According to the old idiom, nothing in life is certain except death and taxes. Kentucky small business owners also know that paying taxes is an important part of keeping any business legally compliant. However, business tax rates in Kentucky can confuse even experienced business owners. Rates can be different depending on how much money your business makes, what kind of business entity you operate, and how much money you make as an individual. Learn more with our short guide to Kentucky small business taxes to see how we can help business owners like you stay on top of your state tax obligations.
Our Worry-Free Compliance Service can help you stay current with your filing obligations to keep you in good standing in Kentucky.
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses to learn more.
Step 1: Establish your Kentucky business’s corporate income tax obligations
Ordinarily, states tax business income for business done in that state. While a few states have no corporate income tax, Kentucky isn’t one of them. Business tax rates in Kentucky usually depend upon both the type of business entity you have and your company’s income.
In most states, including Kentucky, a corporation will be taxed at the state’s corporate income tax rate. If you operate your business as a pass-through entity like a limited liability company (LLC) or sole proprietorship, these entity types are usually taxed at the state’s personal income tax rate. Unlike many other states, Kentucky business tax rates include a limited liability entity tax (LLET) that applies to LLCs, S corporations, and other pass-through entities. Business owners need to understand that Kentucky LLC income may be subject to both the LLET and personal income tax, depending upon their individual tax situation.
Kentucky corporations are subject to Kentucky’s marginal corporate income tax. Kentucky corporations are also subject to LLET, which we’ll discuss below. LLET is calculated based on gross receipts.
Business tax rates in Kentucky for corporations are like any other marginal tax rates, similar to your federal income taxes. These types of rates work as follows:
- Taxable Kentucky corporate business income up to $50,000 is taxed at 4%
- If your taxable Kentucky corporate business income is between $50,001 and $100,000 it’s taxed at 5%
- Taxable Kentucky corporate business income over $100,000 is taxed at 6%
To sum up, Kentucky corporations usually need to pay marginal corporate income tax and LLET.
Deciphering how to file small business taxes in Kentucky for partnerships, S corporations, and LLCs can be especially difficult. Pass-through entities like LLCs need to pay LLET. In addition, any money that is paid to you personally (like in a sole proprietorship or partnership) needs to be reported on your individual tax return and taxed at your personal income tax rate. The Kentucky Department of Revenue can help you clarify what your income tax rate is. They’re your go-to agency for Kentucky tax questions.
To avoid confusion, the Kentucky Department of Revenue and the U.S. Small Business Administration can also help business owners understand how to file small business taxes in Kentucky. Using state resources can be especially important for owners of LLCs and other pass-through entities, as personal and business taxes may be due at different times during the year. Sometimes, pass-through entities may have to pay quarterly, estimated taxes.
The Kentucky Department of Revenue can also help you understand your obligations if you have to file a “zero return.” This is a tax return showing that your business didn’t make any money in a given year. Don’t fall into the trap of thinking that just because your corporation or LLC didn’t have to pay taxes, you don’t have any filing obligations.
Step 2: Determine your Kentucky business’s employment taxes
If your Kentucky business has employees, you may have additional tax considerations each year. As soon as you have Kentucky employees, you’ll need to register through the Department of Revenue’s online gateway. This will allow you to withhold income tax for your employees as required by state law. The Department of Revenue can also provide you with helpful information about Kentucky small business taxes for employers if you have withholding concerns or questions.
Not sure how to stay compliant? Learn more about legal compliance for small business owners.
Step 3: Establish your Kentucky business’s additional state tax obligations
When looking at your Kentucky small business taxes and obligations, you need to consider more than just income taxes. Part of what makes business taxation so tricky is the many types of tax that businesses may need to pay. In Kentucky, some common ones that can apply to your business may include any of the following types of tax.
Kentucky sales tax is 6%. It applies to the gross receipts from the sales of certain goods, services, and digital property in Kentucky. Unlike some states, Kentucky doesn’t allow local municipalities to charge additional sales tax.
Kentucky employers also need to pay unemployment tax. The Kentucky Department of Labor, Office of Unemployment Insurance provides the most up-to-date information on rates, processing, and registration for employers.
Limited Liability Entity Tax (LLET) and Gross Receipts Tax
Kentucky’s LLET is calculated based on a business’s annual gross receipts. Unique business taxes in Kentucky like LLET apply broadly. For instance, LLET applies to corporations, S corporations, LLCs, limited partnerships, and limited liability partnerships.
It’s not exactly intuitive how LLET works, so here’s an example. If a business has gross receipts of less than $3 million, they’ll be charged a flat LLET of $175. If a business has $3 million or more in gross receipts, LLET will be the lesser of 9.5¢ per $100 of gross receipts or 75¢ per $100 of gross receipts. You’ll have to do a bit of math to get the numbers right if you’re faced with paying more than $175 LLET in Kentucky small business taxes!
Step 4: Prepare to file and pay your Kentucky business taxes
When you’re ready to file your return and pay your Kentucky small business taxes, you’ll be able to do so online. The Kentucky Department of Revenue offers an online E-PAY portal for all manner of tax payments.
But before you finalize your return and click “pay” on that electronic portal, it’s important to make sure that your records are in ship-shape. Some records you may need to file your business taxes in Kentucky include:
- Your social security number
- Business address and public information
- Your business’s Employer Identification Number (EIN)
- Any invoices and sales records from the tax year
- Your personal and business expense records
- Any relevant receipts
We can also help you keep track of invoices and manage your business finances with our ZenBusiness Money App. Having everything in one place in our app can be incredibly convenient at tax time!
Do I need an accountant?
Most small businesses choose to obtain professional accounting help. Business owners like you choose to hire professional accountants both in the regular course of business and when handling Kentucky small business taxes. Filing and paying your taxes correctly is an extremely important part of staying in good standing with your state of corporate residence.
The Internal Revenue Service (IRS) has posted a guide to understanding tax preparer qualifications on its website. This guide can help you select a qualified professional to prepare and submit your Kentucky small business taxes.
How we can help
Our business is helping small business owners like you easily navigate difficult questions like how to file Kentucky small business taxes. We connect you with the resources you need, so you can stay focused on your business. Our ZenBusiness Money App helps you manage invoices, send payments, and keep your documents in one place for tax time.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
- How much can a Kentucky small business make before paying taxes?
Most Kentucky businesses will have to pay some form of tax. Talk to your accountant or tax preparer about how to best structure your return.
- What percentage does a Kentucky small business pay in taxes?
The percentage of your business income paid in tax depends upon both your business entity type and your level of income. There’s no set formula that applies to every business equally. A trained accountant or tax preparer can help you understand your obligations.
- How does a Kentucky small business pay taxes?
You can pay income taxes by bank transfer or debit card through the Kentucky Department of Revenue’s E-PAY portal. Other taxes may need to be paid directly with the levying agency.
- Do I have to file taxes for my small business in Kentucky?
You’ll most likely have to file taxes in Kentucky. Most companies doing business in Kentucky need to file taxes, even if they’re filing a “zero return” showing no income at all.