On April 2nd Kentucky passed a tax reform bill that makes significant changes to Kentucky individual and corporate taxes. Major provisions include:
Individual Tax
- Flat tax rate of 5% – replaces graduated rate system of 2-6% (effective for 2018)
- Itemized Deductions – mortgage interest and charitable contributions are the only itemized deductions allowed
- No longer a deduction for long-term care and health insurance premiums from Kentucky AGI
- Reduced pension income exclusion by $10,000
- Personal exemption credit repealed
Most of the changes to federal tax law are incorporated into new Kentucky code – increased depreciation and expensing provisions for capital improvements are not adopted by Kentucky.
Corporate Tax
- Domestic Production Activities Deduction (DPAD) is eliminated which follows federal changes
- Flat tax rate of 5% -- replaces graduated system with top rate of 6% (effective for 2018)
- Income apportionment formula will be a single factor instead of the current three-factor formula (sales, payroll, property)
- Federal Pass-through Income deduction disallowed at state level
- Property tax on business inventory – nonrefundable credit against state income tax for property taxes paid will be phased in over four years
Most of the changes to federal tax law are incorporated into new Kentucky code – increased depreciation and expensing provisions for capital improvements are not adopted by Kentucky.
Sales & Use Tax
- Effective July 1st, 2018 – the sales and use tax base is expanded to include select services that previously weren’t taxable
Much of the new law is in response to the federal tax law changes passed late last year. If you have questions on how this will affect your particular tax situation, please contact one of our professionals 859-331-1717.
