Kentucky Franchise Tax: Everything You Need to Know

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Does Kentucky have franchise tax?
Kentucky does not impose a corporate franchise tax, but it does impose a limited liability entity tax pursuant to KRS 141.0401 on every non-exempt corporation and limited liability pass-through entity doing business in Kentucky on all Kentucky gross receipts or Kentucky gross profits.
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If you own a business in Kentucky or intend to open one there, you might be wondering if the state levies a franchise tax. The good news is that there is no franchise tax in Kentucky. However, there are other taxes that apply to businesses in Kentucky, such as income tax, sales tax, and property tax. How to Form a S Corporation in Kentucky

You must first create a company or LLC before filing Form 2553 with the IRS if you wish to become a S company in Kentucky. S Corporations in Kentucky are not subject to the state’s corporate income tax, but they are subject to the state’s income tax. Instead, the shareholders receive the money, which they then declare on their personal income tax forms.

How to Make Money with Your Kentucky LLC

In Kentucky, if you run an LLC, you have a few different ways to pay yourself. You can receive a salary, which is subject to Social Security, Medicare, and both federal and state income taxes. A different option is to take an owner’s draw, which is not subject to payroll taxes but is. The fact that LLC owners are not regarded as employees and are therefore ineligible for unemployment insurance should be noted. In Kentucky, LLC vs. S Corp Taxes

There are some distinctions between LLCs and S Corporations in terms of taxes in Kentucky. LLCs are taxed at the individual level rather than being subject to federal income tax. S Corporations are not taxed on their earnings at the federal or state levels, although they are taxed in Kentucky. However, since their income is passed directly to the shareholders, S Corporations have the advantage of being able to avoid double taxation. Does an LLC Receive a 1099 in Kentucky? Any company that paid you $600 or more during the year will send you a 1099 form if your LLC is categorized as a partnership or disregarded entity. You won’t get a 1099 form if your LLC is regarded as a corporation. To ensure that you report all income on your tax return, it’s crucial to maintain accurate records of all payments received by your LLC.

In conclusion, notwithstanding the absence of a franchise tax in Kentucky, companies there are nonetheless liable for other taxes. You must first establish a corporation or LLC and submit Form 2553 to the IRS if you’re thinking about becoming a S Corporation in Kentucky. You have a few alternatives for paying yourself as an LLC owner in Kentucky, and there are significant distinctions between LLC and S Corp taxes. Finally, the categorization of your LLC determines the sort of 1099 document you will receive.