By: Elizabeth E. Patterson Major tax law changes have come to Kansas. In May of this year, Governor Sam Brownback signed into law tax provisions that reduced income tax rates, increased the standard deduction, eliminated many income tax credits and exempted nonwage income from pass-through entities. The taxation of C Corporations and wages will not be affected. Personal Kansas income tax rates will decline for most taxpayers and may vanish altogether for others. Standard deductions for married filers have increased from $6,000 to $9,000. If those income tax changes are not enough, the state sales tax is reduced from 6.3 percent to 5.7 percent, starting July 1, 2013. To partially offset these tax reductions, some tax credits and deductions such as food sales tax rebates, adoption expenses, child and dependent care expenses and child day care expenses are eliminated. In addition, renters will no longer qualify for low-income property tax credits. As part of the individual income tax law changes, the new laws change the way pass-through entities, including businesses, are taxed. Of course, there never has been a tax on income of these businesses at the entity level, but now an individual owner of a flow-through business entity such as a sole proprietorship, a partnership, a limited liability company or a Subchapter S Corporation will not be taxed in Kansas on nonwage income. This includes farm income reported on Schedule F. Therefore, farmers and owners of LLC’s and S Corporations will pay no tax on net income reported by other entities. However, salary for the owners of these pass-through entities reported on a W-2 is included in Kansas income, and therefore will still be taxed. Thus, an incentive is created to lower wages and increase “dividends” for owners. K-1 income vanishes as a taxable item under this new law. The tax reductions are estimated to be around $800 million annually beginning in 2014, or $4.5 billion over six years. The new exemptions create incentives for individuals to establish businesses in Kansas and structure the businesses as pass-through entities for tax purposes. Proponents hope that this will spur economic growth and job creation by small businesses, and project that the new law will result in 22,900 new jobs. Contact your Van Osdol & Magruder business or tax lawyer to help you maximize the benefit of these changes.
Footer
Legal Netlink Alliance
