Kentucky 720

Below is a comprehensive line-by-line guide to Kentucky Form 720.

2 is the official state tax return used by corporations and limited liability entities (LLET) doing business in Kentucky. It allows businesses to report their taxable income, calculate state income tax, and determine the LLET liability. The form also helps in claiming certain tax credits and applying for refunds or payments due. The form is vital for ensuring compliance with Kentucky’s corporate tax laws, covering areas like income adjustments, taxable income, and tax liabilities. Corporations must file this form annually or in specific cases like short-period returns, amended returns, or when ceasing operations.

How to Complete Kentucky Form 720

How to Complete Kentucky Form 720

Taxpayer Information

  1. Corporation Name: Enter the full legal name of the corporation.
  2. Kentucky Corporation/LLET Account Number: This is a required field. Provide the Kentucky Corporation or LLET account number issued by the Kentucky Department of Revenue.
  3. Federal Employer Identification Number (FEIN): Enter the business’s FEIN (Employer Identification Number).
  4. Principal Business Activity in Kentucky: Enter a brief description of the main business activity conducted within Kentucky.
  5. State of Incorporation: List the state in which the corporation was incorporated.
  6. Date of Incorporation: Enter the date the corporation was incorporated (MM-DD-YYYY format).
  7. Telephone Number: Provide the corporation’s telephone number for contact purposes.
  8. NAICS Code: Enter the North American Industry Classification System (NAICS) code that corresponds to the corporation’s business.
  9. Elective Consolidated (if applicable): If filing as part of an elective consolidated group, check this box and attach Form 722.
  10. Amended, Final, or Short Period Return: Check the appropriate box to indicate whether this is an amended, final, short-period, or initial return. If filing an amended return, complete Part V.

Part I: Taxable Income Computation

  1. Line 1 – Federal Taxable Income: Enter the federal taxable income from the corporation’s federal tax return (typically from Form 1120, Line 28).

Additions (Include the following items as applicable):

  1. Line 2 – Interest Income (State and Local Obligations): Add interest income from state and local obligations.
  2. Line 3 – State Taxes Based on Net/Gross Income: Add any state taxes that are based on income or gross receipts.
  3. Line 4 – Depreciation Adjustment: Add any depreciation adjustment per Kentucky law.
  4. Line 5 – Deductions Attributable to Nontaxable Income: Include deductions for income that is non-taxable under Kentucky law (see lines 22 and 23).
  5. Line 6 – Related Party Expenses: Add any related-party expenses; attach Schedule RPC for details.
  6. Line 7 – Dividend Paid Deduction (Captive REIT): Add any dividend paid deductions for captive Real Estate Investment Trusts (REITs).
  7. Line 8 – Revenue Agent Report (RAR): Add any adjustments from a Revenue Agent Report (RAR).
  8. Line 9 – Kentucky Capital Gain: Add Kentucky capital gains as reported on Kentucky Schedule D (Line 18).
  9. Line 10 – Loss from Form 4797 (Federal Form 1120, Line 9): Add any losses reported from Form 4797.
  10. Line 11 – Gain from Kentucky Form 4797: Add any gains from Kentucky Form 4797 (Part II, Line 17).
  11. Line 12 – Federal Allowable Depletion (Form 1120, Line 21): Add any federal allowable depletion from Form 1120 (Line 21).

Additions Continued

  1. Line 13 – Federal Contribution Deductions: Add federal contribution deductions from Form 1120 (Line 19).
  2. Line 14 – Terminal Railroad Corporation Adjustments: Add any adjustments related to terminal railroad corporations.
  3. Line 15 – Federal Allowable Passive Activity Loss: Add any allowable passive activity loss from federal tax returns.
  4. Line 16 – Federal Taxable Loss of Exempt Corporations: Add losses from all exempt corporations.
  5. Line 17 – Reserved for Future Use: Leave this blank.
  6. Line 18 – Additions from Kentucky Schedule(s) K-1: Add any income adjustments reported on Kentucky Schedule K-1.
  7. Line 19 – Internal Revenue Code Adjustments: Include any adjustments as per the Internal Revenue Code.
  8. Line 20 – Other Additions: Any other additions not specified above should be included here, with an attachment explaining them.
  9. Line 21 – Total Additions: Add up lines 1 through 20 to compute the total additions.

Subtractions (Include the following items as applicable):

  1. Line 22 – Interest Income (U.S. Obligations): Subtract interest income from U.S. obligations.
  2. Line 23 – Dividend Income: Subtract dividend income that qualifies for exclusion under Kentucky law.
  3. Line 24 – Reserved for Future Use: Leave this blank.
  4. Line 25 – Depreciation Adjustment: Subtract any depreciation adjustment that reduces taxable income.
  5. Line 26 – Revenue Agent Report (RAR): Subtract any adjustments from a Revenue Agent Report (RAR).
  6. Line 27 – Capital Gain (Form 1120, Line 8): Subtract capital gains from federal Form 1120 (Line 8).
  7. Line 28 – Gain from Form 4797 (Federal Form 1120, Line 9): Subtract gains from Form 4797.
  8. Line 29 – Loss from Kentucky Form 4797: Subtract losses from Kentucky Form 4797 (Part II, Line 17).
  9. Line 30 – Royalty Income (Coal): Subtract 50% of gross royalty income derived from coal sales if specific criteria are met.

Subtractions Continued

  1. Line 31 – Terminal Railroad Corporation Adjustments: Subtract any terminal railroad corporation adjustments.
  2. Line 32 – Kentucky Allowable Passive Activity Loss: Subtract Kentucky-specific passive activity losses.
  3. Line 33 – Kentucky Allowable Depletion: Subtract any Kentucky-specific depletion.
  4. Line 34 – Kentucky Contribution Deductions: Subtract any contributions that qualify for deductions under Kentucky law.
  5. Line 35 – Reserved for Future Use: Leave this blank.
  6. Line 36 – Federal Taxable Income of Exempt Corporations: Subtract the federal taxable income of exempt corporations.
  7. Line 37 – Subtractions from Kentucky Schedule(s) K-1: Subtract any subtractions reported on Kentucky Schedule K-1.
  8. Line 38 – Internal Revenue Code Adjustments: Subtract any adjustments as per the Internal Revenue Code.
  9. Line 39 – Other Subtractions: Subtract any other amounts as directed by the instructions. Attach an explanation if necessary.
  10. Line 40 – Net Income: Subtract total subtractions (lines 22 through 39) from total additions (line 21) to get the net income.
  11. Line 41 – Taxable Net Income: Enter the taxable net income based on the instructions.
  12. Line 42 – Net Operating Loss Deduction (NOLD): Subtract any applicable net operating loss deduction.
  13. Line 43 – Taxable Net Income After NOLD: Subtract the NOLD from the taxable net income to arrive at the final taxable net income.

Part II: LLET Computation

  1. Line 1 – Schedule L, Section E, Line 1: This value comes from the Kentucky Schedule L, Section E, Line 1.
  2. Line 2 – Tax Credit Recapture: If applicable, subtract any recapture of tax credits.
  3. Line 3 – Total LLET: Add lines 1 and 2 to compute the total LLET.
  4. Line 4 – Nonrefundable LLET Credit: Subtract any nonrefundable LLET credits from Kentucky Schedule(s) K-1.
  5. Line 5 – Nonrefundable Tax Credits: Subtract any other nonrefundable tax credits (attach Schedule TCS if necessary).
  6. Line 6 – LLET Liability: The LLET liability is the greater of line 3 minus lines 4 and 5, or the $175 minimum.
  7. Line 7 – Reserved for Future Use: Leave this blank.
  8. Line 8 – Estimated Tax Payments: Report any estimated tax payments made throughout the year.
  9. Line 9 – Refundable Tax Credits: Subtract any refundable tax credits (attach Schedule TCS if applicable).
  10. Line 10 – Reserved for Future Use: Leave this blank.
  11. Line 11 – Extension Payment: Report any payment made with a tax extension.
  12. Line 12 – Prior Year’s Tax Credit: Subtract any tax credits carried over from previous years.
  13. Line 13 – Income Tax Overpayment from Part III: Subtract any income tax overpayments from Part III, Line 17.
  14. Line 14 – LLET Paid on Original Return: Enter any LLET paid on the original return.
  15. Line 15 – LLET Overpayment on Original Return: Enter any LLET overpayment reported on the original return.
  16. Line 16 – Estimated Tax Penalty: Subtract any estimated tax penalty (attach Form 2220-K).
  17. Line 17 – LLET and Estimated Tax Penalty Due: Calculate the amount due by subtracting lines 7 through 14 from lines 6, 15, and 16.
  18. Line 18 – LLET Overpayment: Subtract the total tax liability from prior overpayments and credits to compute LLET overpayment.
  19. Line 19 – Credited to 2025 Income Tax: Report any amounts credited to income tax for 2025.
  20. Line 20 – Credited to 2025 Interest: Report any amounts credited to interest for 2025.
  21. Line 21 – Credited to 2025 Late File/Pay Penalty: Report any amounts credited to late fees or penalties.
  22. Line 22 – Credited to 2026 LLET: Report any amounts credited to 2026 LLET.
  23. Line 23 – Amount to Be Refunded: If there is an overpayment, calculate the refund due by subtracting lines 19 through 22 from line 18.

Part III: Income Tax Computation

  1. Line 1 – Income Tax: Calculate the income tax due based on the taxable income. Refer to the instructions for the applicable tax rate to apply. This line includes any income tax that is calculated based on your corporation’s taxable net income.
  2. Line 2 – Tax Credit Recapture: Subtract any recapture of tax credits, as required. If your corporation has claimed credits in prior years and needs to recapture them, you will account for this here.
  3. Line 3 – Tax Installment on LIFO Recapture: If applicable, enter the tax installment on the Last-In-First-Out (LIFO) recapture. This refers to the special tax treatment required when changing from LIFO to another inventory method.
  4. Line 4 – Total (Add lines 1 through 3): Add the amounts from lines 1, 2, and 3 to get the total income tax due.
  5. Line 5 – Nonrefundable LLET Credit from the Corporation LLET Credit Worksheet(s): Subtract any nonrefundable LLET credit calculated in the LLET credit worksheet(s). These credits are applied to offset the income tax liability.
  6. Line 6 – Nonrefundable LLET Credit: Subtract the amount from Part II, Line 6 of the LLET computation. This is the nonrefundable portion of the LLET credit.
  7. Line 7 – Nonrefundable Tax Credits (Attach Schedule TCS): Subtract any nonrefundable tax credits you are claiming. Attach Schedule TCS with details of the credits claimed.
  8. Line 8 – Net Income Tax Liability (Line 4 less lines 5 through 7, but not less than zero): Subtract the amounts from lines 5 through 7 from the total income tax (line 4). The result is the net income tax liability, but it cannot be less than zero.
  9. Line 9 – Estimated Tax Payments: Report any estimated income tax payments made during the year. This includes payments made throughout the year toward the income tax liability.
  10. Line 10 – Extension Payment: If applicable, enter any extension payment made with the extension request for filing the return.
  11. Line 11 – Prior Year’s Tax Credit: Subtract any tax credits carried forward from the prior year. These can be credits that were not used in the previous year and are applied in the current year.
  12. Line 12 – LLET Overpayment from Part II, Line 19: Subtract any overpayment of LLET from Part II, Line 19, which can be credited toward the income tax.
  13. Line 13 – Corporation Income Tax Paid on Original Return: Enter the corporation income tax that was paid with the original return filed.
  14. Line 14 – Corporation Income Tax Overpayment on Original Return: Subtract any income tax overpayment that was reported on the original return. This amount may be credited toward the current year’s tax liability.
  15. Line 15 – Income Tax Due (Lines 8 and 14 less lines 9 through 13): Determine the amount of income tax due by subtracting lines 9 through 13 from the sum of lines 8 and 14.
  16. Line 16 – Income Tax Overpayment (Lines 9 through 13 less lines 8 and 14): If the total payments and credits exceed the income tax due, enter the income tax overpayment calculated here.
  17. Line 17 – Credited to 2025 LLET: Enter any amount of overpayment from income tax that will be credited to 2025 LLET.
  18. Line 18 – Credited to 2025 Interest: Enter any amount of overpayment from income tax that will be credited to 2025 interest.
  19. Line 19 – Credited to 2025 Late File/Pay Penalty: Enter any overpayment from income tax that will be credited to the 2025 late file or pay penalty.
  20. Line 20 – Credited to 2026 Corporation Income Tax: Enter any overpayment from income tax that will be credited to the 2026 corporation income tax.
  21. Line 21 – Amount to Be Refunded (Line 16 less lines 17 through 20): If there is a refund due, subtract lines 17 through 20 from Line 16 to determine the amount to be refunded.

Part IV: Explanation of Final Return and/or Short-Period Return

  • Refund or No Payment: This section requires the explanation of why the return is being filed as a final or short-period return. The taxpayer should indicate whether they are requesting a refund or no payment is due.
  • Include Federal Form 1120 with All Supporting Schedules and Statements: If filing a final or short-period return, attach a complete copy of the federal Form 1120 along with all relevant schedules and statements to explain the situation.
  • Mailing Addresses for Payment and Filing:
    • If payment is included: The return should be mailed to Kentucky Department of Revenue, Frankfort, KY 40618-0010.
    • If no payment is included: The return should be mailed to Kentucky Department of Revenue, Frankfort, KY 40620-0021.
  • Check Payable to: If a payment is included, checks should be made payable to the “Kentucky State Treasurer.”
  • E-Pay Options: Payments can also be made electronically through the Kentucky Department of Revenue website (www.revenue.ky.gov).
  • Officer and Preparer Signatures: The officer of the corporation must sign and date the form, attesting to the correctness of the return. If a preparer assisted in completing the form, they must also sign, providing their name, preparer identification number, and contact details. The taxpayer must also indicate if the Department of Revenue is authorized to discuss the return with the preparer.
  • Attach Officer Information: If any changes have occurred to the officer information, such as the vice president, secretary, or treasurer, list the name, home address, and Social Security Number of the new officers. Mark “Yes” or “No” if the officer information has changed since the last return filed.

Part V: Explanation of Amended Return Changes

  • Reason for Amended Return: This section allows the taxpayer to provide an explanation for filing an amended return. The options include:
    • Ceased Operations in Kentucky: If the business has ceased operations in Kentucky, check this box and provide additional details.
    • Change in Filing Status: If the filing status has changed, explain the reason for the change (e.g., from corporate to partnership).
    • Change of Ownership: If the business has undergone a change of ownership, describe the change.
    • Merger: If the business has merged with another entity, provide details.
    • Successor to Previous Business: If the corporation is a successor to a previous business, explain the transition.
    • Other: If there is any other reason for the amendment, specify it here.
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