Ohio is moving forward in its effort to attract and keep small businesses in Ohio. In this continuing effort, Ohio has recently made permanent the “Small Business Deduction.” Small Business Deduction is available for “pass-through entities’ owners (partnerships, limited liability companies and S corporations) located in Ohio for business conducted in Ohio. It also applies to sole proprietorships (Schedule C), individual rental property owners (Schedule E) and farmers (Schedule F). Additionally, for greater-than-20% owners, their W-2 wages are also part of the pool of business income and deductions used to calculate this deduction.
In 2013, this deduction was 50% of business income up to $250,000 (a deduction of up to $125,000). This rose to 75% for 2014 (a deduction of as much as $187,500). The Small Business Deduction was an uncertainty for businesses as it had to be extended by the Ohio legislature annually.
In June of 2015, the Ohio Small Business Deduction was made permanent. For 2015, this deduction can be as high as $187,500 of business income. For 2015 and years thereafter, Ohio also added a flat tax rate of 3% for the business’ income which exceeds this deduction. For those whose marginal tax rate would be below 3%, the lower rate(s) would apply to this income.
In 2016 and subsequent years, the deduction is increased to 100% of the eligible business income up to $250,000.
The deduction is a bit complicated to calculate and we at HHL Group, Inc. will be happy to discuss this deduction with you. Please give us a call if you would be interested in consulting with us regarding this business-friendly deduction.