Iowa Business Taxes at a Glance
Iowa has changed its tax system significantly in the past few years. Since 2025, individuals pay a single flat income tax rate. Retirement income is excluded for people 55 and older. The corporate rate is on a path to a single flat rate, and the inheritance tax has been repealed. Iowa's sales tax still applies to a long list of services, and many school districts add an income surtax. BOMCAS helps Iowa individuals and businesses work under the new rules.
Individual Income Tax: Flat Rate
For tax year 2025, Iowa's individual income tax is a flat 3.8%, with no brackets. Iowa starts from federal taxable income with Iowa adjustments. Iowa residents age 55 or older, and certain surviving spouses and disabled taxpayers, can exclude retirement income such as pensions, IRA distributions, and annuities. Social Security benefits are not taxed.
Many school districts also impose an income surtax, calculated as a percentage of the Iowa income tax owed by residents of the district. It appears on the Iowa return and depends on the school district where you lived on December 31. We prepare Iowa returns, apply the retirement exclusion, and use the correct school district.
Capital Gains on Farm and Business Property
Iowa allows a deduction for certain capital gains from selling real property used in a business, including farmland, and from some business sales, if the owner meets holding-period and material-participation requirements. Retired farmers have additional options for farmland sold or leased. These rules require records of ownership, participation, and holding periods. We help farm families and business owners determine whether they qualify.
Corporate Income Tax
Iowa taxes the apportioned share of income earned by corporations doing business in the state. Iowa has been reducing its corporate rate as revenue targets are met, and the rate is scheduled to continue toward a single flat rate. Financial institutions pay a franchise tax instead. We prepare corporate returns and track rate changes from year to year.
Partnerships and S corporations file Iowa returns and may withhold or file composite returns for nonresident owners. Iowa has an optional entity-level tax for partnerships and S corporations. We evaluate the election each year.
Sales Tax on Goods and Enumerated Services
Iowa's sales tax combines a state rate with a local option tax in most areas. What sets Iowa apart is its list of enumerated services that are taxable, which includes many services that are not taxed in most states, such as certain repair, cleaning, pet grooming, and personal care services. Construction contractors generally pay tax on materials rather than collecting it from customers.
We help businesses determine which services are taxable, register, file returns, and review use tax on purchases.
Local Option and Hotel Taxes
Most Iowa cities and counties have adopted a local option sales tax, collected by the state with the state sales tax, so the rate depends on where the sale takes place. Hotels and motels collect a state hotel and motel tax and, in many places, a local one. Short-term rental hosts may owe the same lodging taxes. We help businesses register, report by jurisdiction, and file.
Inheritance Tax Repeal
Iowa's inheritance tax was phased out and repealed for deaths on or after January 1, 2025. Estates of people who died before that date may still need to file under the old rules. We help executors with final individual returns and estate accounting.
Agriculture and Agribusiness
Iowa is a leading agricultural state. Farm clients need:
- Grain and livestock inventory records
- Federal farm reporting, including income averaging and program payments
- Equipment depreciation schedules
- Records for agricultural sales tax exemptions and the farm capital gain deduction
Agribusinesses such as grain elevators, cooperatives, and ethanol plants need detailed inventory and cost accounting.
Payroll and the Illinois Reciprocal Agreement
Iowa employers withhold state income tax and report unemployment insurance to Iowa Workforce Development. The move to a flat rate changed withholding tables. Iowa has a reciprocal agreement with Illinois for wages. We run payroll and check every state report against the books before it is filed.
Farms, Insurers, Manufacturers, and Service Providers
- Agriculture and agribusiness: inventory, exemptions, and farm capital gains
- Insurance and financial services in Des Moines: multistate payroll and apportionment
- Manufacturing: inventory, fixed assets, and sales tax on equipment
- Renewable energy: wind and ethanol, with property tax and asset records
- Personal and repair services: sales tax on enumerated services
Retiring in Iowa
Iowans 55 and older can exclude qualifying retirement income, and people who move to Iowa in retirement benefit from the date they become residents. In the year of the move, pension and IRA distributions are divided by date between the Iowa part-year return and the return in the former state. Retired farmers who still own farmland should review Iowa's special rules for farm sales and rental income before selling or leasing land.
Books That Separate Taxable Services
Iowa bookkeeping should separate taxable services from exempt ones, track materials on construction projects, and keep records for farm capital gain deductions. We build these breakdowns into the chart of accounts and check them at each month-end close.
Contact BOMCAS About Iowa
Farm families planning a land sale, service businesses unsure whether their work is taxable, and employers adjusting to the flat tax can contact BOMCAS for a remote review. City-level pages for Iowa, organized by service, will be published under this section. Visit the BOMCAS home page or our United States services to learn more. This page is general information, not advice for your situation.
Talk to BOMCAS About Your Iowa Taxes
Have a question about your Iowa filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.