What is the Kansas SALT Parity Act?
Starting with the tax year 2022, Kansas allows S-Corporations and Partnerships to elect to pay state income taxes through the business entity, so that the entity can use this as a tax deduction. They do this in lieu of the owner paying personal income taxes on the passthrough income on their personal tax return.
This election is made annually by the entity.
How does this benefit you?
Normally, personal state income taxes are deductible as an itemized deduction on your personal return. With recent changes in the tax code, most Kansas taxpayers aren’t able to benefit from itemizing deductions.
By paying state income taxes at the entity level, it guarantees a tax deduction for those taxes.
How does it work?
Your corporation/partnership will pay the state income tax from its bank account. Then, you will receive a credit against your personal Kansas taxes for the amount paid. Your corporation will be entitled to deduct this tax expense on its tax return in the year paid. In effect, you are moving tax liability from your personal tax return to your business tax return.
What if I already made my Kansas Estimated Tax payments in my personal name?
You’ll end up owing on your business return, but will get a refund of all of your estimated tax payments on your personal return. There is no Kansas estimated tax penalty for businesses in 2022. If you need to, it is possible to notify the Kansas Department of Revenue that you wish to change your personal estimated tax payments from your individual income tax account to your business income tax account, but there is a bit of hassle involved and it only works for entities with one owner.
Questions about this topic or any other tax issues related to your small business? Check out our other resources or give us a call today!
