Are You a Single-Owner LLC in Kansas? Understand Your Tax Breaks

When Benjamin Franklin said, "Nothing is certain except for death and taxes,” he meant that we can't avoid either. Unfortunately, one more certainty is that tax laws will always be there to confuse the masses. As tax laws change and tax percentages increase (or sometimes decrease), we as taxpayers are left bewildered and overwhelmed.

If you live in Kansas and own a small business LLC, you may find yourself in this position with the recent overruling of Gov. Sam Brownback's signature tax cuts. Here is some important information to help guide you through this newer legislation.

Origins of the Former Kansas Small Business LLC Tax Break

Back in 2012, Kansas Gov. Sam Brownback reduced state income taxes by about $3.7 billion in cuts that would take place over five years. The plan reduced the state’s three-bracket system to two brackets and cut the highest income tax rates to 4.9 percent, while also reducing the lowest tax rate to 3 percent. The tax measure also decreased the state sales tax by six-tenths of a cent in 2013. However, state fiscal analysts projected that this would result in budget deficits reaching around $2.5 billion by 2018.

For LLC owners, these tax breaks had big implications. This bill exempted non-wage business income from taxes for around 190,000 LLCs and sole proprietorships. “The best thing we can do for individuals in this state, and particularly for somebody that’s struggling, is to provide jobs and job opportunities,” explained Gov. Brownback. “That’s what this does.”

The Current State of the KS LLC Loophole

Now, just five short years after the bill passed, Kansas is facing roughly $1 billion in budget shortfalls through the end of fiscal year 2019. With such a huge deficit, the Kansas House tax committee approved a bill (13-9) that would renew a third income tax bracket and repeal an exemption for roughly 330,000 business owners. Here are some changes in the new law that you should be aware of.

New Tax Rates:

• For the year 2017, taxable income under $30,000 will be taxed at 2.9 percent
• Taxable income between $30,000 and $60,000 will owe $870, plus 4.9 percent of excess over $30,000
• Taxable income over $60,000 will owe $2,340, plus 5.2 percent of excess over $60,000

Tax Exemptions Removed:

• LLC exemption, which also exempted S Corporation business income
• All partnership business income (except guaranteed payments)
• Rental income
• Farm income (including sales of certain livestock, cattle, horses and Christmas trees)

Important Notes:

• Although these changes were made in June, they are retroactive back to January 1, 2017. So if you now owe business taxes, you'll owe them on income for all of 2017 (not just income since June).
• Itemized deductions are reenacted for mortgage interest, property taxes paid and medical expenses, at 50% of the federal amount in 2018, 75% in 2019, and 100% in 2020.
• You can check out the new laws and download tax forms here.

What This Means for LLC Owners

If you're confused (and you're not alone!), here is an example to help guide you through the new laws:

Let's imagine that Kelsey owns a marketing agency that is an LLC in Kansas. For the last five years, she was not required to pay any estimated tax to Kansas. If she did pay estimated tax to Kansas, she would receive a refund of 100% of the payments she made.

With the passing of Senate Bill 30 in June 2017, this "loophole" has been closed and is retroactive to January 2017. Kelsey will now be required to pay a percentage of her business income based on the new rates as estimated tax payments.

We know that tax laws are extremely complicated; it feels like you need to be a CPA just to understand the legal jargon on the Kansas Department of Revenue's website. At Bizee, we have an amazing team of legal experts that can help you to manage your company to adjust to these new tax changes, and we can even help you to file your tax returns. With Bizee, you can feel at ease that your official documents are filed correctly so you can focus on more important things like running your business.