Kentucky Form 725: LLET Filing, Deadlines, and Penalties

Kentucky Form 725 is the annual return that an individually owned single-member LLC uses to report income and pay the state’s Limited Liability Entity Tax (LLET). It is due on the 15th day of the fourth month after the close of your tax year (April 15 for calendar-year filers), and every filer owes at least the $175 LLET minimum, even in a losing year.¹

Who Has to File Form 725

Form 725 is narrow. It applies only to single-member LLCs whose sole member is an individual, estate, trust, or general partnership. If your entity fits that description and has any of the following ties to Kentucky, you file:¹

The LLC was organized under Kentucky law.
Its commercial domicile (principal place of business) is in Kentucky.
It owns or leases property in Kentucky, or has anyone performing services there.
It holds an interest in another pass-through entity doing business in Kentucky.
It derives income from Kentucky sources, including income flowing indirectly through a trust or another disregarded entity operating in the state.
It actively directs sales of goods or services to Kentucky customers.

Corporations file Form 720; multi-member partnerships, S-corporations, and LLCs taxed as partnerships file Form PTE.² Filing on the wrong form delays processing and can trigger penalty notices, so confirm your entity type before you start.

How the LLET Is Calculated

The LLET is an entity-level tax on Kentucky business activity, measured by revenue rather than net profit. That is why a single-member LLC with a bad year can still owe more than the $175 minimum.³

Two calculations run in parallel. One applies 0.095 percent to your Kentucky gross receipts. The other applies 0.75 percent to your Kentucky gross profits. You owe the lesser of the two, but never less than $175.³ The design caps the LLET at the lower of the two revenue measures so businesses with thin margins or heavy cost of goods are not hit twice.

The $3 Million Small-Business Threshold

If your total gross receipts (or total gross profits) from all sources are $3 million or less, you skip the percentage math entirely and pay the $175 minimum.⁴ “All sources” means your worldwide revenue, not just what you earned in Kentucky.

Between $3 million and $6 million, a sliding scale phases out the benefit. On the gross receipts track, the full 0.095 percent calculation is reduced by $2,850 multiplied by a fraction: the numerator is $6 million minus your Kentucky gross receipts, and the denominator is $3 million. The gross profits track uses the same fraction with a $22,500 reduction factor instead of $2,850. Neither result can fall below $175.³

Once your total gross receipts or gross profits from all sources reach $6 million, the full rates apply with no reduction, and you pay whichever of the two calculations comes out lower.

Cost of Goods Sold Is Limited

The gross profits track subtracts cost of goods sold from gross receipts, but Kentucky is stricter than the federal rules about what qualifies. If your business activity is anything other than manufacturing, producing, reselling, retailing, or wholesaling, you cannot include any cost of goods sold. For a service business, that means gross profits equal gross receipts, so both LLET tracks produce the same base.³

Even for qualifying activities, labor costs are capped at direct labor: labor incorporated into the tangible product or integral to the manufacturing process. Indirect labor costs otherwise allowed under federal Section 263A are excluded. Other Section 263A costs are allowed only to the extent they relate to acquiring or producing the tangible product that generates your Kentucky gross receipts.³

Reporting Income and Apportioning to Kentucky

A single-member LLC is a disregarded entity for federal purposes, so its income normally flows onto the owner’s federal return. Kentucky still requires you to calculate the LLC’s income separately on Form 725, starting with the federal figures that relate to the LLC’s operations.

Kentucky then requires modifications. Common additions include state and local income taxes you deducted federally, and depreciation differences between federal and Kentucky rules. Common subtractions include state income tax refunds included in federal income and any adjustments needed to align with Kentucky’s depreciation schedules. These modifications go on schedules attached to Form 725.

Single Sales Factor for Multi-State LLCs

If your LLC operates in more than one state, you apportion income to Kentucky using a single sales factor: Kentucky sales divided by total sales everywhere, multiplied by your modified net income.⁵

Sales of tangible goods are sourced to Kentucky when the product is delivered to a buyer in the state. Sales of services use a market-based approach, meaning the sale is a Kentucky sale if the customer receiving the benefit is in Kentucky. This matters for LLCs selling services remotely into several states. The apportionment percentage applies to both the income tax calculation and the LLET gross receipts and gross profits bases.

Deadlines, Extensions, and Estimated Payments

Form 725 is due on the 15th day of the fourth month after your tax year closes. For calendar-year filers, that is April 15, or the next business day if the 15th falls on a weekend or holiday.¹

You can get a six-month filing extension by submitting Form 720EXT or the Kentucky individual extension (Form 40A102) by the original due date, or by attaching a copy of federal Form 7004 to the return when you eventually file.⁶ Keep a copy for your records either way. The extension only buys time to file, not time to pay. Any tax you expect to owe must still be paid by the original due date, and if you need to send money with the extension, use Form 720EXT.⁷

If your expected LLET liability for the year exceeds $5,000, you must make quarterly estimated payments. Each installment is 25 percent of the estimated annual tax, due on the 15th day of the 4th, 6th, 9th, and 12th months of your tax year, which is April 15, June 15, September 15, and December 15 for calendar-year filers.¹ Kentucky’s estimated tax rules generally follow the federal framework, including annualized income installment methods if your revenue is uneven.⁴ Underpaying an installment triggers a penalty calculated by multiplying the underpayment by the tax-due interest rate for that year; for 2026 that rate is 9 percent, with no cap on the penalty amount.⁸

What to Have Ready and How to File

Before you start Form 725, pull these records together:

The income and expense figures from your federal return that relate to the LLC’s operations.
Detailed profit and loss statements showing gross receipts and cost of goods sold, with Kentucky-source amounts broken out from out-of-state revenue.
Sales-by-state documentation supporting how you sourced each sale to Kentucky under the market-based rules, if you operate in multiple states.
Records supporting your state modifications: tax payments deducted federally, depreciation differences, and any other Kentucky-specific adjustments.
Your Kentucky Secretary of State registration and Department of Revenue account number.

Every supporting schedule, including Schedule LLET, has to be completed and attached. The Department of Revenue will reject incomplete filings.

Electronic filing and electronic payment are mandatory for any Form 725 filer whose federal gross receipts are $1 million or more.¹ The threshold uses gross receipts from your federal return, not your Kentucky tax liability. Filing is done through the Department of Revenue’s online services or approved third-party software. Below $1 million you may file on paper, and if you do, include Form 726 as a payment voucher with your check. Electronic payment when a balance is due goes through the state’s online portal by ACH debit or credit.

Penalties and Interest for Late Filing or Late Payment

Kentucky charges separate penalties for late filing and late payment, and both can apply to the same return. Each is 2 percent of the tax due for every 30 days (or any fraction of a 30-day period) the return or payment is late. Each caps at 20 percent of the total tax due, with a $10 minimum.⁸

Because the two penalties stack, a return that is both filed late and paid late can face up to 40 percent in combined penalties on top of the tax owed. Interest also accrues on any unpaid balance at 9 percent for the 2026 calendar year, running from the original due date until the balance is paid.⁸ Filing for an extension avoids only the late-filing side. If you know you will be late, pay your best estimate of the tax by the original deadline; the return itself can catch up on extension.

1
Kentucky Department of Revenue. Kentucky Single Member LLC Individually Owned Income and LLET Return Instructions (2025)
2
Kentucky Department of Revenue. Kentucky Corporation Income Tax and LLET Return Instructions
3
Kentucky Legislative Research Commission. Kentucky Code 141.0401 – Limited Liability Entity Tax
4
Kentucky Department of Revenue. Corporation Income and Limited Liability Entity Tax
5
Legal Information Institute. 103 KAR 16:270 – Apportionment; Receipts Factor
6
Kentucky Department of Revenue. Kentucky Corporation/LLET Extension Instructions
7
Kentucky Department of Revenue. File a Corporation Income Tax Extension
8
Kentucky Department of Revenue. Penalties, Interest and Fees