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Ohio Bill May Provide Tax Relief to Small Business Owners

June 29, 2022

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On June 14, 2022, Ohio Governor Mike DeWine signed into law legislation that will give tax relief to small business owners that are structured as pass-through entities (PTEs), such as S corporations, partnerships and limited liability companies. Ohio Senate Bill 246 creates a new R.C. Sec. 5747.38 election for business owners to pay income tax by opting to directly impose an Ohio state income tax on the pass-through entity (PTET) in lieu of paying Ohio state income tax at the individual level. The legislation is effective for PTEs with tax years beginning on or after January 1, 2022.

This new option would allow owners of a PTE to claim a refundable credit on their individual income tax returns, ensuring they are not double taxed at the state level, thereby reducing their total federal income tax liability. The tax rate for 2022 for the Ohio PTET is 5% and for 2023 forward, the tax rate will match the individual business income tax rate (currently 3%). Further, the Ohio PTET allows business owners to retain the benefits of the business income deduction (BID). The election may be made annually and is irrevocable for the year once it is made.

The new legislation will let Ohio reestablish state and local tax parity so small and mid-size businesses can remain competitive in relation to other businesses throughout the country.

Business owners should evaluate Ohio, and other state tax positions, for potential applicability of making state PTET elections and paying state taxes (including Ohio state income tax) at the entity level, which may provide a federal tax benefit otherwise limited by the individual $10,000 SALT cap limitation under the Tax Cuts and Jobs Act. 

Contact your CSH advisor for help weighing your options.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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