The bill is broad in scope with numerous changes in the tax law. One provision in particular could have an important impact on the personal returns of business owners.
What does this mean for you?
The law provides a new tax deduction on 2013 Ohio personal income tax returns for 50% of the taxpayer's Ohio small business investor income. The deduction is limited to $125,000 or $62,500 for each spouse if they file separate returns. The deduction cannot be claimed by a pass-through entity.
The law defines Ohio small business investor income as the portion of a taxpayer's adjusted gross income that is business income reduced by deductions from business income and apportioned or allocated to Ohio, to the extent not otherwise deducted or excluded in computed federal or Ohio AGI for the year.
The deduction applies to a sole proprietor or an owner of a pass-through entity investor, which is defined as a
- shareholder, or an
- equity investor in a pass-through entity
Based upon discussions with the Ohio Department of Taxation, the parameters of what is a small business for purposes of the deduction have not yet been defined. It has been indicated that business income from the regular conduct of a business includes rental income/losses as well as gain or losses in connection with the business.
The new law also reduced personal income tax rates by 10% over three years. The highest marginal rate will decrease from 5.925% to 5.421% in 2013, 5.392% in 2014 and 5.333% in 2015. Thus, taxpayers eligible for the new deduction of $125,000 will enjoy a tax savings ranging from $6,777 in 2013 to $6,666 in 2015.
Understanding tax laws, budget bills and how they affect you, the taxpayer, can be confusing.
Our financial and business advisory experts stay abreast of the changes and are up-to-date on issues and matters that affect your bottom line. Call us today at 440-449-6800 to start the conversation or learn more at www.skodaminotti.com. To learn more about the Ohio tax law, read Amy Gibson's recent tax blog here.