Iowa Flat Tax Bill Signing Ceremony

How Does Iowa's New Flat Tax Benefit You?

Financial CommentaryTrust & Estate Planning
March 14, 2022
Kyle IrvinTony LambBy Kyle Irvin, J.D. & Anthony Lamb, J.D.
Security National Wealth Management

On March 1, 2022, Iowa Governor Kim Reynolds signed into law what has commonly been referred to as a flat tax for Iowa.  Much attention focused on the reduction of the top current personal income tax rate of 8.53% to 3.9% in 2026. Though the bill impacts personal income tax rates, many other parts of the bill may generate tax savings, too.

Retirement income now exempt in Iowa

One feature of the new bill will benefit virtually all of Iowa's more “seasoned citizens.” The bill would exempt from Iowa state income tax all “retirement income” for those age 55 or older, including the recipient or their spouse's Individual Retirement Accounts (IRAs), pension plans, or annuities. (Sort of makes you look forward to getting old). 

Avoid state capital gains from your own employer's stock

Another new opportunity would allow a complete 100% exclusion from state capital gains for any sale of “qualified” stock by a stock owner who acquired the stock while employed with the company.  This exclusion would be phased in, but would result in a complete exclusion as of 2025. While there are conditions, the savings could be significant. An owner must have held such stock for 10 years prior to the sale and must have employed individuals in Iowa for at least 10 years.  The corporation must be “qualified” by having at least five shareholders for 10 years, at least two of whom must not be related.  A “qualified corporation” must make an irrevocable election in order to take advantage of this exclusion.

Some farm lease & real estate income now deductible

Another opportunity  would allow a farmer 55 years of age or older, who no longer materially participates in a farm tenancy, to exclude farm lease income from their state income tax for land that the farmer owned for 10 or more years. The farmer must have materially participated in a farming business for 10 or more years. The bill also allows a retired farmer 55 or older to exclude capital gains from their state income tax for the sale of farm real estate if they materially participated. This new exclusion would become effective for the 2023 state tax year.

Questions? Let us know.

While making income is important, in the end the important part is how much you get to keep. Many of these new policies provide important opportunities for our customers to plan for the future with some new tools. As always, we will continue to keep you informed of these new developments so that you can be sure to be at the forefront of developments in wealth management. If you would like to discuss how these opportunities and others can help you achieve your financial goals, please contact us and arrange for a visit.

Photo credit: Gov. Kim Reynolds signs a bill into law on March 1, 2022. Courtesy the Office of the Governor of Iowa.

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