CPA & Business Advisory Blog

Small Business Income Tax Deduction

Tax Savings Through the Ohio Small Business Income Tax Deduction (SBD)

What to Look For

If you’re a small business owner, be sure you don’t overlook an opportunity to save thousands of dollars through the Ohio Small Business Income Deduction (SBD). Ohio small business owners received positive news when Gov. Kasich and the Ohio Legislature extended the SBD for 2015 and extended it further for 2016 as part of the new budget bill.

Gov. Kasich signed the income deduction into law in 2013 to make Ohio more business- friendly. Since then, the Ohio SBD has provided a deduction for investors in pass-through entities (PTEs), including partnerships, S-corps and limited liability companies (LLCs).

The Opportunity

For tax year 2015, the SBD enables business owners of pass-through entities to deduct 75% of the first $250,000 of Ohio net business income from the Ohio adjusted gross income (OAGI) they report on their personal income tax return ($125,000 for single filers or married couples that file separately). Beginning in 2016, 100% of the first $250,000 is permanently exempt from Ohio tax.

Ohio SBD Highlights:

  • Ohio small business investor income includes net income from business operations of a passthrough entity (PTE) sourced to Ohio
  • The deduction is applied at the owner level; if the business has multiple owners, each is eligible to claim the deduction
  • Ohio residents, part-time residents and nonresidents are eligible
  • The deduction cannot exceed the taxpayer’s Ohio adjusted gross income
  • Since the exemption is at the individual level, the increased exemption would apply to a calendar year taxpayer, even if an individual receives a K1 from a fiscal year entity
  • Don’t forget to include any interest, dividends or capital gains from the flow through entities and, if you are at least a 20% owner of the business entity you can also include your wages from the entity as part of the business income.

The Benefit

  • This is a big break for small business owners. Before, most small businesses paid taxes on their business income on their individual income return at their individual income tax rate. The tax burden impacted the prices consumers pay.
  • This tax relief is a resource that could produce thousands of dollars of additional capacity for reinvestment by small business owners.
  • Retention of the 75% level for 2015 and subsequent increase to 100% in 2016 further signifies Ohio’s intention to become more business friendly

There are many other meaningful ways to stretch your dollar in our new e-book: 12 (More) Great IdeasDo you have a question about how this information applies to you? Email Jim Sacher, CPA or call him at 440-449-6800.

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