KY Single Member LLC return

[Margaret CPA in OH]

I have a new KY client (I am in Cincinnati) who just started a SMLLC. I am surprised to see the KY requires a return for this with a minimum tax of $175. For 2011 she has a small loss having begun business late in the year but expects a profit in 2012 and beyond. I think it unfair to say the least that she, with a profit, will not only pay with this but on her personal return. Am I reading this incorrectly?

[jainen]

>>I think it unfair to say the least that she, with a profit, will not only pay with this but on her personal return.<<

Why is that unfair? It's the same for everyone, and a well-known standard part of tax planning when she decided to set up the company. Here in California the minimum tax is $800.

[Margaret CPA in OH]

It isn't the same in Ohio. As the income is either disregarded for a smllc and included on Schedule which is part AGI, the starting point for Ohio tax or pass through on a K-1 with no filing requirement and separate tax with only in-state members/shareholders, it gets taxed once at the state level with no minimum for tiny businesses. There is a Commercial Activities Tax but that begins at $150,000 gross receipts with a tax of $150 until gross receipts reach and exceed $1 million. I just think this KY tax is onerous.

[GERALD]

Margaret, you do not pay the tax on the personal return. Pay it with the SMLLC form 725/LLET, filed separately. The $175 was a compromise. Several years ago, the state passed a new corporate license tax bill, that caused a lot of smaller companies that had paid $30 for years to be hit with bills in the hundreds and thousands. I had one S corp, relatively small, whose license tax went from $30 to 1600. After a near revolt, they revised it the next year so that most companies, be they C, S, or LLC, pay the $175. Large companies will pay a hgher tax based on gross receipts, gross profits, etc.

[Margaret CPA in OH]

Thanks, Gerald, for some history. I know it is paid with the 725; that's how I knew there was a payment due. My beef is that it takes into consideration the net profit which is also taxed on her personal 740. Given your explanation, I guess it is much less worse than it could be. At least in this case, I think Ohio is fairer.