Ohio Issues Guidance for Computing Deduction for Income Received from Pass-Through Entities
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 here .
For questions about how the small business investor deduction will impact you, please contact us.
Robert M. Burak?>
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