2010

Tuesday, April 12th, 2011 by Joe Kristan

Governor Branstad has used his item veto authority on SF 512, the bill containing the “code conformity” provisions for the Iowa income tax. The item veto removes budget transfer authority included in the bill; the item veto therefore enacts the federal code coupling language.
As a result, we finally have a 2010 Iowa tax law. Key points:
– Iowa conforms to the $500,000 Section 179 deduction limit for 2010 and 2011.
– Iowa adopts federal tax computation rules in effect as of 1/1/2011, including things like the educator expense deduction that have been a problem in other years.
– Iowa DOES NOT adopt federal bonus depreciation for 2010 or 2011.
I don’t think the legislature can now undo the parts approved by the Governor in his item veto, but I’ll let you know if I hear otherwise. I will update this post as events may warrant.
UPDATE, 5:46 pm: A reader asks in the comments:

So we can deduct front page tuition deduction and educator costs now on 2010 Iowa tax returns? Was it retroactive back to tax year 2008 by any chance?

The SF 512 provisions adopting the Internal Revenue Code changes through 1/1/11 “apply retroactively to January 1, 2010, for tax years beginning on or after that date” (Sec. 6 of the bill). So it goes back to 2010, but not further, if I understand it correctly, and the tuition deduction, the IRA donation exclusion, and the like are good now for Iowa 2010 1040s.
UPDATE, 4/13/2011: Iowa Department of Revenue issues release on new Iowa rules enacted yesterday
Links:
SF 512
Veto message
More coverage:
Radio Iowa
Des Moines Register

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So we don’t have a 2010 Iowa tax law after all?

Wednesday, April 6th, 2011 by Joe Kristan

The bill to set Iowa tax rules for last year for the returns we are filing this month — and, not incidentally, to pay public defenders who have been unwillingly pro bono since February — has had a big week. It was amended and passed by the Iowa House last Thursday. The Iowa Senate amended and passed it yesterday, sending it back to the Iowa House, which didn’t like what the Senate did, and sent it back. The Senate backed off and passed the House version. So now we can file our returns and the public defenders can get paid, right?
Not so fast. O Kay Henderson reports:

Senate Democrats have accepted a plan from House Republicans for paying the state

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Whither the Iowa ‘coupling’ bill? UPDATE: Senate to consider today

Monday, April 4th, 2011 by Joe Kristan

UPDATE, 1:45 P.M.: Word from the Capitol is that the Iowa Senate will take up SF 512 after they get out of a caucus. We will post when any updates come through. You can follow here.
UPDATE, 4:19 p.m. : After a tough 3 1/3 hour day, our hardworking senators have packed it in until tomorrow without picking up SF 512. Words fail.
After waiting months to do anything about resolving Iowa’s 2010 tax law, the Iowa House last Thursday in a single day passed a coupling bill through both the Ways and Means Committee and the House Floor. The bill couples the Iowa tax law to all federal provisions for 2010, with the exception of bonus depreciation. That means Iowa would recognize the new $500,000 limit for Section 179 for 2010 and 2011.
So now that this bill has been separated from the controversial tax reserve fund that had held it up, it should fly through the Senate, right? One would hope, but SF 512 isn’t on the Senate calendar for today. Let’s hope that’s just an oversight. With only two weeks left in filing season, it would be nice to know the Iowa rules.
Related: Iowa can’t decide what your 2010 tax rules are, but they can still give it away

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Movement on Iowa 2010 fixed asset rules?

Thursday, March 31st, 2011 by Joe Kristan

I hear that a new “coupling” bill is moving through the Iowa legislature on a fast track as an amendment to SF 512, the indigent defense appropriation. It reportedly has just passed the House Ways and Means Committee. I haven’t seen it; I’m told it doesn’t couple with bonus depreciation, but it couples to the federal Sec. 179 $500,000 limit for 2010 and 2011. I will update as soon as I learn more.
UPDATE, 5:00 PM: Senate is adjourned until Monday, so no final vote until then, at least. I will try to find out if it’s a done deal, but that’s my guess now.
UPDATE, 4:40 PM: SF 512, with coupling amendment, passes House, 98-0. This thing must really be on a fast track. Now back to Senate for approval with amendment.
UPDATE, 3:00 PM: Code conformity language. Language does make $500,000 Sec. 179 retroactive to 2010, but doesn’t couple for either 2010 or 2011 for bonus depreciation. We’ll watch this and update this post for any new developments.
Background here.

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Iowa legislature fails again to settle 2010 tax depreciation rules

Friday, March 25th, 2011 by Joe Kristan

Different day, same story. The Iowa General Assembly conference committee trying to reconcile House and Senate bills with differing depreciation rules has now gone two weeks without figuring out what Iowa’s tax law is for the returns we are working on now.
Both bills adopt the federal $500,000 Section 179 deduction limit retroactively to 2010. The House Bill adopts federal bonus depreciation for 2010, while the Senate bill adopts it only for 2011. If neither bill passes, the 2010 Iowa Section 179 deduction would be $134,000 and there would be no bonus depreciation on Iowa returns.
EasternIowaGovernment.com reports:

The main sticking point in the GOP insistence on creating a tax relief fund that would capture surplus dollars at the end of each fiscal year and earmark them for tax reductions. House Speaker Kraig Paulsen, R-Hiawatha, said legislative Republicans tentative had worked out their agreements but Democrats still were not on board, although he thought negotiators were “very, very close” to finalizing a package. However, Senate Majority Leader Mike Gronstal, D-Council Bluffs, told reporters “I think we

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Is today the day Iowa figures out its 2010 tax law?

Thursday, March 24th, 2011 by Joe Kristan

20110324-2.jpgA lobbyist tells me of rumors that the Ieadership of the Iowa General Assembly is “almost there” in settling differences between the House and Senate on Iowa’s fixed asset cost recovery rules for 2010 and 2011. Both houses have passed bills allowing the federal Section 179 deduction limit of $500,000 retroactive to 2011. The Iowa House would also allow bonus depreciation for 2010, but the Senate would only allow it for 2011.
If there is an agreement, it is likely to be announced today, as they hate to work on Friday under the Golden Dome. We’ll let you know if we hear anything.
UPDATE, 10:50 am: Sen. Majority leader Gronstal wouldn’t say conference “is close” to a deal, per Kathie Obradovich’s Twitter feed. Boo. Hiss.
UPDATE, 11:22 am: Kathie Obradovich tweets that House Speaker Paulsen says they’re “v.v. close.” If they can’t even agree on how close they are, that may not be a good sign.
Related: Two weeks of conference committee later, we still don’t know Iowa’s 2010 depreciation rules
Image courtesy of Wikipedia

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Weekend Update: No resolution yet for 2010 Iowa tax depreciation, Section 179 rules

Saturday, March 19th, 2011 by Joe Kristan

The conference committee trying to reconcile the different “tax coupling” bills passed by the two houses of the Iowa General Assembly has now gone a full week without finishing its work.
Meanwhile, thousands of Iowa business tax returns are in limbo, awaiting the word on what rules apply for 2010. The House bill conforms Iowa’s tax law for bonus depreciation and the Section 179 deduction to the federal rules effective for 2010. The Senate bill adopts federal Section 179 rules for 2010, but bonus depreciation for 2011.
Many business returns already filed could be affected by the conference decision; these returns might have to be amended to comply with any retroactive tax law changes.
The bills in conference also include “supplemental appropriations” for several state programs, including indigent defense. Attorneys for paupers are scrambling to pay their bills; prosecutors, in contrast, won’t miss a paycheck.
The hangup is a proposed bookkeeping account to hold any surplus state funds after the end of the budget year. Republicans want the account to get all surplus funds after reserve funds are restored, to be used for general tax reduction. Democrats want a limited effective date, with only 25% of the surplus to be set aside, and only for property tax relief.
The Governor entered the debate yesterday. In a town hall meeting in Columbus Junction, he came out for splitting the non-contentious issues from the bill so they can be enacted without more delay, reports Kathie Obradovich:

Branstad today, at a town hall meeting to promote his jobs plan, came down on the side of Democrats who want to push through the $45.7 million needed for human services, corrections and indigent defense.

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Conference on 2010 depreciation rules for Iowa drags on

Friday, March 18th, 2011 by Joe Kristan

The conference committee attempting to determine whether to conform Iowa to federal rules for fixed asset cost recovery failed to reach agreement again yesterday. The committee is hung up on a plan to put any leftover money at the end of the fiscal year into a “tax relief fund.” Rod Boshart reports:

Talks stalled when House Republicans insisted on creating a tax relief fund with 100 percent of the state

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Returns held hostage by conference committee, day 4

Thursday, March 17th, 2011 by Joe Kristan

The third meeting of the conference committee to determine Iowa’s depreciation rules for last year broke up without agreement yesterday. They plan to get together again today.
The Iowa House of Representatives passed a bill that would adopt the federal bonus depreciation rules and Section 179 rules for 2010. The Iowa Senate passed a bill that would adopt Section 179 for 2010, but put off bonus depreciation on Iowa returns until 2011. That means we still don’t know what rules will apply to recover the cost of fixed assets on Iowa returns that we are trying to prepare now.
Why the hang-up? The sticking point is a special fund to earmark budget savings for tax relief. Rod Boshart reports:

Under the Democratic offer, the Legislature would create a new tax relief fund to receive 25 percent of excess money in the state

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Conference committee makes little progress on Iowa bonus depreciation bill

Friday, March 11th, 2011 by Joe Kristan

The Des Moines Register reports that the legislators trying to reconcile the separate bills passed by the houses of the Iowa General Assembly are so far too busy preening to tell us what the tax law is for the returns we are trying to prepare right now:

House Republicans said they don’t want that tax break in the bill they’re trying to reach a compromise over, saying it should be part of a larger discussion about a 20 percent income tax cut for all Iowans…
Gronstal pointed out that thousands of low-income working Iowans don’t have any state income tax liability and instead get money back

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