Kentucky LLC Taxes: The Complete Filing Guide (2025)
Running an LLC in Kentucky means dealing with taxes at federal, state, and sometimes local levels. This guide simplifies everything you need to know to stay compliant and avoid surprises, from income tax and sales tax to city-specific requirements.
Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes.
Kentucky LLC Tax Basics
Navigating your Kentucky LLC tax obligations doesn’t have to be complicated. We’ll walk you through the essentials of pass-through taxation, explain Kentucky’s specific requirements, and highlight strategies to stay compliant and organized. This guide covers everything from federal income taxes to city-specific requirements and filing deadlines.
Use the links below to jump directly to the section you need:
- Kentucky LLC Taxes at a Glance
- Understanding LLC Taxation Basics
- Federal Tax Obligations
- Kentucky State Taxes
- Local Tax Considerations
- Tax Calendar and Filing Tips
- Tax Strategies for Kentucky LLCs
- Forms and Resources
Kentucky LLC Taxes at a Glance
| Tax Type | Rate | Filing Deadline | Forms Required |
|---|---|---|---|
| Federal Income Tax | 10%-37% (personal brackets) | April 15, 2025 | Form 1040 + Schedule C or Schedule E/K-1 |
| Self-Employment Tax | 15.3% | April 15, 2025 | Schedule SE |
| Limited Liability Entity Tax (LLET) | 0.095%-0.75% | April 15, 2025 | Form PTE/Form 725 |
| Kentucky Income Tax | 4% (flat rate) | April 15, 2025 | Form 740 |
| Federal Payroll Taxes (If Employees) | 7.65% employer + 7.65% employee (FICA) | Quarterly (April 30, July 31, October 31, January 31) | Form 941 |
| Kentucky Unemployment Tax (If Employees) | 0.30%-9% (new employers: 2.7%) | Quarterly | Form UI-3 |
| Federal Unemployment (FUTA) | 6% on first $7,000 per employee (0.6% after credits) | January 31, 2026 (annual) | Form 940 |
| Sales & Use Tax | 6% | Monthly, quarterly, or annually based on sales volume | Form 51A205 |
| Local Occupational License Tax | 0.50%-2.5% (varies by district) | April 15, 2025 | Form OL-S |
| Annual Report | $15 fee | June 30, 2025 | Form available with login |
Understanding LLC Taxation Basics
How Kentucky LLCs Are Taxed by Default
Your Kentucky LLC doesn’t pay taxes itself. Instead, profits flow through to you and your members, who report them on their personal tax returns. This is called pass-through taxation.
Here’s how it works:
- Your LLC earns income from business activities
- The LLC itself files no tax return (unless you elect otherwise)
- Profits “pass through” to members based on ownership percentage
- Each member reports their share on their personal tax return
- Members pay tax at their individual income tax rates
What this means for you: Unlike corporations, your business profits are only taxed once — which typically saves you money.
Time-Saving Tip: If you’re uncertain about your LLC’s tax classification, a tax professional can review your LLC’s tax setup in 30 minutes and help you choose the most tax-efficient option.
Tax Classification Options
While pass-through taxation is the default, your Kentucky LLC can choose two alternative tax treatments.
Default LLC Tax Status:
- Single-member LLC: Taxed as a sole proprietorship
- Multi-member LLC: Taxed as a partnership
Optional Tax Classifications:
- S Corporation: Can reduce self-employment taxes by paying “reasonable salaries”
- C Corporation: LLC pays corporate tax on profits, members pay personal tax on distributions (creates double taxation)
Not sure which tax classification is right for your business? Schedule a free consultation with 1-800Accountant.
Federal Tax Obligations
Income Tax
As a Kentucky LLC owner, you’ll report your share of business profits on your personal tax return using:
- Form 1040 + Schedule C (single-member LLCs)
- Form 1040 + Schedule E + Schedule K-1 (multi-member LLCs)
Federal income tax rates range from 10% to 37% based on your tax bracket (actual brackets will depend on inflation adjustments and any tax law changes).
Simply Put: Whatever money your business makes (after expenses) gets added to your personal tax return — just like income from a job.
Self-Employment Tax
LLC members actively involved in the business must pay self-employment tax of 15.3% (covering Social Security and Medicare) on their share of LLC profits.
Key points:
- Applies to net earnings of $400 or more
- Calculated on Schedule SE
- You can deduct 50% of the self-employment tax as an “above-the-line” deduction, which lowers your adjusted gross income
What happens if I miss this payment? The Internal Revenue Service (IRS) charges penalties of 0.5% per month plus interest. However, first-time mistakes can often qualify for penalty abatement if you have a clean compliance history.
Employment Taxes
If your LLC has employees, you must:
- Withhold federal income tax
- Pay and withhold FICA taxes (7.65% each for employer and employee)
- Pay federal unemployment tax (FUTA)
- File quarterly employment tax returns (Form 941)
- Provide Forms W-2 annually
Estimated completion time: 2-3 hours per quarter (significantly less with payroll software or professional help)
Estimated Tax Payments
Because no tax is withheld from your LLC profits, you’ll likely need to make quarterly estimated tax payments using Form 1040-ES. These payments cover both income and self-employment taxes on your share of the business income. Missing deadlines or underpaying can lead to IRS penalties — even if you pay in full later.
Working with an accountant can help ensure accurate calculations, on-time payments, and a smarter overall tax strategy.
Key deadlines:
- April 15
- June 16
- September 15
- January 15
Pro Tip: Set calendar reminders 15 days before each deadline. This gives you time to prepare without the last-minute rush that leads to mistakes.
Kentucky State Taxes
Kentucky Income Tax
Kentucky has a flat personal income tax rate of 4% that applies to your LLC’s profits on your personal return.
Filing requirements:
- Use Kentucky Form 740
- Due April 15, 2025
Bottom Line: For every $1,000 your LLC earns, expect to pay about $50 in Kentucky state income tax (in addition to federal taxes).
Kentucky Corporate Income Tax
If your LLC has elected to be taxed as a c corp, it is subject to Kentucky’s 5% corporate income tax.
Filing requirements:
- Use Kentucky Form 720
- Due April 15, 2025
Kentucky Limited Liability Entity Tax
Kentucky imposes a Limited Liability Entity Tax (LLET) that applies to all LLCs regardless of how they elect to be taxed.
LLET rates:
- 0.095% ($950 per $1 million) of Kentucky gross receipts, or
- 0.75% ($7,500 per $1 million) of Kentucky gross profits
- $175 minimum annual fee
Filing requirements:
Sales and Use Tax
If your Kentucky LLC sells physical products or certain services:
- Collect 6% sales tax on taxable sales
- Register for a sales tax license through Kentucky Business OneStop
- File and pay collected taxes monthly, quarterly, or annually based on sales volume
- Due dates vary based on filing frequency
60-Second Check: Do I Need to Collect Sales Tax?
- Do you sell physical products in Kentucky? → Yes, collect tax
- Do you sell digital products? → Yes, collect tax
- Do you provide services? → Most services are exempt (see exceptions below)
- Do you sell online to Kentucky customers? → Yes, collect tax
Services subject to sales tax include:
- Communication services
- Furnishing of sewer services
- Natural gas transmission and distribution services
Products typically subject to sales tax include:
- Tangible personal property
- Prepared food
- Digital property
Payroll Taxes
If you have employees in Kentucky, you will be responsible for two types of payroll taxes.
Unemployment Insurance (UI) Tax
- Register through the Kentucky Career Center
- File using Kentucky Form UI-3
- Rate is 2.7% for new employers (0.30%-9% afterwards)
- Due quarterly
Withholding Tax
- Register through the Kentucky Department of Revenue
- Flat rate of 4%
- Use Kentucky Form K-5 (available in the KY Taxpayer Portal)
- Due semi-monthly, monthly, quarterly, or annually based on withholding amount
Annual Statement Filing
While not a tax, your Kentucky LLC must file an annual report:
- Due June 30 each year
- $15 filing fee
- Filed with Kentucky Secretary of State
- Two-year grace period before penalties apply
Calendar Alert: Set a reminder for May 30 to ensure you don’t miss this easy but required filing.
Local Tax Considerations
City Occupational Taxes
Kentucky allows cities to impose local occupational taxes, also called payroll taxes, creating a significant compliance burden for many LLC owners.
Cities with occupational taxes include:
- Bowling Green (2%)
- Dayton (2.5%)
- Louisville (1.25%)
- Paducah (2%)
- Other Kentucky cities
Filing requirements:
- Separate returns for each city where you conduct business
- Use Form OL-S for single tax districts
- Use Form OL-D for dual tax districts
- Due dates vary by locality
Property Taxes
If your LLC owns real property in Kentucky:
- Rates vary by locality
- Assessed annually
- May qualify for various exemptions based on business type
- Personal property tax may apply to business equipment
Tax Calendar and Filing Tips
Key Deadlines for Kentucky LLCs
January:
- January 15: Final estimated tax payment for previous year
- January 31: Issue W-2s/1099s to employees/contractors
- January 31: Fourth quarter payroll tax payment due (state and federal)
- January 31: Annual state withholding tax return due
April:
- April 15: Personal or corporate income tax return due
- April 15: Limited liability entity tax return due
- April 15: Federal income and self-employment tax returns due
- April 15: First quarter estimated tax payment due
- April 30: First quarter federal payroll tax payment due
June:
- June 16: Second quarter estimated tax due
- June 30: Kentucky annual report due
July:
- July 31: Second quarter payroll tax payment due (state and federal)
September:
- September 15: Third quarter estimated tax payment due
October:
- October 31: Third quarter payroll tax payment due (state and federal)
Record-Keeping Checklist
Keep these records for at least 7 years:
- Business income records (invoices, receipts)
- Expense receipts and documentation
- Bank and credit card statements
- Asset purchase and improvement records
- Vehicle mileage logs
- Home office documentation
- Payroll records
- Previous tax returns
Tax Strategies for Kentucky LLCs
S Corporation Election Benefits
Converting your LLC to an S corp for tax purposes can help you save on self-employment taxes. To do this, you must:
- File Form 2553 with the IRS
- Pay yourself a “reasonable salary” subject to employment taxes
- Take any remaining profits as distributions exempt from self-employment tax
Example: An LLC making $100,000 in profit pays 15.3% self-employment tax on the entire amount. As an S Corp, if $60,000 is a reasonable salary and $40,000 is taken as distributions, only the $60,000 is subject to employment taxes.
Potential Savings: In this example, you’d save about $6,120 in self-employment taxes.
Business Expense Deductions
Common deductions Kentucky LLC owners often overlook include:
- Home office deductions
- Business mileage (70¢ per mile for 2025)
- Health insurance premiums
- Retirement plan contributions
- Professional development expenses
- Business meals (50% deductible)
Forms and Resources
Federal Tax Forms
- Schedule C: Profit or Loss From Business (sole proprietors)
- Form 1065: U.S. Return of Partnership Income
- Schedule K-1: Partner’s Share of Income, Deductions, Credits
- Form 1120-S: U.S. Income Tax Return for an S Corporation
- Form 2553: Election by a Small Business Corporation (S Corp)
- Form 8832: Entity Classification Election
Kentucky Tax Forms
- Form 740: Kentucky Individual Income Tax Return
- Form 720: Kentucky Corporate Income Tax Return
- Form PTE: Kentucky LLET and Income Tax Return (Multi-Member)
- Form 725: Kentucky LLET and Income Tax Return (Single-Member)
Helpful Resources
Kentucky LLC Taxes FAQs
LLCs operating in Kentucky are subject to a range of taxes. State-level obligations include corporation income tax at a flat rate of 5% and limited liability entity tax based on gross receipts or profits. Locally, LLCs may encounter taxes like Property Taxes and Insurance Premium Taxes, which depend on the business’s location and specific operations.
Kentucky can be considered tax-friendly for LLCs, particularly due to its flat 5% corporation income tax rate and no local sales and use taxes. However, the overall tax burden on LLCs might vary, as it depends on other local taxes, including occupational license taxes, which can differ from one locality to another.
LLCs are generally taxed on a pass-through basis, where income flows through to members’ personal tax returns. They have the option to be taxed as C or S Corporations, altering how profits are distributed and taxed. This decision impacts both self-employment and FICA tax considerations for LLC members, intertwining personal and business tax implications.
For more information, take a look at our LLC Taxes article.
In Kentucky, taxable income for LLCs includes profits from business operations within the state. This encompasses revenue from sales of tangible personal property, services, and any income earned by nonresidents from Kentucky sources. LLC members must report their share of profits on individual tax returns, subject to a 4% state income tax rate.
Need Professional Help? While this guide covers the essentials, tax laws are complex and constantly changing. Schedule a free consultation with 1-800Accountant to ensure your Kentucky LLC remains fully compliant while minimizing your tax burden.