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Individual Income Tax: 2018 IT-1040 Schedule IT-BUS, Business Income Deduction Amount Claimed and Number of Returns, by Amount of Business Income Deduction Claimed and Residency Status

Table BID contains data compiled from 2018 Ohio individual income tax returns that claimed the business income deduction.  The business income deduction is a schedule A deduction created in R.C. 5747.01(A)(31), which is calculated on schedule IT-BUS of the Ohio IT-1040.  Taxpayers deduct, from the portion of an individual's adjusted gross income that is business income, to the extent not otherwise deducted or excluded in computing federal adjusted gross income (FAGI) for the taxable year, one hundred twenty-five thousand dollars for each spouse if spouses file separate returns under section 5747.08 of the Revised Code or two hundred fifty thousand dollars for all other individuals.

“Business income” means income, including gain/loss from any of the following:

  • Transactions, activities, and sources in the regular course of a trade or business operation;
  • From real, tangible, and intangible property if the acquisition, rental, management, and disposition of the property constitute integral parts of the regular course of a trade or business operation;
  • From a partial or complete liquidation of a business, including gain or loss from the sale or other disposition of goodwill; OR
  • Compensation and guaranteed payments paid by a pass-through entity, or a professional employer organization (PEO) on its behalf, to an investor who directly or indirectly owns 20% or more of the entity.

Business income could include income from a sole proprietorship, farming, or a pass-through entity (including any partnership, S Corporation, or LLC).

“Nonbusiness Income” means income that is not business income. This generally includes:

  • Compensation and guaranteed payments;
  • Rents and royalties; AND
  • Interest, dividends and capital gains.

See R.C. 5747.01(B), (C) and 5733.40(A)(7).

The data are categorized by the amount of the deduction claimed and by residency status.  In Taxable Year 2018 approximately $30.8 billion of business income deduction was claimed on 713,200 Ohio IT-1040 returns.  Returns with a residency status of “resident” claimed $24.9 billion worth of deduction on 651,834 returns, with the balance claimed by non-resident and part-year resident returns.  Approximately 60.2% of returns (429,255) that claimed a business income deduction claimed a deduction less than $20,000, totaling approximately $2.6 billion.  About 6.6% of returns (46,778) that claimed a business income deduction claimed an amount greater than $240,000 and as much as $250,000, totaling approximately $11.7 billion.

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