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What is the Ohio Small Business Tax Deduction?

Ohio Small Business Tax DeductionAre you familiar with the Ohio Small Business Tax Deduction? If so, your tax savings were probably nice this tax season. If you’re not familiar with it, keep reading. For those who qualify, you could still see some tax savings for the taxes you just filed.

What You Need to Know About the Ohio Small Business Tax Deduction

  • What is the Ohio Small Business Deduction?

Simply put, it’s a deduction available for small businesses that operate in Ohio – this could be your dental practice!  More specifically, it benefits the owners of a pass through business entity.  Owners can exclude 50 percent of their business profit up to $250,000.This deduction could eliminate up to $125,000 in otherwise taxed Ohio income.

  • Does my dental practice qualify as a small business? 

If you receive a K-1 form as an owner of your dental practice or you file as a schedule C taxpayer, then Ohio considers your business a small business and you qualify for the deduction.

  • How does it work?

The credit is taken at the individual level, not the corporate level. So you take the deduction on your individual income tax return by filing form IT SBD. The credit is 50 percent of your business profit minus a few items that Ohio doesn’t let you double dip. Some examples are your deduction for 50 percent self-employment tax or your deduction for self-employed health insurance.

The credit is only available for owners of Ohio-sourced companies. So if you operate only partially in Ohio, then an allocation is needed to determine how much of a credit is available in the state. This allocation is based on the location of your sales, property, rent and wages.

  • What if I zero out (or significantly reduce) my dental practice profits through bonuses? 

Good news, that’s not a problem if you are a 20 percent or greater owner in your dental practice. The law allows you to include compensation or guaranteed payments in the calculation of the credit.  

  • What if I own the building that my dental practice operates in? 

Good news here too, as you can also include the rental profit from the building into the Ohio Small Business Deduction, as long as the rent was received in the ordinary course of trade or business.

  • How much can you save?

It all depends on your circumstances, but it could be upwards of $6,500 per year in tax savings.

  • When did the law take effect?

The law was passed in late 2013, but was made retroactive for the entire year. As of now, this law currently stands for 2014 as well.

  • What’s the catch?

More good news, there really isn’t one! Ohio is encouraging investment inside the state, and this is one of the ways it is doing just that. In a way to offset some of these tax hits, Ohio raised its sales tax by 0.25 percent last year.

  • What if my tax return has been filed and I didn’t get this tax credit?

It’s not too late to amend your return if you qualify for the credit. Contact a Dental CPA at Rea & Associates immediately to work on getting your money back.

Contact Our Dental Practice Professionals

Need more information about the Ohio Small Business Tax Deduction and how it applies to your dental practice?  Contact Rea & Associates. Our team of bright dental CPAs can help you understand it and determine if it applies to you.

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Rea & Associates, Inc. | Bright Dental CPAs | 7201 Center St, Mentor, Ohio 44060-4858
phone + 440-266-0077