Kansas Tax Credits for Small Businesses: Are you leaving money on the table?

Small business owners in Kansas are always looking for ways to reduce their tax burden and free up capital for growth. Fortunately, the state offers a variety of tax credits designed to incentivize job creation, capital investment, and other beneficial business activities.

Here’s a look at some of the most valuable tax credits available for Kansas small businesses and how you might be able to use them to your advantage.

1. Research and Development (R&D) Tax Credit

If your business is involved in creating or improving new products, processes, or software, you may be eligible for the R&D Tax Credit.

• How it works: This credit is a direct reduction of your state income tax liability based on qualified R&D expenses. As of 2023, the credit is 10% of the difference between your current-year R&D expenses and the average of the previous two years.

• Key Benefit: This credit is a fantastic way to offset the cost of innovation. It can also be transferred to another taxpayer if you have no current tax liability, giving you immediate value for the credit.

• How to claim: You must complete and submit Schedule K-53 with your Kansas income tax return.

2. High Performance Incentive Program (HPIP)

The HPIP provides tax incentives for businesses that pay above-average wages and invest in employee skills development and training.

• How it works: Qualifying businesses can receive a 10% income tax credit on their investment in new capital, such as machinery, equipment, and facilities. The program also provides a sales tax exemption on those purchases.

• Key Benefit: This credit is designed to reward companies that create high-paying jobs and invest in their workforce, making it a great incentive for manufacturers and other businesses committed to growth.

• How to claim: The program is administered by the Kansas Department of Commerce. You must apply and qualify for the program, which involves meeting certain wage and investment thresholds.

3. Angel Investor Tax Credit

While this credit is primarily for investors, it's a huge benefit for startups and emerging businesses looking to attract capital.

• How it works: It provides a tax credit for accredited investors who make a cash investment in a qualifying Kansas business. The credit is up to 50% of the investor’s cash investment, which significantly reduces their risk.

• Key Benefit for your Business: This credit makes your business more attractive to outside investors by offering them a direct tax benefit for their investment. This can be a game-changer for securing early-stage funding.

4. Employer Child Day Care Assistance Tax Credit

In a recent legislative change, this credit was expanded to allow all Kansas businesses to apply. It helps employers offset the costs of providing or assisting with employee child care.

• How it works: Businesses can receive a credit of up to 30% on the amount spent to help employees pay for child care, or up to 50% for establishing a child care facility.

• Key Benefit: This credit not only reduces your tax bill but also helps you attract and retain talent by making it easier for working parents to stay in the workforce.

• How to claim: You can claim this credit by completing Schedule K-56 and filing it with your income tax return.

Important Notes for All Tax Credits

• Documentation is Key: For every tax credit, you must keep detailed records to prove your eligibility and the amount you are claiming.

• Consult a Professional: Tax credits can be complex. Consulting with a qualified accountant or tax professional is the best way to determine which credits you qualify for and ensure you are claiming them correctly.

By taking advantage of these tax credits, you can reduce your business’s tax burden and re-invest that money into growth, job creation, and long-term success.