Kentucky LLC Taxes

Understanding the tax landscape in Kentucky is essential for LLC owners, as it encompasses a wide range of state and local tax obligations. 

In this Kentucky LLC Taxes guide, we cover the necessary information that both new and existing LLC owners need in order to successfully file their business’s federal, state, and local taxes. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

How Is an LLC Taxed in Kentucky?

Taxation in Kentucky isn’t applied in the same way to all LLCs – instead, it varies depending on a number of factors, such as an LLC’s nature, locality, and tax election.

While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay FICA or self-employment taxes on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Kentucky to help you ensure your LLC navigates them effectively.

Kentucky Local Taxes

Kentucky state laws and tax regulations grant counties and cities in Kentucky the authority to levy taxes on a variety of items. 

Here are some of the most common local taxes you might encounter as an LLC owner in Kentucky:

Occupational License Taxes

Some Kentucky cities and counties impose occupational taxes on businesses, which may include:

• Payroll tax
• Net profits tax
• Gross receipts tax

If applicable, localities typically impose either a net profits tax or a gross receipts tax, but not both. A dropdown guide of city and county occupational license taxes, as well as the contact information for each locality, is available on the Kentucky Secretary of State website.

Utility Gross Receipts Tax

The utility gross receipts tax is a tax assessed on gross receipts from utility and/or cable services within a specific school district. Local authorities can choose to collect this tax, which cannot exceed 3%.

A full list of applicable school districts can be found on the Kentucky Department of Revenue website.

Local Government Premium Tax

LLCs in the insurance sector in Kentucky may be required to pay the local government premium tax (LGPT) at the city, county, or other local government level. These tax rates range from 2% to 10%. 

Insurance categories that may be taxed include:

• Health
• Life
• Inland Marine
• Vehicle
• Fire and Allied Perils
• Casualty Liability Only
• All Other Risk

Note: A breakdown of which taxes are levied in each county can be found on the Kentucky Association of Counties website.

Transient Room Tax  

In addition to the statewide tax, Kentucky localities have the option to levy a local transient room tax. This tax is on top of the state transient room tax as well as the state sales tax rate.

The local tax rate is a maximum of 3% for “non-urban” local governments and a maximum of 4% for urban local governments (this currently only applies to Lexington-Fayette County).

Additional, unique transient room tax rates may include:

• A 1% tax on convention center costs
• A 1% tax on rents (urban local governments only)
• In Louisville-Jefferson County, this rate is 1.5%
• A 1% tax on “multicounty tourist and convention commissions” (applies to Boone, Kenton, and Campbell Counties)

Restaurant Tax 

Restaurants in certain cities (i.e., those that were previously part of the state’s fourth and fifth class) may levy a tax on restaurant sales. Currently, these rates range from 1% to 3%.

Note: A full list of cities with a restaurant tax can be found on the Kentucky League of Cities website.

Property Tax

Property taxes in Kentucky are categorized into real property taxes (on buildings and land) and tangible personal property taxes (on physical items like equipment and vehicles).

• Real Property Tax Rates: The average tax rate for real property in Kentucky cities is $0.1908 per $100 of assessed value.
• Personal Property Tax Rates: The average rate for tangible personal property in cities is higher at 25.87 cents per $100 of assessed value.

In county governments, the average rates are lower – $0.1278 per $100 for real property and $0.1507 per $100 for personal property. However, LLCs operating in the urban service areas of Lexington and Louisville might face higher property tax rates compared to rural areas due to the additional services and infrastructure support provided in these urban locations.

Note: In addition to city property taxes, counties may impose separate taxes to fund specific services such as health departments, libraries, and soil conservation efforts. 

Recommended Service: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant. 

Kentucky State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Kentucky. 

Corporation Income Tax

LLCs in Kentucky taxed as a C corporation are subject to the corporation income tax.

The corporation income tax rate is a flat 5%, which is calculated by adjusting the federal taxable income to comply with Kentucky's tax laws. This includes deducting dividends received and adding back state income taxes paid. The adjusted net income is then apportioned based on the LLC's business activity in Kentucky to determine its taxable net income.

Limited Liability Entity Tax

The limited liability entity tax (LLET) applies to entities with limited liability protection and is calculated based on either Kentucky gross receipts or gross profits. 

For entities with receipts or profits exceeding $6 million, the LLET is computed at 0.095% of gross receipts or 0.75% of gross profits, with a sliding scale applicable for amounts between $3 million and $6 million.

Note: There's a small-business exemption for entities with total gross receipts or profits of $3 million or less (minimum LLET of $175).

Individual Income Tax

Kentucky's individual income tax has a flat tax rate of 5%. This means that the income reported and taxed at the federal level flows through to the state return, maintaining the same tax treatment. Kentucky allows itemized and specific income-reducing deductions as outlined in its statutes. 

For filing purposes, full-year residents use Form 740, while those moving to or from Kentucky, or nonresidents, should file Form 740-NP.

Electric Vehicle Power Excise Tax

Kentucky now implements an excise tax on electric vehicle power. Electric vehicle power dealers, defined as those owning or leasing an electric vehicle charging station, will be taxed at a base rate of three cents ($0.03) per kilowatt-hour for power distributed for charging electric vehicles. Additionally, a surtax of the same rate applies when charging stations are located on state property. 

Electric vehicle power dealers are required to report and pay this tax monthly, with the tax due by the 25th of the month following the power distribution. 

Motor Vehicle Rental/Ride Share Excise Tax

The state also levies a 6% excise tax on the gross receipts of vehicle rentals, peer-to-peer car sharing rentals, transportation network company services, taxicab services, and limousine services. This excise tax is in addition to any local taxes, and it must be reported separately to the Department of Revenue (DOR) each month. The returns and payments for this tax are due on or before the 20th of the month following the rentals or ride-sharing activities.

Insurance Premiums Tax and Surcharge 

LLCs involved in the insurance industry may need to pay Kentucky’s Insurance Premium Tax. Applicable to life, stock, mutual, and captive insurance companies, this tax is based on premiums from policies written in the state during the previous year. 

Additionally, insurers, except for life insurance providers, face an Insurance Premium Surcharge, calculated at $1.80 per $100 of premiums. This surcharge is imposed on premiums and other charges related to insurance coverage for risks located within Kentucky.

Note: Both the tax and the surcharge can be paid using the Department of Revenue’s online portal.

Transient Room Tax

The transient room tax is imposed on the short-rental and occupancy of rooms, hotels, campsites, RV parks, or other types of lodging that may fall under this definition. Airbnb and Vrbo renters are also subject to this tax.

The tax is charged at 1% of the room rental and includes the total rental cost and any additional service fees. This is in addition to the statewide sales tax as well as any local transient room taxes that may apply to your LLC. Payments can be made using the Kentucky One Stop Portal.

Note: Any rental period extending over 30 days is exempt from the Transient Room Tax.

Sales & Use Tax

LLCs in Kentucky are subject to a 6% sales and use tax on the gross receipts from the retail sales of tangible personal property, digital property, and certain services. The use tax applies to property and digital items purchased for use within Kentucky, even if acquired from outside the state. Returns and payments must be submitted online to the Department of Revenue.

Remote retailers with either more than 200 sales or over $100,000 in gross receipts from sales in Kentucky must also register and pay this tax.

Health Care Provider Tax  

LLCs operating within the healthcare sector are subject to the Health Care Provider Tax. This tax is an integral part of funding the state's Medicaid programs and is levied on twelve different healthcare service classes, each with a unique rate. 

The tax rate is typically based on gross revenues, with variations depending on the service class (e.g., hospital, home health agency services, psychiatric resident treatment facility services, etc.).

To ensure compliance, healthcare facilities must register for this tax by completing Form 73A061, which assigns a tax account number to the facility upon submission.

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the IRS will not treat single and multi-member LLCs as a separate entity from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay self-employment tax on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employment Tax

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Kentucky

Below, we’ve outlined the general process an LLC in Kentucky will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State Tax Returns: For LLCs operating in Kentucky, handling state tax responsibilities is mostly streamlined through the Kentucky Department of Revenue's online system, designed specifically to assist in the efficient filing of key state taxes, including corporation income tax and the sales & use tax. 
• Local Tax Returns: To file your LLC's local taxes, access the designated online portal of your city or county government, details of which can be found on the municipality's official website.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your Kentucky LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Kentucky LLC Annual Report

All LLC owners in Kentucky are required to file an annual report with the Secretary of State annually between January 1 and June 30 in order to ensure that their LLC's information is up to date (e.g., principal office, registered agent, etc.). 

First-time filers must provide the names and addresses of their officers, directors, members, managers, or trustees, while established LLCs are only required to confirm or update these details.

If your LLC fails to file its annual report by June 30, it will risk being classified as being in bad standing. It will then receive a 60-day notice on July 1, which offers an additional grace period up until August 31. Missing this extended deadline, however, could lead to administrative dissolution or even revocation of your LLC's authority to operate in Kentucky.

Note: Additional guidance for registered business entities is available on the Annual Reports page of Kentucky's Business One Stop portal.

Licensure and Tax Requirements

In Kentucky, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: If your LLC is involved in the sale of tangible personal property or certain services, then you will be required to obtain a Sales Tax Permit, which is essential for collecting and remitting state sales tax to the Kentucky Department of Revenue. 
• Professional Licenses:  Depending on the nature of your LLC’s services, you may need specific professional licenses. Kentucky requires various professions, such as healthcare providers, accountants, and contractors, to hold valid professional licenses. These are regulated by respective state boards and agencies, ensuring that practitioners meet the necessary qualifications and standards.
• Environmental Permits: If your LLC’s operations could impact the environment, such as through emissions or waste disposal, you might need environmental permits. These permits, governed by the Kentucky Department for Environmental Protection, ensure businesses comply with state and federal environmental regulations. The type of permit required depends on the specific nature of the LLC’s operations and their potential environmental impact.

Note: For a complete list of licenses and permits required for your LLC, visit the Kentucky One Stop Business Portal.

Kentucky LLC Taxes FAQs