Kansas Taxing Business Losses

The Kansas Department of Revenue has issued some clarification about how the new tax law on business income will be handled on the tax returns. The law goes into effect on January 1, 2013 and exempts business income from Kansas income tax. It doesn’t matter if the income is reported as a sole proprietor, pass through from an S-Corp or partnership or as a corporation, business income isn’t taxed.

For individuals, the amount of the subtraction will be calculated based on the income reported on the federal return (from Sch. C, F or E) adjusted by gains on the sale of business assets, the SE Tax adjustment, and contributions to a self-employed retirement plan. Interest, dividend and capital gains could also figure in the calculation. Revenue Ruling 19-2012-02 has the details.

But, what if the taxpayer is showing a loss on their Sch. C, F or E? That loss has to be added back into their income before their Kansas tax is calculated. Notice 12-11 specifically states that business losses reported on a Federal return must be added to Kansas income. So some taxpayers with a business loss could be paying more Kansas tax on their 2013 return.

I really hope that the guys at the KDOR come up with a worksheet to help us calculate the addition or deduction or this could get very confusing.

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