There is an ongoing debate in Ohio regarding whether the sale of a business interest generates business income or nonbusiness income for purposes of determining the tax due.Debora Dardinger McGraw, CPA, JD, LLM, of Zaino, Hall & Farrin, LLC in Columbus takes a deep dive into that topic in the January/February issue of CPA Voice.
“An individual that is an Ohio resident at the time of sale generally wants the gain to be considered business income in Ohio,” Dardinger McGraw writes, “because a resident is taxed at 100% of their income and a business gain will be eligible for the business income deduction and the lower tax rate on business income, which has historically been an approximately 1.8% difference and represents a 1% difference in 2021 and later years. A nonresident wants the gain to be considered nonbusiness income in Ohio because nonresidents would not generally be subject to Ohio tax on the sale.
“Because of this dichotomy, recent audit activity and litigation has been focused on residents and whether the gain on the sale is subject to a significantly higher amount of tax.”
It is important that tax advisors thoroughly understand the ramifications of a sale and the statutory or planning options available, so read this story now to learn more. While you’re doing so, read the rest of the issue and take the self-assessment exam to earn an hour of complementary CPE credit!
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