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The Changes and Impacts the new Kentucky Taxation Laws Will Have
on Your Business
| A new law was passed this May that could affect
your business. The Kentucky Tax Modernization Act, passed by the Kentucky legislation,
will change that state taxes due for all C-Corporations and pass-through entities
(S-Corporations, LLCs, and LLPs) on or after January 1, 2005. The changes in how all of
the above-mentioned entities are taxed are as follows: 1) They will now be taxed as regular corporations
by the state of Kentucky; 2) Must now pay tax on the entity level, with credits taken by
the individuals on their Kentucky individual tax return (if applicable); 3) Will pay
estimated taxes if the expected annual Kentucky tax liability is greater than $5000; 4)
The corporate income tax in Kentucky will no longer be based solely on taxable income; 5)
Every entity now defined as a corporation, even if the entity recognizes a taxable loss,
will pay some tax for the privilege of doing business in Kentucky; and 6) The tax will now
be based on the greater of the following questions: |
 | The regular corporate income tax (with a maximum reate of 7%); |
| The lesser of a gross receipts tax at $.095/$100 of gross receipts, and a gross
profits tax at $0.75/$100 of gross profits; and |
| $175 minimum tax to be paid. |
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| Due to these complicated changes, we
recommend for you to contact us at (502) 969-6115 or (502) 966-4241, and we will answer
any questions you may have. We will help you to review your financial position to minimize
the taxes that your company will need to pay in 2005. |
Federal Tax Law Change:
Federal Personal
Income Tax Changes as a Result of the Family Tax Relief Act of 2004 and the Jobs Creation
Act of 2004
Manufacturer Deduction:
| Current Law Manufacturers
can deduct 3% of the lesser of qualified production activities income for the year or
taxable income for the year (AGI in the case of an individual). The deduction is limited
to 50% of W-2 wages paid during the tax year. The 3% amount above increases to 6% in tax
years beginning in 2007 through 2009. The deduction is available to any size business,
including small businesses and individuals. |
Prior Law No
provision. The new law is meant to replace the foreign sales corporation/extraterritorial
income regime (FSC/ETI), a tax provision that lets American exporters exclude from gross
income qualifying extraterritorial income, which the World Trade Organization declared an
illegal export subsidy. |
Charitable Contributions of Cars, Boats, and Planes:
| Current Law The
charitable contribution deduction for vehicles depends on the use of the vehicle by the
charitable organization to which it was donated. If the charity sells the behicle without
any significant use or making any improvements, the donor’s deduction is limited to
the gross proceeds from the sale by the charity. If the charity uses or improves the
vehicle, the charity must estimate market value oat the time of the donation.
Contributions for which the claimed value exceeds $500 require written acknowledgement
from the charity and the taxpayer must attach it to the return. |
Prior Law Donation
is fair market value. Written acknowledgment required from charity, but not required to be
attached to the return. |
Child Tax Credit:
| Current Law The
child tax credit equals $1000 per qualifying child. In 2011 the credit is scheduled to
drop to $500. |
Prior Law The
credit was $1000 per child for 2003 and 2004, $700 per child for 2005 through 2008, $800
perchild for 2009, and $1000 per child for 2010. |
Qualified Electric Vehicle (QEV) Credit and Clean-Fuel Vehicle
Deduction:
| Current Law The
phase-out of the QEV credit and clean-fuel vehicle deduction in 2004 and 2005 is
eliminated. A taxpayer who is the original purchaser and user of a QEV is allowed a credit
of 10% of the cost of the vehicle up to $4000. For the original purchaser and use of a
clean-fuel vehicle, the taxpayer can deduct $2000 for vehicles with gross vehicle weight
of 10,000 pounds or less. The 75% phase-out of the credit and deduction for 2006 still
applies. |
Prior Law The
credit and deduction would have been reduced by 25% for vehicles placed in service in 2004
and 50% for vehicles placed in service in 2005. |
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