Why Won’t Iowa Couple Section 179?!
Since 2010, Section 179 has been at the $500,000 level for federal income tax purposes. Most states have also allowed Section 179 to be at this same level. However, there are several states such as California that continue to have a much lower allowed Section 179 deduction.
As we have discussed in many previous posts, Section 179 is not an extra deduction or an extra credit. It simply allows a farmer to take an accelerated depreciation deduction in year 1 and reduce his deduction in years 2 – 8 for farm machinery. Iowa has always “coupled” their Section 179 deduction with the federal amount…..Until 2015. Governor Branstad has stated numerous times that the current budget does not have enough room to allow for up to $500,000 of Section 179. Rather it will be limited to $25,000.
This is currently being discussed by the legislature in Iowa and there is now a direct burden on farmers and tax preparers while this is discussed. Most assumed it would be at the $500,000 level, but now with a much lower level, many farmers are facing an extra 2015 Iowa state income tax of up to $62,500 (if the Iowa taxpayer is a C corporation, the top rate is 12.50%).
Another looming issue for farmers and tax preparers is when to file the return. Many Iowa farmers file their income tax return by March 1. Since the Section 179 issue is not really settled yet, should they file and pay tax by March 1 based upon the lower deduction amount. What happens if Iowa then couples with federal law. Will they have to file an amended tax return and wait six months or more to get their tax refund.
A simple solution is for the Iowa Department of Revenue to issue a notice indicating that all Iowa farmers have until April 30 to file their state income tax returns. The IRS previously allowed farmers this same option a couple of years. Congress had just passed a tax extender bill at the end of the year (when do they don’t) and the IRS had to update their tax software. They allowed all farmers to file by April 15 instead of March 1. My assumption is that the Iowa Department of Revenue would have the same option. This action could occur now. Letting farmers file and pay by April 30 instead of March 1 of this year would not cost the state much (simply some interest on their money).
If you are in this situation, calling your local Iowa representative might be a good idea. We will keep you posted.
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Comments are closed.