Ohio’s Popular Small Business Deduction May be Ending
Dating back to 2013, Ohio has allowed owners of small businesses to deduct up to $250,000 of income related to their business on their Ohio income tax return. Any remaining business income beyond that level was taxed at a flat 3% rate. These two factors combined for a very favorable tax result for small business owners.
Fast forward to present day and this deduction in its present form is at risk. As part of Substitute House Bill 166 (the state’s biennial budget) the proposed changes to this deduction are as follows:
• Reduce the $250,000 to $100,000 for qualifying business income
• Eliminate the 3% flat rate on qualifying business income over $250,000 and;
• Make these changes retroactive to January 1, 2019
As many predicted, the Ohio House of Representatives’ Finance Committee voted on May 8 to accept these changes. The intent is to use General Revenue Fund savings from these changes to pay for across-the-board tax cuts (thus eliminating the bottom two brackets and cutting remaining tax rates by 6.6%).
The House floor vote is slated to occur May 9, after which the Ohio Senate will weigh in over the next few weeks. The DeWine Administration also will have a significant say in any tax changes.
Stay tuned to see if these changes become law. New tax planning will need to occur to incorporate these changes into your overall tax plan.