Frequently Asked Questions

The Ohio Department of Taxation has compiled a list of frequently asked questions covering many different categories.

To view the questions, click on the "Select Category" bar and then click on the category you are interested in.  A list of questions will appear pertaining to that category. Then click on the question you are inquiring about and the answer will appear.

How can a taxpayer determine what income qualifies for the Business Income Deduction?

Only business income qualifies for the deduction. The determination as to whether an item of income is business income is a very fact intensive analysis. As such, it is not always possible to provide a quick and easy determination regarding business income. In its simplest form, the character of income as "business income" depends on the presence of a trade or business where the income arises from:

  • The regular activities or transactions of said business (the Transactional Test),
  • The acquisition, use, or disposition of business property, provided the property is integral to the regular business operations (the Functional Test), or
  • A partial or complete liquidation of the trade or business (i.e. winding up of the entire business or a line of business) including gain or loss from the sale or other disposition of goodwill.

If the income at issue fits one of these three tests, then it is most likely business income.

Income is characterized at the time it is earned. For example, if the income is earned by a pass through-entity in the regular course of a trade or business, then the income will retain its "business income" character as it passes through to the entity's investors. However, remember that the mere presence of a pass-through entity does not, in and of itself, indicate the existence of a trade or business.

Taxpayers should report their income as business income based on their own analysis of the facts related to the income at issue as applied to the above-listed tests. They should attach a short statement to their return explaining their position on items of business income, which should include all relevant facts and law used in making the determination. Since this determination is subject to review by the Department, taxpayers should retain any records that support their claim that certain income is business income.

See R.C. 5747.01(B).