Ohio Small Businesses to Get Some Tax Breaks

Ohio Governor Mike DeWine is poised to sign two new tax bills into law that will come as very welcome news to small businesses operating as S-corporations, partnerships, and LLCs in the state. The pieces of legislation clarify the business income deduction (BID) as it relates to gains recognized on the sale of a business and offer relief from the current cap on deducting state and local tax on individual returns.

Ohio Senate Bill 246 authorizes an individual owner of a pass-through entity (PTE) to claim a refundable credit on their individual return equal to the owner’s proportionate share of the tax paid by the PTE. The taxes paid by the PTE do not count towards the cap of $10,000 that currently limits an individual’s ability to deduct taxes on their individual return (Schedule A- Itemized deductions).  

Ohio will become the 29th state to pass such legislation. The law will address the tax burdens brought about by the $10,000 cap on state and local tax deductions included in the Tax Cuts and Jobs Act of 2017.

Ohio House Bill 515 addresses the business income deduction and makes clear that any gains from selling ownership interest in a pass-through entity (PTE) in Ohio would be considered business income and thus, eligible for the business income deduction (BID). The BID enables an individual to reduce the business income that flows through to their return by up to $250,000.  

Some requirements to benefit from HB 515:

  • The sale must be considered the sale of assets for federal tax purposes
  • The business seller must have had day-to-day management involvement during the taxable year in which the sale happened, or during the five years leading up to the sale

As noted above, both bills are expected to be signed by Governor Mike DeWine. GJM tax experts are watching the developments and will provide further guidance as needed. As always, should you have any questions or concerns about the impact for your business, your GJM team is here to advise.

Established in 1996, Gilmore Jasion Mahler, LTD (GJM) is the largest public accounting firm in Northwest Ohio, with offices in Maumee and Findlay. Locally owned, GJM offers cloud-based accounting and provides comprehensive services including assurance, business & transaction advisory, healthcare management advisory, outsourced accounting, and risk advisory. The firm’s professionals specialize in industries including construction & real estate, healthcare, manufacturing & distribution, nonprofit, private equity and utilities.  

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