kansas small business forum
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Kansas Small Business Forum. Tax Policy to Grow the Kansas Economy. What the Governor Asked For. A FIELD OF DREAMS Build it and they will come. States With No Income Tax. Total Exemption. Tax Dividends and Interest. New Hampshire Tennessee. Alaska Florida Nevada South Dakota Texas - PowerPoint PPT PresentationTRANSCRIPT
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Kansas Small Business Forum
Tax Policy to Grow the KansasEconomy
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What the Governor Asked For
A FIELD OF DREAMS
Build it and they will come
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States With No Income Tax
Total Exemption
– Alaska– Florida– Nevada– South Dakota– Texas– Washington– Wyoming
Tax Dividends and Interest
– New Hampshire– Tennessee
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Joint Tax Committee Testimony
• Testified on Governor’s initiative on January 12, 2012
• My closing statement was:– “The governor’s plan is bold and innovative. It
deserves serious consideration.”
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Overview of Governor’s Initiative
• Comparison of state top rates before and after
– Colorado 4.63 4.63 – Oklahoma 5.25 5.25– Missouri 6.00 6.00
–Kansas 6.45 4.95– Nebraska 6.84 6.84
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Federal Consequences
NONE
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Provisions of HB 2117
– Effective for tax year 2013 and thereafter
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Provisions of HB 2117
– Lowers income tax brackets for married filing joint returns• Not over $30,000 3%• Over $30,000 $900 plus 4.9% of excess
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Provisions of HB 2117
– Lowers income tax brackets for all other non-corporate taxpayers• Not over $15,000 3%• Over $15,000 $450 Plus 4.9% of excess
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Provisions of HB 2117
– Standard deduction shall be• Single $3,000• Married, joint $9,000• Head of household $9,000
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Provisions of HB 2117
Exemption of non-wage business income from Kansas taxation
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Non-wage Business Income
• Net profit from business reported on Schedule C• Net income from rental real estate, royalties,
partnerships, S corporations, estates, trusts and net farm rental reported on Schedule E• Net farm profit reported on Schedule F
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Non-deductible Expenditures
• Self-employment taxes• Contributions to pension and profit sharing plans• Self-employed health insurance• Domestic production activity deduction
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Provisions of HB 2117
– A net operating loss shall only be available to corporations
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Subchapter C Corporations
• Impact of the bill– No changes made to C corporations or Kansas
privilege tax on banks and savings institutions• Computation of taxable income• Rates• Availability of credits• LLC business income flowing to a C corporation
continues to be subject to taxation
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Subchapter C Corporations
– Retain C corporation status– Elect subchapter S status– Liquidate and reform as an LLC
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Subchapter S Corporations
• Impact of bill– Net profit reported on Schedule E is exempt from
taxation• Net losses reported on Schedule E are not
deductible• Salary received from an S corporation is taxable
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Subchapter S Corporations
• Separately stated income and deductions retain their character for federal and Kansas purposes and will be taxable for Kansas purposes – Dividends– Interest– Capital Gains– 1231 Gains
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LLC’s / Partnerships
• Impact of bill– Net profit reported on Schedule E is exempt from
taxation• Net losses reported on Schedule E are not
deductible
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LLC’s / Partnerships
• Separately stated income and deductions retain their character for federal and Kansas purposes and will be taxable for Kansas purposes – Dividends– Interest– Capital Gains– 1231 Gains
• Guaranteed payments are reported on Schedule E and are exempt from Kansas tax
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Basis in S Corporations and LLC’s
– Basis in ownership interest is not increased by excluded income
– Distributions in excess of basis are taxable
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Individuals
• Non-wage business income defined• Net profit from business reported on Schedule C• Net income from rental real estate, royalties,
partnerships, S corporations, estates, trusts and net farm rental reported on Schedule E• Net farm profit reported on Schedule F
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Individuals
• Rental Properties– Taxable income is excludable from Kansas AGI– Taxable loss is non-deductible in determining
Kansas AGI– Gain/loss on disposition of business property is a
taxable event for Kansas purposes• Basis in depreciable property is the same for federal
and Kansas purposes
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IndividualsTax Situs of Business
• The bill does not distinguish between businesses operated in the state of Kansas vs. a foreign state.
• Residents of Kansas exclude income and deductions of ALL non-wage business income regardless of where the business is located.
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IndividualsEmployee vs. Independent Contractor
• Income from wages is NOT business income and is taxable
• Income earned by an independent contractor is business income and IS exempt from taxation
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Kansas Economic Outlook
• Pay-for’s proposed by Governor Brownback that are not in the bill– .6% sales tax permitted to expire– Itemized deductions allowed in full– Section 529 plan deduction remains– Credits such as earned income credit, historic
restoration credit and community service credits remain
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Kansas Economic Outlook
• To balance the post 2012 state budget the revenue lost by enactment of the bill must be covered by– Growth in the Kansas economy– Growth in state population, resulting in• Growth in sales and other tax collections (including
income tax on increased work force)– Controlled state spending
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Illustration 1Salaried Employee
Old Law• Wage $50,000• Exemptions
( 9,000)• Standard deduction
( 6,000)• Taxable income $35,000• Kansas income tax $
1,362
New Law• Wage $50,000• Exemptions
( 9,000)• Standard deduction
( 9,000)• Taxable income $32,000• Kansas income tax $
998
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Illustration 2Self-employed Individual
Old Law• Business income $50,000• Exemptions
( 9,000)• Standard deduction
( 6,000)• Taxable income $35,000• Kansas tax $
1,362
New Law• Business income $ -0-• Exemptions
( 9,000)• Standard deduction
( 9,000)• Taxable income (18,000)• Kansas tax -0-
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Illustration 3Salaried with Rental Property Income
Old Law• Wage $50,000• Rental income
5,000• Exemptions
( 9,000)• Standard deduction
( 6,000)• Taxable income $40,000• Kansas tax $
1,675
New Law• Wage $50,000• Rental income -0-• Exemptions
( 9,000)• Standard deduction
( 9,000)• Taxable income $32,000• Kansas tax $
998
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Illustration 4Salaried with Rental Property Loss
Old Law• Wage $50,000• Rental loss
( 5,000)• Exemptions
( 9,000)• Standard deduction
( 6,000)• Taxable income $30,000• Kansas tax $
1,050
New Law• Wage $50,000• Rental loss -0-• Exemptions
( 9,000)• Standard deduction
( 9,000)• Taxable income $32,000• Kansas tax $
998
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Illustration 5Professional with Itemized Deductions
Old Law• Wage $200,000• Itemized deductions
( 25,000)• Exemptions
( 9,000)• Taxable income $166,000• Kansas tax $
9,762
New Law• Wage $200,000• Itemized deductions
( 25,000)• Exemptions
( 9,000)• Taxable income $166,000• Kansas tax $
7,564
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Illustration 6Salaried Professional with Business
Old Law• Wage $200,000• Business loss
( 80,000)• Exemptions
( 9,000)• Itemized deductions
( 25,000)• Taxable income $ 86,000• Kansas tax $
4,602
New Law• Wage $200,000• Business loss -0-• Exemptions
( 9,000)• Itemized deductions
( 25,000)• Taxable income $166,000• Kansas tax $
7,564
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Business Thought of the Day
If you conduct business in Missouri you will pay Missouri state income taxes
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Business Thought of the Day
If you pay Missouri state income taxes you will have less capital
available for your business
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Business Thought of the Day
If you have less capital available for your business you increase the risk of
incurring losses
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Business Thought of the Day
If you incur too many losses you will go broke
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Business Thought of the Day
Don’t go broke
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Business Thought of the Day
Do your business in Kansas!!!
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HB 2117
Q and A