Income - Small Business Investor Deduction FAQs

What is changing?How is small business defined?What is business income?What is Nonbusiness income?Can this deduction be taken twice – both by the entity and the investor?Does the small business deduction flow through to school district income taxes?How is the Small Business Investor Income Deduction calculated? Is schedule IT SBD required to be electronically filed as part of the Ohio return or mailed with a paper return?Line 1 of IT SBD says “Self-employment income (federal Schedule C, C-EZ or F), guaranteed payments and/or compensation received from each pass-through entity in which you have at least a 20% direct or indirect ownership interest.” Do sole-proprietors (non-pass through entities) qualify for the Small Business Investor Income deduction – or must the income come from a partnership, S corporation or LLC? Does net rental income reported on Schedule E qualify for the 50% deduction? Does net royalty income reported on Schedule E qualify for the 50% deduction?If a sale of business property is treated as ordinary income on Form 4797 of the federal 1040, does this income qualify for the SBD? Would a capital gain arising from the sale of a business asset also qualify?If the Pass-through entity files a 4708 composite return versus an 1140 withholding return, can the individual still take advantage of the Small Business Investor Income deduction? Taxpayer has Subchapter S ordinary income from the K-1 (100% Ohio source) reported on federal Schedule E. Does it make any difference if the shareholder is a material participant or not?On the Schedule (IT SBD), Part I, Section A, Line 1 requires a taxpayer to include not only guaranteed payments, but compensation received from a pass-through entity. If a shareholder receives compensation from the entity of which the shareholder owns more than 20%, and also ordinary income from the entity, are the W2 income and the ordinary income both included to compute the deduction?Does the deduction for self-employment health insurance on page 1 of form 1040 impact the 50% deduction on the Ohio return?Does the deduction for self-employment retirement plans page 1 of form 1040 impact the 50% deduction on the Ohio return?Regarding partnership K-1s: A CPA is preparing a partnership return with all Ohio residents, but files state composite returns in PA, KY and IN. For Ohio purposes, does the partner get full credit for the Small Business Investor Income deduction if the partner receives a credit for withholding taxes paid to the other states?If a business claims bonus depreciation or an excess Section 179 deduction, it is required to add-back 5/6 of the bonus depreciation and excess Section 179 deduction. Can taxpayers claim a deduction for 50% of the 5/6 add-back?Does the IRS section 199 domestic production deduction reduce Ohio’s small business deduction? I received income from an entity that has a fiscal year end of 3/31/13. Since this is a new deduction for 2013, can I claim all of the income even though most of it was earned in 2012, or do I need to pro-rate and only claim the entity income earned during the 3 months of 2013?I receive Ohio royalty income and have no property or payroll in Ohio or everywhere else. Are my royalties considered sales for purposes of the sales factor in the apportionment ratio on the IT SBD, part II?I have a trucking business in Ohio, but the business makes some deliveries to other states. Should the income generated from sales to other states be considered business income for purposes of this deduction? And if so, how do I determine if these are sales within Ohio or “everywhere sales”?