Ohio Tax Cuts
By David M. Reape, CPA, Ciuni & Panichi, Inc. Principal
Small business owners will reap the benefits of several Ohio tax cuts on their 2015 individual tax returns. The 2015 personal income tax rates were decreased 6.3 percent across the board as part of the budget bill passed this past summer. The top tax bracket, for example, decreased from 5.333 percent to 4.997 percent. This is especially good news, because most small business owners pay business income taxes on their individual tax return. These cuts free dollars that can help small business owners implement growth strategies such as increased marketing or staffing. Overall it makes the annual ritual of filing your taxes a little easier.
Again for 2015, 75 percent of the first $250,000 of business income will be excluded from your Ohio taxable income calculation. Business income includes income from pass through entities such as S-corporations, partnerships, and LLCs along with income reported on Schedules C, E, or F of your Federal 1040s. An important change for this year is in addition to the business income deduction, the remaining taxable business income will now be subject to a maximum tax rate of three percent! This rate change has the potential to save an Ohio business owner about $6,000 of tax on $500,000 of business income before the business deduction. Looking forward, it even gets better for 2016 and beyond. Next year, the deduction percentage for the first $250,000 of income increases from 75 to 100 percent.
Another new twist for this year is what business income is subject to the adjustment. Prior to 2015, only Ohio sourced income was eligible for the small business deduction. Beginning in 2015, business income from any state is eligible for the deduction. This means potential tax savings for anyone filing an Ohio income tax return containing income from any business regardless of its source. Also the business income calculation has been simplified this year. Prior to 2015, we had to adjust business income for certain federal adjustments such as one half of the self-employment tax, the self-insured health insurance deduction, and certain retirement contributions. Those federal adjustments are no longer considered when determining business income for purposes of the business deduction and new three percent tax rate. This results in more of the business owner’s income being eligible to the new three percent tax rate.
These are good changes for Ohio’s small businesses. As always, please feel free to reach out to a tax representative at Ciuni & Panichi, Inc. for any questions regarding your tax situation.
Ciuni & Panichi, Inc.’s Tax Compliance and Consulting members have advised hundreds of business owners on their tax issues and more. To learn how you could benefit from their advice contact David Reape, CPA, Principal, at 216-765-6944 or dreape@cp-advisors.com.
You may also be interested in:
Your Business May Benefit from these Important Tax Extensions
IRS Extends Affordable Care Act Reporting Deadlines
