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June 12, 2017

As you may have seen in the news, Kansas has retroactively repealed the exemption from taxation for flow-through income (including income reported on Federal Schedules C, E and F) beginning in 2017.  The bill does reinstate the deductions associated with this flow-through income, such as self-employment taxes, self-employed health insurance and pension contributions, which will help somewhat to lower the tax increase from the flow-through income.  However, the Kansas bill also retroactively increases individual income tax rates effective for 2017 and ends the “path to zero” income tax rates in Kansas which were scheduled to be phased in over the next few years.  The bill was vetoed by Governor Brownback but quickly overridden by the Kansas Legislature. 

For 2017, the previous income tax rates are increased by .3% and a new rate of 5.2% is established for individuals filing married filing jointly with taxable income over $60,000.  For all other individual taxpayers the 5.2% rate will apply to taxable income over $30,000.  Important to note:  the bill does provide that no penalties or interest will be assessed for any underpayment of taxes due to the changes in law, as long as the underpayment is paid on or before April 17, 2018.  As a result, you will likely be able to continue paying any estimated tax payments which have already been established.

Looking forward, the limit on certain itemized deductions is scheduled to be gradually increased from 2018 to 2020 such that 100% of mortgage interest and real estate taxes will be deductible in 2020.  For the year 2018, medical expenses will again become 50% deductible as part of this gradual phase in of increased itemized deductions. 

For most individuals, the new legislation will result in more income tax liability in Kansas.  As a result, Kansas flow-through entities should take steps to reduce the income flowing through to the shareholders/partners/members of these entities.  One immediate step which should be considered is whether the entity will qualify for any Kansas incentives.  We can schedule a meeting with our State Incentive Team to determine what incentives the company would qualify for in 2017 (including tax credits, training grants and other reimbursements).  If the company currently does not qualify, we can work with you to review and potentially restructure current processes and procedures to qualify.  Most of these credits and incentives are not retroactive so it is imperative to get the process started now!  For this and other tax planning or any questions on the recent tax act, please contact your local CBIZ tax advisor. 




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