Taxation of an Individual’s Business Income
Important: Ohio’s Business Income Deduction is entirely separate and distinct from the federal Qualified Business Income Deduction (QBID) that was created by the Tax Cuts and Jobs Act of 2017. The federal QBID has no impact on the Ohio income tax return. It is taken after the computation of federal adjusted gross income (FAGI). Since the Ohio return starts with FAGI, the federal QBID does not factor into Ohio’s income tax calculation.
Ohio taxes income from business sources and nonbusiness sources differently on its individual income tax return (the Ohio IT 1040). For tax years 2016 and forward, the first $250,000 of business income earned by taxpayers filing “Single” or “Married filing jointly,” and included in federal adjusted gross income, is 100% deductible. For taxpayers who file “Married filing separately,” the first $125,000 of business income included in federal adjusted gross income is 100% deductible. This is commonly referred to as Ohio’s Business Income Deduction (BID). Any remaining business income above these thresholds is then taxed at a flat 3% rate.
For tax year 2015, 75% of the first $250,000 of business income earned by taxpayers who filed “Single” or “Married filing jointly,” and included in their federal adjusted gross income, was deductible. For taxpayers who filed “Married filing separately,” 75% of the first $125,000 of business income included in their federal adjusted gross income was deductible.
Only business income earned by a sole proprietorship or a pass-through entity generally qualifies for the deduction. A pass-through entity includes partnerships, S corporations and LLCs (limited liability companies).
Nonbusiness income for all taxpayers is taxed separately using progressive tax brackets and rates.
See R.C. 5747.01(A)(31), 5747.01(B), and 5747.01(C) for more information.
Ohio Business Income Resources
- 2018 Ohio Schedule IT BUS - This form is used to calculate the Business Income Deduction and your tax on business income.
- 2018 Ohio Schedule IT BUS Instructions - Instructions for the form are found in the Individual and School District income tax instructions.
- Definitions and examples - The Individual and School District income tax instructions provide some helpful definitions and examples of business and nonbusiness income.
- Frequently Asked Questions - This page contains answers to some of the more frequently-asked questions concerning business income and the Business Income Deduction.
- Ohio Virtual Tax Academy - Click the "Individual Income Tax" link to view presentations on business income and the Business Income Deduction.
Taxpayers with additional questions on this subject may contact the Department of Taxation by email or by calling 1-800-282-1780 (1-800-750-0750 for the hearing impaired).