February 12, 2014 Tax Advisor

 

Ohio residents, part-time residents and nonresidents are eligible for a deduction of 50 percent of “Ohio small business investor income,” up to the first $250,000.  The maximum deduction allotted is $125,000.  Ohio small business investor income includes net income from business operations of a pass-through entity (PTE) sourced to Ohio.

The deduction is applied at the owner level, meaning each owner of a PTE is eligible to receive the 50 percent deduction.  Additionally, taxpayers can claim the deduction on Ohio business net income received from multiple PTEs; the limitation applies to income received, in the aggregate.

Ohio broadly defines small business investor income to include “generally, all sole proprietorship and pass-through income and gain.” Taxpayers will use form IT SBD to compute their deduction.  The form requires the following income to be included:

  • Self-employment income, guaranteed payments and compensation from pass-through entities in which the taxpayer has a 20 percent or greater ownership interest
  • Ordinary income from trade or business activities
  • Net income from rental activities, net royalties, interest and dividend income
  • Net capital gain and other gain
  • Other items of income separately stated on a taxpayer’s federal schedule K-1

Form IT-SBD provides for various additions and deductions that must be considered in computing a taxpayer’s deduction.  If a taxpayer is deducting income from multiple PTEs, a separate form IT-SBD should be completed for each PTE.  To determine the amount of income sourced to Ohio, taxpayers must apportion income received from within and outside of Ohio by a formula consisting of the property, payroll and sales of the pass-through entity.

For more information on the tax relief provided by the enactment of the 2014-2015 biennial budget bill, see our March Tax Advisor located at tax_advisor/ohio_proposed_budget_0313 .

For questions about how the small business investor deduction will impact you, please contact us.

About the Authors

Robert M. Burak

CPA
Partner, Taxation Services

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