Ohio Business Income Deduction: Ohio Lawyers and Lobbyists
Published on by Cheryl Ganim in State Local Tax, Tax Services
On November 6, 2019, Ohio Governor Mike DeWine signed a bill into law that strikes the ban barring attorneys and lobbyists from using the Ohio business income tax deduction (BID).
Ohio S.B. 26 repeals a provision that excludes income earned from the practice of law or lobbying from being eligible for the business income deduction and 3% flat tax rate. The exclusion, enacted earlier in 2019 by H.B. 166, would have applied specifically to income from:
- legal services provided by an attorney admitted to practice in Ohio, or registered as corporate counsel in Ohio, or;
- lobbying activity
The repeal of the Ohio Lawyer and Lobbyist exclusion from the BID acknowledges that there may have been constitutional and other problems with excluding law firms and lobbyists from the tax deduction.
The BID allows individuals with any Ohio business income included on their personal income tax return to deduct $125,000 of business income ($250,000 deduction for married filing jointly). This is typically income from pass-through entities reported on Schedule K-1 (S-corp, partnership, LLC), or Schedule C sole proprietorship or Ohio rental income reported on Schedule E. There are exceptions for certain 20% or greater owners of pass-through entities.
Taxpayers whose 2020 tax liability is affected by the act’s repeal of the exclusion must compute estimated payments as if the taxpayer may claim the business income deduction for 2020.
S.B. 26 also requires taxpayers to provide the North American Industry Classification System (“NAICS”) for their business. The repeal of the business income deduction exclusion and the enactment of the NAICS code reporting requirement apply to taxable years beginning in or after 2020.
Of interest to Non-Profits (and others)
S.B. 26 also repealed the sales tax on feminine hygiene products and allows educators to deduct up to $250 annually on their income tax returns for unreimbursed expenses for classroom supplies and professional development starting with the 2020 tax return.
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