As we await the smoke to clear from the Tax Cuts and Jobs Act of 2017 (TCJA), Ohio has just passed changes of their own for the 2019 tax year. For tax years 2016 and forward, Ohio Rev. Code Section 5747.01(B) allowed anyone who reports income from a pass-through entity (PTE) to deduct 100% of the first $250,000 of the taxpayer’s net business income being apportioned within the state of Ohio. Any eligible business income over that threshold was then capped at a 3% flat tax. All business income earned by a sole proprietorship, partnership, S Corporation, or LLC qualifies for Ohio’s Business Income Deduction (BID) with no limitations to gross receipts, assets, or wages. Furthermore, any Ohio taxpayer with 20% or greater ownership of a pass-through entity can include wages as business income.
On July 18, 2019, Governor Mike DeWine signed Ohio’s fiscal year 2020-21 budget bill. The new budget includes a small amendment to the Ohio Business Income Deduction and provisions to individual income taxes, but the deduction for business income remains the same as the previous law with the maximum deduction being $250,000. It has, however, been amended to exclude lawyers and lobbyists’ income from being eligible for the deduction. All Ohio taxpayers will also benefit from the elimination of two tax brackets. Under the new law, the lowest tax bracket will start at an adjusted gross income of $21,750 (previously $10,851). Among the remaining five tax brackets, rates will be reduced by a combined 4%. These changes will be applied retroactively starting on and after January 1, 2019.
Contact me today to discuss the implications these changes may have on you and your business.