Iowa LLC Taxes

Navigating the tax landscape for your Iowa limited liability company (LLC) involves understanding a wide range of local, state, and federal tax regulations.

In this guide to Iowa LLC Taxes, we provide an overview of the primary taxes applicable to Iowa LLCs and outline important steps for managing tax filings and staying compliant with the state.

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

How Is an LLC Taxed in Iowa?

Taxation in Iowa isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay FICA or self-employment taxes on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Iowa to help you ensure your LLC navigates them effectively.

Iowa Local Taxes

In Iowa, LLCs must navigate a landscape of local taxes that go beyond state-level mandates, which can vary depending on your jurisdiction. 

Below is a list of the type of taxes that your city and/or county may impose:

Local Option Sales Tax

The Local Option Sales Tax in Iowa is an additional charge over the state's standard sales tax, impacting the total tax cost for businesses in various jurisdictions.

Iowa's state-administered sales and use taxes are set at a 6% rate. On top of this, many local jurisdictions impose the Local Option Sales Tax, which is an additional 1% on sales. This combination leads to a total tax rate of 7% in areas where the Local Option Sales Tax is applied.

Note: Unlike the state sales tax, there is no equivalent local option for the use tax.

Property Tax

Property taxes in Iowa for LLCs involve taxes levied on real estate, including both the land and structures. These taxes are determined by local government entities based on the assessed value of the property.

The county treasurer issues a tax statement in August, outlining the amount due for that year. LLCs must pay these taxes in two installments: the first by September 30 and the second by March 31. If these tax deadlines are missed, the property may be listed in the county's annual tax sale, potentially leading to a lien and risking eventual loss of ownership.

Note: To learn more about local property taxes for your LLC in Iowa, visit the Iowa State County Treasurer's Association website and find your treasurer.

Hotel and Motel Local Tax

In addition to the Local Option Sales Tax (LOST), a general sales tax applicable to a wide range of goods and services, Iowa LLCs operating in the accommodations sector must also be aware of the Hotel and Motel Local Tax, which is specifically levied on the renting of rooms in hotels, motels, inns, and similar establishments.

The Hotel and Motel Local Tax is imposed by certain cities and counties in Iowa, and the specific rate varies across different jurisdictions, ranging from 2% to 7%. The maximum combined tax rate for hotel and motel taxes in Iowa is 7%, including the state's 5% excise tax on lodging. This means that the total tax rate for a hotel or motel stay cannot exceed 7%, regardless of the specific local tax rate.

Note: The collection and reporting of the Hotel and Motel Local Tax are integrated into the regular sales and use tax return process. For businesses in the accommodations sector, this means no additional permits are required beyond the standard Iowa sales and use tax permit.

School District Surtax

The School District Surtax is an income tax that is used to fund local school districts. The surtax rate is determined by the school district and can vary from 0% to 15%. The applicable school district is the one in which you resided on the last day of the tax year. Taxpayers without children, or without children in public school, are still subject to this tax.

To determine your School District Surtax, you will need to know the surtax rate for your school district. You can find this information on the Iowa Department of Revenue website or by contacting your local school district. Once you have the surtax rate, multiply it by your taxable income from line 53 of your Iowa Form 1040. The result is your School District Surtax liability.

Emergency Medical Services (EMS) Surtax

Counties may impose a countywide Emergency Medical Services (EMS) income surtax. At this time, Appanoose is the only county that has an EMS surtax. The EMS surtax is included in the School District Surtax list.

Recommended Service: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant. 

Iowa State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Iowa. 

Franchise Taxes

Iowa imposes a franchise tax on certain financial institutions, including banks, trust companies, and savings and loan associations. The tax rate is currently 5% of net income but is scheduled to decrease to 3.5% in 2027. 

Keep in mind that even LLCs taxed as S corporations remain subject to the franchise tax. Shareholders are eligible for a tax credit against their individual income tax for their share of the franchise tax paid.

Sales and Use Taxes

Iowa imposes a sales tax of 6% on the sale of tangible personal property, specified digital products, or taxable services at the time of purchase. This tax applies to most goods that can be touched and taken with you, such as clothing, electronics, and furniture. However, there are certain exemptions, such as prescription drugs and groceries.

LLCs that sell taxable goods or services in Iowa are responsible for collecting, reporting, and remitting the sales tax to the state. Additionally, businesses that make taxable purchases from out-of-state suppliers without paying sales tax may be liable for use tax, which is essentially a self-assessment tax imposed on the purchase of goods or services that will be used in Iowa.

Note: If your business sells taxable goods or services in Iowa, you must obtain a sales tax permit from the Iowa Department of Revenue’s GovConnectIowa portal in order to pay sales tax. 

Corporate Income Tax

Iowa imposes a corporate income tax on the net income of businesses, including LLCs that elect to be taxed as corporations. The tax rate is tiered, meaning that the rate applied to a corporation's taxable income depends on the specific income bracket within which it falls. For tax years beginning on or after January 1, 2023, and before January 1, 2024, the corporation income tax rates are as follows:

• $0 to $25,000: 5.5%
• $25,001 to $100,000: 5.5%
• $100,001 to $250,000: 8.4%
• $250,001 and above: 8.4%

Keep in mind that in order to further incentivize business growth in Iowa, the state has implemented a phased reduction in corporate income tax rates. Starting January 1, 2024, the top Iowa corporate income tax rate will decrease from 8.4% to 7.1%. This reduction is expected to continue in phases, with the ultimate goal of setting the corporate income tax rate at 5.5% for all taxable income.

However, these phased reductions are contingent upon certain conditions being met. For example, the Department of Management must determine that net corporate income tax receipts exceed $700 million for the immediately preceding fiscal year. If these conditions are not met, the corporate income tax rates may remain at their current levels.

Individual Income Tax

For the 2023 tax year, individual income tax rates for pass-through LLCs in Iowa range from 4.40% to 6.00%. The specific rate applicable to a pass-through LLC depends on its taxable income. The Iowa state income tax brackets are as follows:

• $0 to $6,000: 4.40%
• $6,001 to $30,000: 4.82%
• $30,001 to $75,000: 5.70%
• $75,001 and above: 6.00%

These rates are expected to decrease in phases over the next few years. For tax year 2026, the state will have a flat Iowa income tax rate of 3.9%. 

Construction Equipment Excise Tax

In Iowa, LLCs are required to pay an excise tax on the sales price of construction equipment sold or used within the state. The tax rate is set at 5%, with the proceeds going to the state's general fund. LLCs must remit this excise tax along with their sales and use tax returns. For those collecting the excise tax, monthly payments are due on the last day of the month following the month in which the tax was collected.

Automobile Rental Taxes

Iowa imposes an excise tax on the rental of passenger vehicles designed to carry nine or fewer passengers for a period of 60 days or less. The tax rate is 5% of the rental charge, and the proceeds are deposited into the state's Road Use Tax Fund. This tax is in addition to the state sales tax, use tax, and local option tax, if any. 

LLCs are required to remit the excise tax along with their sales and use tax returns. For those who collect the excise tax, monthly payments are due on the last day of the month following the month in which the tax was collected.

Real Estate Transfer Taxes

Iowa imposes a real estate transfer tax on the sale of real property within the state. The tax rate is $0.80 per each increment of $500, with the first $500 being exempt from taxation. For example, a property purchase of $2,600 would incur a transfer tax of $4.00. 

The tax proceeds are distributed as follows: 17.25% is retained by the county where the property is located, 90% of the remaining 82.75% is deposited into the state's general fund, 5% goes to the Housing Trust Fund, and the remaining 5% is allocated to the Shelter Assistance Fund.

The tax is payable when the deed or other instrument conveying the real property is presented for recording, and tax returns must be filed by the county recorder with the State Treasurer by the 10th day of each month for taxes collected during the preceding month.

State Hotel and Motel Tax

In Iowa, a state hotel and motel tax of 5% is levied on the gross receipts from renting out sleeping accommodations for periods of 31 consecutive days or less, while contracts exceeding 31 days are exempt from this tax.

In addition to the state tax, localities within Iowa may impose their own hotel and motel taxes, with a maximum combined tax rate of 7%. These local taxes are typically enacted to generate revenue for tourism-related projects or infrastructure improvements in the specific locality.

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the Internal Revenue Service (IRS) will not treat single and multi-member LLCs as a separate entity from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income taxes on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to federal income tax, members of single- and multi-member LLCs will need to pay self-employment tax on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employment Tax

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Iowa

Below, we’ve outlined the general process an LLC in Iowa will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State Tax Returns: You can submit your Iowa taxes online through authorized e-filing providers, which are listed on the Iowa Department of Revenue website. 
• Local Tax Returns: Requirements for filing may vary with each tax type, so make sure to contact your local governing authority for detailed and accurate information.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your Iowa LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Iowa LLC Biennial Report

Maintaining compliance for your LLC in Iowa includes filing a Biennial Report with the Secretary of State's Office every two years. LLCs file in odd-numbered years.The filing fee is $30 if done online through Fast Track Filing and $45 for mail or in-person submissions.

Staying up to date with your Biennial Report is essential for maintaining accurate and accessible business records. Creating a Fast Track Filing (FTF) account is advisable, as it enables you to view your filing history, save payment details, and collaborate with colleagues.

Licensure and Tax Requirements

In Iowa, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: If your LLC plans to deal in the sale or lease of taxable physical goods, you will be required to obtain a sales tax license, available online via the Iowa Department of Revenue.
• Professional Licenses: For LLCs in Iowa in regulated fields such as healthcare, law, accounting, engineering, cosmetology, or real estate must obtain licenses from relevant authorities like the Iowa Board of Medicine, Iowa Engineering Examining Board, or the Iowa State Board of Public Accountancy.
• Environmental Permits: LLCs involved in activities that potentially impact the environment, such as manufacturing or construction, may need environmental permits to operate legally. Contact the Iowa Department of Natural Resources (DNR) to determine specific permit requirements.

Note: To view a full list of statewide licenses and permits required for your LLC, consult the Iowa Licenses & Permits Guide available on the Official State of Iowa's Website.

Iowa LLC Taxes FAQs