Registering a Business in Kentucky
Most businesses in Kentucky will need to register with the Kentucky Secretary of State and the Kentucky Department of Revenue. Kentucky offers a One Stop Business Portal for more information on registration requirements.
S-Corporation Income Tax
Kentucky recognizes the federal S election, but nonetheless imposes A “Limited Liability Entity Tax” on S corporations. In addition to the LLET, each individual S corporation shareholder will owe tax to the state on his or her share of the corporation’s income. S corporations are required to file Form 720S.
LLC/Partnership Income Tax
LLCs and partnerships are subject to the “Limited Liability Entity Tax” described above. In addition, LLC members and partnership partners will owe tax to the state on his or her share of the LLC/partnership’s income. Partnerships are required to file Form 765.
Limited Liability Entity Tax
Kentucky’s limited liability entity tax applies to traditional corporations (C-corps), S corporations, LLCs, limited partnerships (LPs), and limited liability partnerships (LLPs). The tax is based on a business’s annual gross receipts. For businesses with gross receipts less than $3 million, there is a minimum LLET of $175. For businesses with $3 million or more in gross receipts, the LLET is the lesser of 9.5¢ per $100 of gross receipts or 75¢ per $100 of gross receipts. (Also, while not detailed here, there are several methods through which businesses with gross receipts greater than $3 million but less than $6 million may reduce their LLET.)
S corporations and partnerships can follow a composite return if the shareholders or partners agree to be included in the composite return and have been exempted from nonresident withholding. Composite returns are filed using Form 470NP-WH.
Individual Income Tax
Kentucky has a static conformity with the Internal Revenue Code as it existed on December 31, 2018.
The starting point for computing Kentucky's personal income tax liability is the federal adjusted gross income.
Kentucky's standard deduction for 2020 is $2,650.
You do have the option of using a state defined itemized deduction.
Personal and dependent exemptions are not offered. There is a personal tax credit for anyone over the age of 65 or legally blind of $40. If you received a child and dependent care credit on your federal return, you may qualify for a Kentucky credit equal to 20% of your federal credit amount.
Kentucky does not conform to the Internal Revenue Code (IRC) section 199A, also known as the QBI deduction.
Individuals generating income taxable by the State of Kentucky may be required to file an individual income tax. Individual income tax returns are filed on Form 740. Individual income is taxed at a flat rate of 5%.
CARES Act Guidance
Kentucky decouples from almost all CARES Act provisions. However, loans forgiven under the CARES Act Paycheck Protection Program that are excluded from gross income for federal income tax purposes will also be excluded from gross income for Kentucky income tax purposes.
Individual, Corporation and Pass-through Entity tax returns are due the 15th day of the 4th month following the close of the taxable year end. For most taxpayers this will be April 15th.
If the due date falls on a holiday or weekend, the due date is extended to the next business day.
Filing an Extension
A six-month extension of time to file a corporation or limited liability pass-through entity income and LLET return may be obtained by either making a specific request to the Department of Revenue or attaching a copy of the federal extension to the return when filed.
Individuals can request an extension by making a specific request to the Department of Revenue or by attaching a copy of the federal extension to the return when filed.
An S corporation must make estimated tax installments if its combined tax liability can reasonably be expected to exceed $5,000. S corporations use Form 720ES.
Late filing of returns may result in a penalty of 2% of the total tax due for each 30 days or fraction thereof, up to a maximum of 20% of the tax due.
If your business was formed or is located in another state, but generates income in Kentucky, it may be subject to Kentucky taxes. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated. If you run such a business, you should consult with a tax professional.
Kentucky Secretary of State
Kentucky Department of Revenue