Taxes on Business Income in Kansas
Corporations must pay income tax based upon their income that is attributable to Kansas. This tax is computed based upon corporate taxable net income. If you operate your business as a sole proprietorship or via a pass-through entity, you business income must be reported on your personal income tax return.
In Kansas, you're generally free to choose to operate your business as a C corporation, S corporation, partnership, limited liability company (LLC), or sole proprietorship. However, the entity type you select for your business may, in some cases, decide whether you or your business pays income taxes on the business income.
C Corporations Are Subject to Corporate Income Tax
Domestic corporations (corporations organized in Kansas) and foreign corporations (corporations organized in a state other than Kansas) are subject to a Kansas income tax. The corporate income tax is 4 percent on all taxable income. In addition, there is a surtax of 3.0 percent imposed on Kansas taxable income in excess of $50,000.
S Corporation Income Is Passed Through to Shareholders
If you meet the federal tax law requirements to operate as an S corporation, the IRS allows your business to "pass through" its income to the shareholders. This means that your business will not pay any corporate level federal income tax. However, you'll have to claim your entire share of the business income on your personal federal income tax return even if you did not take any money out of the business. Kansas law extends this favorable tax treatment to state corporate income tax liability, and S corporations will not be subject to the corporate income tax.
Partnership Income Is Passed Through to Partners
If you operate your business as a partnership, your partnership will not be taxed on its net income. Instead, partners must include in their Kansas taxable adjusted gross income their distributive share of partnership income.
Taxation of LLC Follows Federal Tax Treatement
Kansas law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in Kansas are classified as partnerships for Kansas income tax purposes. LLCs follow the federal rules on how they will be taxed on income. Accordingly, if your LLC is treated as a partnership, it will not be taxed on its net income. Instead, members must include in their Kansas taxable adjusted gross income their distributive share of LLC income. If your LLC is treated as a partnership or corporation for income tax purposes, you must still file annual reports with the Secretary of State and are subject to the Kansas franchise tax.