Flat-Fee Tax Preparation for Kentucky Residents

Kentucky has a flat income tax rate of 4% — reduced from 5% and scheduled to continue declining under KY's income tax reduction framework

Kentucky imposes a limited liability entity tax (LLET) on LLCs and pass-through entities at 0.095% of gross receipts or 0.75% of gross profits — whichever is greater, subject to minimums and maximums

KY does not impose a sales tax on most services but does tax tangible personal property — the state rate is 6%

Kentucky's inheritance tax applies to assets passing to non-direct heirs: Class B beneficiaries (siblings, half-siblings) face rates up to 16%, and Class C (all others) face rates up to 16% with a narrower exemption

Louisville and Lexington impose local occupational taxes on wages earned within those cities — typically 1.45% to 2.2%

KY conforms to federal depreciation rules including bonus depreciation, simplifying planning for capital-asset-heavy businesses

Kentucky does not impose a state estate tax, though the inheritance tax on non-direct heirs remains in effect

The KY pass-through entity tax option allows eligible entities to pay KY income tax at the entity level for potential SALT cap relief

Kentucky Real Estate Tax

Kentucky offers affordable real estate in Louisville, Lexington, and surrounding markets with attractive rental yields. The LLET applies to LLCs that own rental property, adding a layer of entity-level taxation beyond the personal income tax. Federal depreciation conformity benefits real estate investors using cost segregation. KY's inheritance tax is an important consideration for non-direct-heir estate planning involving real property.

Kentucky Business Tax

Kentucky businesses face the LLET in addition to personal income tax on pass-through income, creating a dual-layer obligation. The KY PTET election can provide SALT cap relief. Local occupational taxes in Louisville and Lexington add compliance complexity for businesses with employees in those cities.

Do I need to file a Kentucky state tax return?

If you are a Kentucky resident or earned KY-source income above the filing threshold, you must file a KY 740 return. Kentucky's flat 4% rate applies to all taxable income, and local occupational taxes in Louisville and Lexington apply to wages earned in those cities.

What is Kentucky's inheritance tax?

Kentucky imposes an inheritance tax on assets passing to non-direct heirs. Direct heirs (Class A: spouses, children, grandchildren, parents, siblings of half-blood) are exempt. Class B beneficiaries (more distant relatives) face rates from 4% to 16%. Class C beneficiaries (non-relatives) face rates from 6% to 16%. Real estate and other assets in KY must be considered in estate planning for those who want to leave assets to non-direct heirs.

What is the Kentucky LLET?

The Kentucky Limited Liability Entity Tax (LLET) is an annual tax imposed on LLCs and other pass-through entities doing business in KY. The tax is calculated as the greater of 0.095% of gross receipts or 0.75% of gross profits, with a minimum of $175. The LLET is separate from the personal income tax that owners pay on pass-through income, creating a two-level tax burden for KY LLCs.

What makes Kentucky taxes unique?

Kentucky's combination of a declining flat income tax rate, the LLET on pass-through entities, a surviving inheritance tax for non-direct heirs, and local occupational taxes in major cities creates a layered tax environment. The ongoing rate reductions make KY increasingly competitive over time, but the LLET and local taxes add compliance complexity.