701—50.10 (422) Example for tax periods beginning on or after January 1, 2002.
Example.  The following example is based on the following facts. The taxpayers are a husband and wife who have two dependent children. Their income consists of husband’s wages of $50,000; rental loss ($5,000); wife’s S corporation income of $500,000; joint interest income of $35,000. They have Iowa itemized deductions of $20,000, and an out-of-state tax credit of $1,150 on the S corporation income. The actual cash distribution from the S corporation was $289,840, none of which has been previously taxed by Iowa. Federal income tax paid during the year totals $191,214. The S corporation is a value-added corporation which carries on business within and without Iowa with 10 percent of its sales in Iowa.
a. Computation of tax on a joint return basis.

Wages	$50,000	
S corporation income	500,000	
Interest	35,000	
Rent	(5,000)	
Total income	$580,000	
Less federal tax deduction	(191,214)	
Subtotal	$388,786	
Less itemized deductions	(20,000)	
Taxable income	$368,786	
Tax	$31,696	
Less personal credits husband & wife & two
dependents	(160)	
Subtotal	$31,536	
Less out-of-state tax credit	(1,150)	
Iowa individual tax	$30,386	

Computation of credit	 	
Total income	$580,000	
Less S corporation income	(500,000)	
Subtotal	$80,000	
Add the greater of cash distributions not
previously taxed, $289,840 less 100% of federal taxes on S corporation income of $164,840 = $125,000, or income attributable to Iowa sources $50,000	125,000	
Income attributable to Iowa sources	$205,000	
Total income	$580,000	
Taxable percentage	35.3449%	
Iowa individual tax before credit	$31,696	
Credit percentage	64.6551%	
Subtotal	$20,493	
Less out-of-state tax credit	(1,150)	
S corporation tax credit	$19,343	
Computation of 100 percent of federal income tax attributable to S corporation income: $191,214 × $500,000 / $580,000 = $164,840.
Computation of percent of income attributable to Iowa sources: 100 × $205,000 / $580,000 = 35.3449%.
Computation of percent of income attributable to non-Iowa sources: 100 - 35.3449% = 64.6551%.
b. Computation on a separate filing on a combined return basis.

 	Spouse	Taxpayer	
Wages	$50,000	-0-	
S corporation income	-0-	$500,000	
Interest	17,500	17,500	
Rent	(5,000)	-0-	
Total income	$62,500	$517,500	
Less federal tax deduction	(20,613)	(170,601)	
Subtotal	$41,887	$346,899	
Less itemized deductions	(2,156)	(17,844)	
Taxable income	$39,731	$329,055	
Tax	$2,293	$28,128	
Less personal credits taxpayer & spouse
& two dependents	(120)	(40)	
Subtotal	$2,173	$28,088	
Less out-of-state tax credit	(-0-)	(1,150)	
Iowa individual tax	$2,173	$26,938	

Computation of credit	 	 	
Total income	$517,500	 	
Less S corporation income	(500,000)	 	
Subtotal	$17,500	 	
Add the greater of cash distributions not
previously taxed, $289,840 less 100% of federal taxes on S corporation income of $164,840 = $125,000, or income attributable to Iowa sources $50,000	125,000	 	
Income attributable to Iowa sources	$142,500	 	
Total income	$517,500	 	
Taxable percentage	27.5362%	 	
Iowa individual tax before credit	$28,128	 	
Credit percentage	72.4638%	 	
Subtotal	$20,383	 	
Less out-of-state tax credit	(1,150)	 	
S corporation tax credit	$19,233	 	
Taxpayer’s computation of 100 percent of federal income tax attributable to S corporation income: $170,601 × $500,000 / $517,500 = $164,832.
Taxpayer’s computation of percent of income attributable to Iowa sources: 100 × $142,500 / $517,500 = 27.5362%.
Taxpayer’s computation of percent of income attributable to non-Iowa sources: 100 - 27.5362% = 72.4638%.
This rule is intended to implement Iowa Code section 422.8, subsection 2, paragraph “b.”
[ARC 1102C, IAB 10/16/13, effective 11/20/13]