The Ohio General Assembly recently passed tax legislation that may be good news for Ohio taxpayers who own 20% or more of a pass-through entity.
Who is eligible to take the small business deduction?
Beginning in 2013 individuals who own 20% or more of a business organized as sole proprietorships or pass-through entities (PTEs) such as S-Corporations, Partnerships, or multi-member Limited Liability Companies (LLCs) are eligible to take the deduction in Ohio. The deduction includes business income, wages, or guaranteed payments from the business. Business owners who use a PEO for payment of wages formerly were not permitted to include those wages in the Ohio Business Income Deduction.
Ohio enacted Senate Bill 8 on 12/22/2017 that amended Ohio Revised Code § 5733.40, which provided that compensation and guaranteed payments paid by either a pass-through entity, or a PEO on the pass-through entity’s behalf, to the owner of the pass-through entity will constitute a distributive share of income for purposes of the Ohio small business income deduction. This change is retroactively applied to any tax year beginning on or after January 1, 2013. Please note, the ownership requirements still apply under Revised Code § 5733.40(A)(7). The investor must own 20% of the pass-through entity that either makes the payment OR utilizes a PEO to make the payment on its behalf.
Taxpayers who did not deduct wages paid by a PEO for years 2013-2016, taxpayers who were audited by the State of Ohio or received assessments for tax due on this issue will need to take appropriate action with the state. Clark Schaefer Hackett has experience with the issue and is offering taxpayers assistance with Ohio audits, Ohio assessments, and filing amended Ohio tax returns. Taxpayers who did not include wages on their Form IT-BUS, or claim the Ohio Business Income Deduction on their individual Ohio IT-1040 may be entitled to a refund for overpaid Ohio taxes. The statute of limitations in Ohio is 4 years.
The deadline to file amended returns for tax year 2013 is April 15, 2018. Clark Schaefer Hackett can assist with filing the appropriate Ohio tax forms for tax years 2013 through 2016 by:
1) preparing amended Ohio tax returns if tax was overpaid on the taxpayer’s original returns
2) preparing refund claims if the tax was paid after receiving an Ohio notice
3) preparing and filing petitions for reassessment for eligible taxpayers that have received an Notice of Assessment from the Ohio Department of Taxation within the appropriate period of limitations stated in the Notice of Assessment.
For tax year 2017, taxpayers should include wages received from the PEO (if they own 20% or more of the pass-through entity making payment of wages to the PEO) in their calculation of the Ohio small business tax deduction on their individual Form IT-BUS.
For more information, assistance with resolving this issue, or for questions please contact Cody Cain at 513-424-7947 (email [email protected]) or Brett Bissonnette at 513-424-7693 (email [email protected]).