Small Business Accountant and CPA in Lexington, Kentucky

Kentucky Tax Changes and S-Corp Election Strategy

Effective 2026, Kentucky's individual income tax rate is 4.95% (down from 5.0%), and the corporate rate is 5.25%. For pass-through entities (sole proprietors, S-corps, partnerships, LLCs taxed as partnerships), Kentucky does not tax the entity itself—only the owners pay tax on their share of income. However, electing to be taxed as an S-corporation can save money by dividing income between W-2 wages (subject to payroll tax) and distributions (not subject to payroll tax).

An S-corp election makes sense when net business income exceeds $60,000–$80,000, because the tax savings exceed the cost of payroll filing and filing fees. Kentucky requires S-corp returns to be filed by March 15, and we coordinate the federal S-corp election with Kentucky reporting.

Owners of pass-through entities often assume they must take all their profits as distributions or salary. This is a mistake. A strategic split between W-2 wages and distributions can cut self-employment and FICA taxes by 15–20%. We model S-corp vs. sole proprietor taxation so you understand the breakeven point.

Lexington Occupational Tax and Local Compliance

Lexington-Fayette Urban County Government (the consolidated city and county) requires an occupational license for businesses operating in the city, and an occupational tax of roughly 2.2% of gross revenue is levied on most businesses. The tax is due annually on April 15, and it applies to wages, inventory and gross receipts depending on your business type.

The occupational tax is separate from the state income tax, and the rate varies by business classification (retail, services, manufacturing, wholesale). A software consulting firm and a retail store pay different rates. Many business owners miss the April 15 occupational tax deadline and get hit with late penalties.

Some small businesses qualify for exemptions or reductions based on gross revenue. Businesses with less than $100,000 in gross receipts may owe a lower tax or be exempt. We file your occupational license renewal and tax report on time so you avoid penalties.

Bookkeeping and Payroll for Lexington Employers

We offer monthly bookkeeping services that include bank and credit card reconciliation, expense categorization, payroll processing, and financial reporting. Monthly statements show profit/loss, cash flow and key metrics, so you understand where your business stands without waiting until tax time.

Kentucky requires employers to file quarterly payroll taxes and annual unemployment insurance tax (SUTA), and we handle both. We issue W-2s by January 31 and 1099s by January 31 for all contractors and 1099 workers. Staying ahead of payroll deadlines prevents penalties and keeps your unemployment insurance rate stable.

If your business has employees, a dedicated accountant keeps you compliant with federal (941 quarterly, 940 annual) and Kentucky (KRS 341, unemployment insurance) requirements. Missing a deadline or misreporting wages can cost you.

Lexington Accounting Services Pricing

Flat monthly bookkeeping, tax filings priced separately.

Frequently Asked Questions