There is a small-business exemption to the LLET based on a business's amount of Calculate total gross receipts and total gross profits. Kentucky's definition of cost of goods sold also differs from the federal definition, so certain costs cannot be included in Kentucky cost of goods sold.
Only companies in certain economic sectors (manufacturing, producing, wholesaling, retailing, and reselling of tangible products) are allowed to deduct cost of goods sold from their Kentucky gross receipts. A company then subtracts the Kentucky share of its cost of goods sold from its Kentucky gross receipts to derive Kentucky gross profits. A pass-through entity also reduces its Kentucky gross receipts by the share of those receipts allocable to any tax-exempt organizations. Kentucky gross receipts is calculated by figuring the total receipts earned in the state after returns and allowances. This is measured by the company's Kentucky gross receipts or its Kentucky gross profits. The amount of LLET is based on the amount of business a company does in Kentucky. Calculate Kentucky gross receipts and Kentucky gross profits. There are three steps involved in calculating the LLET. (There are also some types of businesses that are statutorily exempt from the LLET). It does not include sole proprietorships and general partnerships because these types of businesses do not have limited liability. This includes corporations, LLCs, S-Corporations, limited partnerships, and other types of businesses. Kentucky imposes a tax on every business that is protected from liability by the laws of the state. Calculating KY Limited Liability Entity Tax (LLET) The total tax due may be reduced by various tax credits offered by the state to arrive at the business's net income tax liability. Kentucky's current tax rate is a flat 5%. After subtracting any net operating loss carryforwards from taxable net income, the taxpayer calculates its tax due by multiplying taxable net income by the Kentucky tax rate. Multiply taxable net income by the tax rate.
(Certain other types of income generated by intangible assets sited in Kentucky may get allocated to Kentucky and be included in taxable net income.) The apportionment factor is then multiplied by Kentucky net income to derive Kentucky taxable net income. (Certain types of companies must use different apportionment formulas, depending on the industry in which they operate). For most companies that do business in Kentucky, that formula is calculated by taking the amount of receipts derived from its business activity in Kentucky and dividing it by the amount of receipts derived from its business activity everywhere. To figure Kentucky's portion, Kentucky net income is multiplied by an apportionment factor. Kentucky only taxes a business on the portion of its net income that was generated by its business activity in Kentucky. After all the various additions and subtractions, a company arrives at Kentucky net income. On the other hand, the IRS allows companies to deduct the amount they pay in state income taxes Kentucky requires those amounts to be added back. Kentucky does not tax such dividend income, so the amount of dividends received is subtracted from a company’s federal income. For example, federal law includes amounts received as dividends in a company’s taxable income. Kentucky’s laws require some amounts to be added to federal income and some amounts to be subtracted. Then that income is adjusted according to Kentucky’s specific tax laws. Kentucky’s corporate income tax calculation starts with federal taxable income as reported on a business’s federal tax return. Make Kentucky adjustments to Federal taxable income. There are three steps involved in calculating Kentucky Corporate Income Tax. Taxpayers now have 180 days to submit an amended income tax return to Kentucky from the date the federal audit final determination is issued by the IRS.įor tax years beginning on or after January 1, 2018, the previous rate brackets have been replaced with a flat 5% tax rate. These changes do not apply to protests of real property tax assessments.įederal Audit Final Determinations The due date for submission to Kentucky increases from 30 to 180 days. This 60-day protest period applies to tangible personal property tax bills. Protest Time Period Changes For notices of tax due and refund denials issued on or after July 1, 2018, the time to file a protest increased from 45 to 60 days.