In 2014, the Ohio small business tax deduction was set at 50%. This year, businesses in Ohio are eligible for a 75% tax deduction thanks to the signing of Senate Bill 208 by Governor John Kasich. It is important to note that this deduction is for the first $250,000 of business income for those who have the filing statuses of married filing jointly or single. For spouses who are filing separate returns, the deduction covers the first $125,000 of business income. For businesses with multiple owners, the deduction is capped at $187,500 per owner or investor. Again, there are a variety of limitations to this rule based on filing statuses.
As for the remaining 25% of the business income, it will be taxed at a graduated rate up to 3%. In prior years, the 25% was subject to a flat tax rate of 3%.
The bill also includes an adjustment to the tax calculation for business income falling under $250,000 that is not reduced by the deduction. This business income is to be subjected to tiered brackets up to $40,000. The signing of the bill ensures that taxpayers who fall into the lower brackets will not have to pay a higher tax on business income in 2015, compared to if the bill had not been enacted.
The new legislation also allows for the following:
- Taxpayers to claim personal exemptions in situations where business income is the only source of income
- Taxpayers to claim an income tax credit against any type of income
- Modifies the commercial activity tax (CAT) exclusion
The CAT now includes receipts from sales of beauty, health, personal care, or aromatic products, or packaging / components of those products, when the sales are between businesses within an integrated supply chain.
Who Qualifies for the Tax Deduction?
There are some qualifications to take into consideration before trying to file for this tax deduction. The following classifications of businesses are eligible for the tax cut:
- Sole proprietorships
- Pass-through entities (PTEs)
Partnerships, Subchapter S Corporations, and Limited Liability Companies (LLCs) are also included under PTEs.
If you have questions, please contact Leslie Kasten or John Somerville at 216.241.3272. You can also reach out to your Meaden & Moore representative directly.