The Kansas legislature has been working for months on a bill to rollback certain tax exemptions and raise taxes to put a stop to the yearly Kansas budget deficits. This week the legislature sent a bill to Governor Brownback, which was vetoed. However, the legislature narrowly overrode his veto last night and Kansas Senate Bill 30 will be effective July 1, 2017.
There are some important provisions in the law that impact our clients and we detail them below:
Taxable income < $30K -- 2.9%
Taxable income $30 - $60K -- 4.9%
Taxable income > $60K -- 5.7%
Taxable income < $30K -- 3.1%
Taxable income $30 - $60K -- 5.25%
Taxable income > $60K -- 5.7%
*Other filing statuses are impacted, as well. We are listing the MFJ only for discussion purposes.
Flow-through Business Income
Net profit from flow-through businesses (S-Corporations, partnerships, sole proprietors, etc.) are NO LONGER EXEMPT FROM KANSAS INCOME TAX beginning with tax years starting on or after January 1, 2017. In addition, net profit from rental real estate, royalties, estates, trusts, net farm rental, and residual interest in real estate mortgage investment conduits are also no longer exempt from Kansas income tax.
As part of the original legislation in 2012, Kansas also limited itemized deductions. They were on a “phase-down” approach, to where by 2016, Kansas was only allowing 50% of federal itemized deductions (mortgage interest, real estate taxes, etc.) as a deduction in Kansas. Charity was always left at 100% deductible.
With the new law, Kansas will start to phase back in allowable itemized deductions. They will remain at 50% for 2017 and 2018, but will increase to 75% of federal itemized deductions for tax year 2019, and then back up to 100% of federal allowable itemized deductions by 2020. Charity will remain at 100% for this entire time period.
Lower Taxable Income Threshold
The new law also lowers the threshold of income subject to tax for individuals. For example, in 2016, married filing joint filers who had taxable income of less than $12,500 had a tax rate of zero. Starting in 2017, married filing joint filers must have taxable income less than $5,000 to be in the “zero” tax bracket.
Interest & Underpayment Penalties
Per the new law passed, no interest or penalties will be assessed on underpayment of taxes for 2017 due to the changes above as long as rectified by April 17, 2018.
We will report any additional changes or commentary as necessary and we will be working with our clients to determine impact to estimated payments and 2017 projections over the coming weeks. Please feel free to contact us at any time with questions.
Quarterly Estimates Due June 15th
Quarterly estimates are due Thursday, June 15, 2017. Please contact us if you need vouchers or if you need to discuss income changes or projections.
Returns on Extension
We have been working to wrap up in-house returns on extension. If your return is on extension and you have not yet provided your information, please do so as soon as possible.