Posted by: Gary M. Sigman, CPA, MTax, PFS, AEP®
(from January 20, 2014) 

Beginning with 2013 income tax returns, taxpayers who are either self-employed and filing schedules C or F, or taxpayers who receive schedules K-1 for their ownership interest in a small businesses will receive a significant deduction on their Ohio income tax returns.  Following are details of this new and beneficial tax treatment:

• Effective for 2013 Ohio Form IT-1040
• Available to owners of small businesses
• Owner of small business is currently defined as taxpayer who files a Schedule C or F, or one who receives a K-1
• No current rules as to number of employees needed to qualify as small business, nor are there any revenue restrictions presently
• Deduction is limited to 50% of the taxpayer’s net small business income up to $250,000
• Maximum deduction is limited to $125,000 for those filing jointly, single or head of household.  Limit is $62,500 if filing married filing separately
• Deduction is further limited to income apportioned to Ohio, for those businesses that also conduct activities in other states
• New Ohio Form IT SBD is used to computer the deduction for each small business.  A separate form is to be prepared for each business.
• Several adjustments to the net income of each small business are needed to arrive at the net deduction (i.e., Ohio depreciation adjustment)
• Deduction will not affect Ohio School District income tax liability, if this tax is applicable to you
• Note, for 2014, the deduction will increase to 75% of small business income of up to $250,000, which means that the maximum deduction will increase from $125,000 to $187,500 ($93,750 if married and filing separate). 

If you have questions about this new Ohio Small Business Investor Income deduction, please contact one of the tax professionals at Zinner & Co.