In an effort to become more taxpayer-friendly and reduce the effective tax rate, Ohio enacted the Small Business Investor Income Tax Deduction effective for tax year 2013. This tax deduction benefits many of Ohio’s individual income taxpayers. So how exactly does this deduction work?
If you have Ohio business income from pass-through sources totaling $250,000, the maximum deduction you can take is 50 percent. Eligible pass through entities include: sole proprietorships, partnerships, S-corporations and limited liability companies. Only Ohio source income flowing through these entities or sources is eligible for the deduction.
The maximum deduction is $125,000 for those who are married and filing jointly or those who are single, and $62,500 for those who are married and filing separately. This is a per return limitation, not a per activity limitation. Same-sex married couples must use filing status of single, so they each get a full deduction on their single filing status IT 1040s. Unfortunately, the deduction doesn’t apply to school district income tax.
Are You Eligible For This Deduction?
As you may notice, taxing authorities don’t really make anything simple. As such, taxpayers have to work hard to claim the Small Business Investor Income Tax deduction. To be eligible to claim this deduction you must file form IT-SBD for each eligible income stream that will be used for the deduction. For example, if you have Ohio business income flowing through 10 individual K-1s, you need to file 10 income tax (IT) small business deductions for your IT 1040. There are other complications surrounding the deduction, as well dealing with accelerated depreciation, adjustments for 20 percent or more owners and non-resident individuals. But overall, the Ohio Small Business Income Tax Deduction will certainly help Ohio’s taxpayers save tax dollars.
If you need assistance in determining how this tax deduction could apply to you, contact Rea & Associates. Our team of Ohio tax professionals can help you make sense of this tax deduction and help you understand if it applies to you.
Author: Chad Bice, CPA (Zanesville office)
Would you like to learn more about tax credits and tax deductions? Check out these blog posts:
- So Is It a Tax Credit Or a Tax Deduction?
- How Will A Tax Credits and Incentives Plan Benefit Your Business?
- How Do You Qualify for Tax Credits and Incentives?