10% Ohio Investment Tax Credit

Kathleen Hargrove on July 28, 2017

InvestOhio is a tax credit that reduces dollar-for-dollar an individual’s Ohio personal income tax liability. The credit equals 10% of the amount the individual invests in a small business.  The individual is entitled to the credit if both apply:

  • Within six months of the investment, the small business uses the invested funds for payroll or to purchase a building, equipment, or other property
  • The individual holds the investment for two years

A small business is one with less than $50 million in assets or $10 million in annual sales and a workforce exclusively in Ohio or, if there are 50 or more employees, with at least 50% of its workforce in Ohio.

The credit can be applied against tax liability generated by business income or nonbusiness. Business income includes income from sole proprietor activities and pass-through entity investments (partnerships, LLCs, etc.).  Nonbusiness income includes wages from employment, income from personal investments, and income from casual rental activities.

The tax calculation would work as follows for an individual filing jointly who earned a $20,000 InvestOhio credit and had business income of $260,000 and nonbusiness income of $200,000 after personal exemptions:

  • The individual’s business income would be reduced to $10,000 by the automatic $250,000 business income deduction.
  • The $10,000 taxable business income would be taxed at 3%, generating a tax liability of $300.
  • This liability would be reduced to zero, however, by the $20,000 credit.
  • The individual’s nonbusiness income would be taxed at graduated rates. According to the tax rate tables, the tax due on $200,000 is $7,666.
  • This liability would be fully offset, however, by the remaining $19,700 in credit.
  • There would be $12,034 in credit available to offset next year’s tax liability.

As the above example illustrates, the tax credit is useful for investors who either earn more than $250,000 in business income or earn nonbusiness income, such as wages, or investment or rental income.

The registration and application process is relatively painless. If you’re interested in learning more, contact Steve Estelle.