I run a business, how is it possible that I owe $0 in state taxes?

[aaron5596]

I live in Ohio and have ran a sole proprietorship business selling services for almost a year and half now. My federal taxes are always due, but my State Taxes either says $0 (as was the case last year), or I'm even in the positive this year, and getting a small return on my State taxes. As a note: the business wasn't my only source of income this year, as I've also worked as an employee which can account for the positive amount, why am I not owing anything though on State taxes as a business owner?

Is this natural? Or should I look back into this situation a bit further with the help of a professional and amend my previous year's/this year's taxes?

[Hal_Al]

Ohio has a 100% small Business Income Deduction (BID) for people making less than $250,000. 

See Ohio Schedule IT BUS

[GiseleD · Accepted solution]

Sounds like you received the Ohio Business Income Deduction. According to the OH DOR:

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.

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.

The small OH return you are getting sounds like you were slightly overwithheld on your W-2 income. 

@aaron5596

[aaron5596]

@Hal_Al , @GiseleD Oh thank God, that clears it up! Thanks for the help.