Ohio Business Income deduction and joint filing credit

[poseypatch]

My spouse only has qualifying business income which is fully deductible; therefore it looks like we don't qualify for the joint filing credit this year.  Do I need to deduct all of his business income or can I allocate just enough so that he will have the $500 of qualifying income?  He really doesn't have that much business income and did not take any retirement income this year and if I only allocate a portion of his income for the deduction we would qualify for the joint filing credit which would end up giving us a larger refund.  Thanks!

[AmyC]

The IRS expects you to take every deduction to which you are entitled.

[poseypatch]

I'm talking about the Ohio state tax, not Federal

[timmar93]

Did you ever get an answer to this?  Because I think TurboTax is NOT considering which situation is better (Taking the business income deduction or the joint filing credit)

[timmar93]

I also think you did not address the issue.   I think TurboTax is NOT considering which situation is better (Taking the business income deduction or the joint filing credit)

[Hal_Al]

Yes, you may reduce your Ohio business income deduction (BID), in order to claim the Joint filing credit (JFC).

But, TurboTax is not capable of making the decision for your or comparing options.  You have to decide the amount.  "Usually", you just need to end up with $500 profit. So use all but $500 for the  BID. But beware of the JFC income adjustments from Schedule A.  Review the JFC allocation worksheet. 

[poseypatch]

I've already filed and unfortunately, did not get the Joint Filing Credit and don't want to file an amendment in case it triggers something.... I guess the state needs $$ more than I do (that's a JOKE).

[weechenna]

How (step by step, please!) do I reduce the business income deduction to take advantage of the joint filing credit?

[Hal_Al]

In the Ohio interview you will be asked to enter how much of several categories of income is qualified business income.  In the  Schedule C  box, enter the amount you want to count.

For example, if your Schedule C profit is $2000 and you need $500 to get the JFC, enter $1500 in that box.

Review the JFC allocation worksheet, before filing, to be sure the calcs worked out (beware of the JFC income adjustments from Schedule A, e.g. medical expenses and the 529 plan contributions).  Federal adjustments also count, e.g. IRA contributions te deduction for half your self employment tax. 

[rfuria83]

@Hal_Al, I have been searching all over and this is the only thread I can find on this topic.  My wife started part time consulting last year (had w-2 income in prior years) so her only non-investment income this year is on Schedule C for her Sole Proprietorship.

Our issue is we actually end up paying more in Ohio taxes by taking the Small Business Deduction because the savings from the deduction is less than the Joint Filing Credit.  TurboTax takes away the JFC because the SBD lowers her earned income below $500.

I've played around in TurboTax and found 3 options:

1. Take the full SBD, get no JFC > worst outcome, highest Ohio taxes.

2. Take no SBD, get the JFC > slightly better than above.

3. List most but not all of her income as business income to only partially take the SBD, have enough earned income remaining to get the JFC > by far the best tax outcome.

Your replies above seem to indicate that option 3 is fine to do.  I'd certainly prefer to do that since we benefit from not taking the full SBD.  Just want to make sure I'm understanding that correctly.

[MaryK4]

The Ohio Instructions for the Business Income Deduction reads as below.  It does not seem that you can change the amount you report in order to maximize another credit.  

Enter all business income that you (and your spouse, if filing jointly) received during the tax year, from all sources, on this schedule. IT 1040/SD 100 Instructions

@rfuria83