Complete Guide to Kentucky LLC Taxes in 2025
Kentucky offers a competitive flat 4% income tax rate combined with a unique Limited Liability Entity Tax (LLET) that adds complexity to LLC tax planning. With a $15 annual report -- one of the cheapest in the nation -- and a business-friendly regulatory environment, Kentucky attracts LLC formations from across the region. However, the LLET, which imposes a tax based on either gross receipts or gross profits with a $175 minimum, requires careful understanding. This guide covers everything Kentucky LLC owners need to know.
How Kentucky Taxes LLCs
Kentucky treats LLCs as pass-through entities. Members report their share on Kentucky Form 740 (Individual Income Tax Return). Kentucky also imposes the Limited Liability Entity Tax (LLET) directly on the LLC, making it one of the few states with an entity-level tax on pass-through entities.
Key Point: Kentucky moved to a flat 4% income tax rate effective January 1, 2024, down from 4.5% in 2023 and 5% previously. Further reductions are possible under Kentucky's automatic trigger mechanism if revenue targets are met, potentially reaching 3.5% or lower in future years.
Understanding the LLET
The Limited Liability Entity Tax is calculated as the lesser of:
- 0.095% of Kentucky gross receipts, OR
- 0.75% of Kentucky gross profits
The minimum LLET is $175 regardless of calculation. The LLET functions as a credit against the individual income tax -- members can claim a credit on their individual Kentucky returns for LLET paid by the LLC. This means the LLET generally does not represent additional tax but rather a minimum tax floor.
LLCs with less than $3,000,000 in gross receipts or $1,800,000 in gross profits pay the $175 minimum only. The LLET becomes significant for larger businesses exceeding these thresholds.
Kentucky Income Tax
| Tax Component | Rate/Amount | Notes |
|---|---|---|
| Kentucky Income Tax | 4% flat | All taxable income |
| LLET | 0.095% gross receipts | Or 0.75% gross profits (lesser) |
| LLET Minimum | $175 | For smaller businesses |
| Annual Report | $15 | Due June 30 |
| State Sales Tax | 6% | On tangible property |
Federal Taxes for Kentucky LLC Owners
- Self-Employment Tax: 15.3% (12.4% SS up to $176,100 + 2.9% Medicare + 0.9% surtax)
- Federal Income Tax: 10-37% based on brackets
- QBI Deduction: Up to 20% under Section 199A
Tax Tip: Since the LLET is creditable against individual Kentucky income tax, it rarely increases your total state tax burden for smaller LLCs. The $175 minimum effectively becomes your floor. For larger LLCs, the LLET calculation matters more. Use our S-Corp Tax Calculator to evaluate election benefits.
Kentucky LLC Filing Deadlines
| Filing | Deadline | Extension |
|---|---|---|
| Individual (Form 740) | April 15 | Yes, to October 15 |
| Partnership (Form 765) | April 15 | Yes, to October 15 |
| LLET (Form 765) | April 15 (with partnership return) | Same as partnership |
| Annual Report | June 30 | No extension |
| Estimated Tax (Form 740-ES) | Apr 15, Jun 15, Sep 15, Jan 15 | No |
Kentucky vs. Neighboring States
| State | Income Tax | Annual Fee | Entity Tax |
|---|---|---|---|
| Kentucky | 4% flat | $15 | LLET (min $175) |
| Indiana | 3.15% flat + county | $31 biennial | None |
| Tennessee | 0% (no income tax) | $300 minimum | Franchise & excise |
| Ohio | 0-3.5% | $0 | CAT phase-out |
| Virginia | 2-5.75% | $50 | None |
| West Virginia | 2.36-5.12% | $25 | None |
Common Kentucky LLC Tax Mistakes
- Not understanding the LLET credit: The LLET is creditable against your income tax. Most small LLCs effectively just pay $175 total in LLET.
- Missing the annual report: Due June 30, not the typical formation anniversary date.
- Using old income tax rates: Kentucky dropped to 4% flat in 2024 from 4.5% in 2023.
- Forgetting estimated payments: Required if you'll owe $500+ in state income tax.
- Not deducting LLET on federal return: The LLET paid is deductible as a business expense federally.
Dissolving a Kentucky LLC
File Articles of Dissolution with the Kentucky Secretary of State ($40). Pay final LLET, file final returns, and file a final annual report. Kentucky has a three-year statute of limitations on tax assessments.