Gary`s PowerPoint presentation.

Report
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
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Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming
Tax Dividends and Interest
– New Hampshire
– Tennessee
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.”
Overview of Governor’s Initiative
• Comparison of state top rates before and after
– Colorado
– Oklahoma
– Missouri
4.63
5.25
6.00
4.63
5.25
6.00
–Kansas
6.45
4.95
– Nebraska
6.84
6.84
Federal Consequences
NONE
Provisions of HB 2117
– Effective for tax year 2013 and thereafter
Provisions of HB 2117
– Lowers income tax brackets for married filing joint
returns
• Not over $30,000
• Over $30,000
3%
$900 plus 4.9% of excess
Provisions of HB 2117
– Lowers income tax brackets for all other noncorporate taxpayers
• Not over $15,000
• Over $15,000
3%
$450 Plus 4.9% of excess
Provisions of HB 2117
– Standard deduction shall be
• Single
• Married, joint
• Head of household
$3,000
$9,000
$9,000
Provisions of HB 2117
Exemption of non-wage business
income from Kansas taxation
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
Non-deductible Expenditures
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Self-employment taxes
Contributions to pension and profit sharing plans
Self-employed health insurance
Domestic production activity deduction
Provisions of HB 2117
– A net operating loss shall only be available to
corporations
Subchapter C Corporations
• Impact of the bill
– No changes made to C corporations or Kansas
privilege tax on banks and savings institutions
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Computation of taxable income
Rates
Availability of credits
LLC business income flowing to a C corporation
continues to be subject to taxation
Subchapter C Corporations
– Retain C corporation status
– Elect subchapter S status
– Liquidate and reform as an LLC
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
Subchapter S Corporations
• Separately stated income and deductions
retain their character for federal and Kansas
purposes and will be taxable for Kansas
purposes
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Dividends
Interest
Capital Gains
1231 Gains
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
LLC’s / Partnerships
• Separately stated income and deductions
retain their character for federal and Kansas
purposes and will be taxable for Kansas
purposes
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Dividends
Interest
Capital Gains
1231 Gains
• Guaranteed payments are reported on
Schedule E and are exempt from Kansas tax
Basis in S Corporations and LLC’s
– Basis in ownership interest is not increased by
excluded income
– Distributions in excess of basis are taxable
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
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
Individuals
Tax 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.
Individuals
Employee 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
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
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
Illustration 1
Salaried Employee
Old Law
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Wage
Exemptions
Standard deduction
Taxable income
Kansas income tax
New Law
$50,000
( 9,000)
( 6,000)
$35,000
$ 1,362
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•
•
•
•
Wage
Exemptions
Standard deduction
Taxable income
Kansas income tax
$50,000
( 9,000)
( 9,000)
$32,000
$ 998
Illustration 2
Self-employed Individual
Old Law
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•
•
•
•
Business income
Exemptions
Standard deduction
Taxable income
Kansas tax
New Law
$50,000
( 9,000)
( 6,000)
$35,000
$ 1,362
•
•
•
•
•
Business income
Exemptions
Standard deduction
Taxable income
Kansas tax
$ -0( 9,000)
( 9,000)
(18,000)
-0-
Illustration 3
Salaried with Rental Property Income
Old Law
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Wage
Rental income
Exemptions
Standard deduction
Taxable income
Kansas tax
New Law
$50,000
5,000
( 9,000)
( 6,000)
$40,000
$ 1,675
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•
•
•
•
•
Wage
Rental income
Exemptions
Standard deduction
Taxable income
Kansas tax
$50,000
-0( 9,000)
( 9,000)
$32,000
$ 998
Illustration 4
Salaried with Rental Property Loss
Old Law
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Wage
Rental loss
Exemptions
Standard deduction
Taxable income
Kansas tax
New Law
$50,000
( 5,000)
( 9,000)
( 6,000)
$30,000
$ 1,050
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•
•
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Wage
Rental loss
Exemptions
Standard deduction
Taxable income
Kansas tax
$50,000
-0( 9,000)
( 9,000)
$32,000
$ 998
Illustration 5
Professional with Itemized Deductions
Old Law
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Wage
Itemized deductions
Exemptions
Taxable income
Kansas tax
New Law
$200,000
( 25,000)
( 9,000)
$166,000
$ 9,762
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•
•
•
•
Wage
Itemized deductions
Exemptions
Taxable income
Kansas tax
$200,000
( 25,000)
( 9,000)
$166,000
$ 7,564
Illustration 6
Salaried Professional with Business
New Law
Old Law
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Wage
Business loss
Exemptions
Itemized deductions
Taxable income
Kansas tax
$200,000
( 80,000)
( 9,000)
( 25,000)
$ 86,000
$ 4,602
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•
•
•
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•
Wage
Business loss
Exemptions
Itemized deductions
Taxable income
Kansas tax
$200,000
-0( 9,000)
( 25,000)
$166,000
$ 7,564
Business Thought of the Day
If you conduct business in Missouri
you will pay Missouri
state income taxes
Business Thought of the Day
If you pay Missouri state income
taxes you will have less capital
available for your business
Business Thought of the Day
If you have less capital available for
your business you increase the risk of
incurring losses
Business Thought of the Day
If you incur too many losses you will
go broke
Business Thought of the Day
Don’t go broke
Business Thought of the Day
Do your business in Kansas!!!
HB 2117
Q and A

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