On June 14, 2022 Ohio Governor DeWine signed Senate Bill 246, allowing pass-through entities (S-Corporations and partnerships) doing business in Ohio to deduct Ohio taxes at the entity level if they elect to do so. By doing so, the owners of the business effectively receive a federal tax deduction by virtue of the pass-through entity having less taxable income to distribute to the owners.
The Tax Cuts and Jobs Act passed by the federal government for tax years beginning after 2017 limited to $10,000 the amount of state and local taxes an individual could deduct as an itemized deduction. With Senate Bill 246, a business can now pay the Ohio tax at the entity level and reduce K-1 income passed through to the owners, thereby avoiding the $10,000 limit.
The owners will be able to claim a refundable credit on their personal Ohio tax return for the amount of tax paid on their behalf. While this could provide a significant savings for the owners of many pass-through entities, not all will benefit. There are many factors to consider in determining if the owners will benefit, including the state residency of the owners, the type of income passed through to the owners, and other states in which the company operates.
With the passage of this law, Ohio is now one of 29 states providing businesses the opportunity to pay tax at the entity level. More guidance will be coming from the Ohio Department of Taxation regarding specific rules relating to this law. We will continue to monitor these developments and be ready to advise you as more information becomes available. If you have any immediate questions, please feel free to reach out to a Cassady Schiller team member.