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Is it time to amend?

Iowa State Capitol in Des Moines, Iowa, after ...Image via Wikipedia

Iowa's legislature saw fit to change the rules of the 2010 tax game last month, after most Iowans had probably already tallied their scorecards.

So should we amend our Iowa 2010 returns right away?

Let's review what the legislature has done:

 - It has "coupled" with all federal tax legislation for 2010 except for "bonus" depreciation. That means, among other things:

- Taxpayers can take $500,000 of "Section 179" deduction on Iowa returns, just like on the federal returns. Until the change was made, the Iowa limit was $134,000.

- Iowa follows federal rules now for charitable contributions from IRAs in 2010. For 2009, IRA qualified distributions to charities for those more than 70 1/2 were excluded from federal income; they were included in Iowa income and a charitable deduction was taken on Iowa schedule A.

 - A bunch of smaller deduction that were not available on 2009 Iowa returns are now available on 2010 returns. These include the $250 educator expense deduction, the deduction for college tuition and fees, and the optional sales tax deduction for those not deducting income taxes. 

 - Taxpayers who took the new employee health care tax credit had to add the credit back to federal taxable income. That add-back now also is required for Iowa returns.

Go here for a complete list of changes.

No doubt many Iowa returns were filed before the legislature and the governor did that.  Should you amend your returns right away if you qualify for these benefits or have to pay more?

I understand that the Iowa Department of Revenue is working on a legislative proposal that would enable taxpayers to take some of the new deductions 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 prepared 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 a few weeks to see what the legislature and the Department of Revenue come up with before filing your refund claims. But if you now have an additional $366,000 Section 179 deduction for 2010, you probably don't want to wait very long to claim it.

Sadly, if you owe, they will likely catch up to you eventually by electronically comparing your Iowa filings to your federal returns. In that case, you might as well amend and stop the interest. 


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