After being passed by the Ohio House at the end of February 2018, the Ohio Senate passed a tax conformity bill, SB 22, on March 21, 2018. This bill adopts several tax provisions from the Tax Cuts and Jobs Act of 2017, which Ohio retroactively extended to the 2017 tax year. Additionally, the bill expands Ohio’s 529 education savings plan, allowing plan earnings used for K-12 education expenses to be tax-exempt and to extending eligibility of tax deductions on certain amounts contributed to the plan, even if the contributions are used for K-12 expenses. Last, the bill authorizes taxpayers to claim certain exemptions for dependents on their Ohio tax returns, even in cases where they may no longer claim the exemptions on their federal returns.
Listen To: The State Tax Response To Federal Tax Reform
The following list contains other significant federal law changes adopted by Ohio. The majority of these changes will apply to tax years beginning Jan. 1, 2018, and after, unless otherwise noted.
Changes Affecting Businesses and Business Owners
INCREASES:
- An increase in the limit on the value of business property that may be expensed. Also increased is the limit on the value of business property that is deducted as a current expense (rather than a capital expense). This increase will apply to the year in which the property was acquired.
- Bonus depreciation allowance increased from 50 percent to 100 percent in the first year for purchases of certain qualifying business property. This change applies to property placed into service after Sept. 27, 2017.
LIMITS:
- $250,000 limit per tax year ($500,000 for joint filers) on the amount an owner of a pass-through entity may claim for losses.
- Deduction for business interest in a taxable year is limited to 30 percent of modified income.
- Amount that may be deducted as a net operating loss is limited to 80 percent of taxable income.
REPEALS:
- Repeal of the ability of a taxpayer to “carry-back” a net operating loss to previous years, with some exceptions.
- Repeal of an income exclusion for gains from exchanges of like-kind business property, unless the property is real estate.
OTHER CHANGES:
- Rule changes governing business accounting methods.
Changes Affecting Other Individuals
REPEALS:
- Income exclusion for up to $20 of the amount an employer reimburses its employee for bicycle commuting expenses is repealed.
- Deduction allowing for moving expenses incurred by a taxpayer who relocates for work is repealed for most individual taxpayers. The deduction is still allowed for those in the Armed Forces.
PROHIBITED:
- The re-characterization of certain IRA contributions is prohibited.
For most taxpayers, Ohio’s tax conformity bill won’t have an enormous impact on their Ohio tax return. That being said, it will be very interesting to see what the Buckeye State does with the next budget bill and the aftermath of the Wayfair case, which is being heard and deliberated by the U.S. Supreme Court. In short, I believe that the real story is yet to come.
Feel free to email the Rea & Associates’ state and local tax services team for additional insight into how the tax conformity bill will impact your specific tax situation. You can also check out the articles below for more information on the Wayfair case.
By Lamarcus Crowders (Dublin CPA Firm)
Check out these articles to learn more about state and local tax considerations that could impact you.
What The State of South Dakota v. Wayfair, Inc. Means to Ohio-Based Businesses
Federal Tax Reform And The Possible State Tax Implications For Your Business