The New Kansas Tax Act

Sep 20, 2012

Kansas State FlagIn May, Kansas Governor Sam Brownback signed the 2012 Kansas Tax Act that provides large tax cuts he hopes will boost the economy and create jobs. What many people are wondering is what does this mean for me? Although there is no real way to simplify it, this article provides a quick synopsis of what the new Act means for individuals and businesses. It is important to remember that this Act will have no impact on your 2012 tax returns, as it will be effective January 1, 2013.

Due to this Act, Kansas will no longer tax the nonwage business income of small business owners; this includes sole proprietorships reported on Schedule C, farms reported on Schedule F, rentals, royalties, and profits from LLCs and S-Corporations reported on Schedule E. However, the Act has little or no impact on C corporations. This may encourage certain C corporations to consider changing to an S corporation, but this should be considered carefully with a tax advisor as there could be negative impacts to changing.

There are also items businesses should take into consideration that are a result of some of the new changes. Since business profits will not be taxed, business losses will in turn not be eligible for deduction. Since they relate to the business income that will now be excluded, certain deductions on the federal tax return will be added back to Kansas income. These include deductions for half of self-employment tax, self-employed health insurance and self-employed retirement plans. While operating profits from these businesses will not be taxed, gain from the sale of business assets is still subject to tax.

All Kansas taxpayers will benefit from a reduction in state tax rates. The lowest individual tax bracket will be reduced from 3.5% to 3% and the highest tax bracket will be reduced from 6.45% to 4.9%. The standard deduction for married couples and head of households will increase to $9,000. This deduction is currently $6,000 for couples filing jointly and $4,500 for head of household. Unfortunately, the $3,000 deduction for an individual will not change.

While individual taxpayers will receive a tax rate reduction, they will also lose some deductions and tax credits. Some of the benefits that are going away are the Kansas Adoption Credit, the Child Care Credit, Food Sales Tax refund and the Long-Term Care Insurance deduction. Also, renters will no longer be eligible for a Homestead Tax refund. These changes will reduce the benefit of the tax cut for affected taxpayers. Unfortunately, it appears that the loss of tax credits will increase the total tax liability for some taxpayers.

Although the Act has been signed, keep in mind there are still opportunities for changes. A few key grammatical errors have been noted within the Act that will require altering. These modifications may allow for some amendments. That does not necessarily mean anything will change, but it is important to note that there is still time for the Act to be revised before it goes into effect in 2013.

Again, this is a short summary of the 2012 Kansas Tax Act, and is by no means an inclusive list of everything in the Act. As it stands now, many Kansas taxpayers will find that several of the changes will require them to do some advance planning. Some individual taxpayers will need to adjust their Kansas tax withholding for 2013, and business owners will have some planning to do as well. The bottom line is, consult your tax advisor.

Article provided by B. Sue Regier, EA at Swindoll, Janzen, Hawk & Loyd, LLC.