Gov. Kasich Releases Ohio Budget Proposal

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Ohio Governor John Kasich unveiled his budget proposal for fiscal years 2016 and 2017. The budget provides for $5.7 billion of tax cuts and $5.2 billion in tax increases. Hearings on the budget are currently underway in the Ohio House and are expected to last several months. The tax highlights of the budget proposal include:

Tax cuts:

  • Across-the-board individual income tax rate cuts (15% for tax year 2015 and 23% total for tax year 2016)
  • Eliminate income tax for businesses and pass-through entities with gross receipts of $2 million or less
  • Increase personal exemption from $2,400 to $4,000 for incomes less than $40,000 and $1,950 to $2,850 for incomes between $40,000 – $80,000
  • Lower alternative minimum tax on the commercial activity tax from $800 to $150 for those with gross receipts from $1 million to $2 million

Tax increases:

  • Increase state sales tax rate from 5.75% to 6.25%
  • Expanding the sales tax to include lobbying, market research/public opinion polling, public-relations, management-consulting, lobbying and debt-collection services
  • Impose sales tax on cable subscriptions, parking and travel services.
  • Reduce the motor-vehicle and watercraft trade-in value tax exemption to 50%
  • Increase cigarette tax rate from $1.25 to $2.25 per pack
  • Increase Commercial Activity Tax rate from 0.26% to 0.32%

Click here to view Governor Kasich’s budget proposal in its entirety.

Ohio Taxpayer Fraud Alert

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The Ohio Department of Taxation began sending notifications to individual taxpayers that their 2014 Ohio income tax refunds may be delayed due to additional precautions being taken to prevent tax fraud.

Below is the full text of the communication released by the Ohio Department of Taxation:

“In order to better protect Ohio taxpayers and prevent tax fraud, the Ohio Department of Taxation (ODT) is implementing additional safeguards that will inevitably cause some refunds to be delayed this upcoming income tax filing season.

These steps are being taken to further bolster defenses in anticipation of a continuing increase in attempted tax fraud involving identity theft. Last year, ODT intercepted an unprecedented number of fraudulent income tax returns seeking to steal refunds totaling more than $250 million. In previous years, attempted tax fraud averaged about $10 million.

To detect and counter refund fraud related to ID theft, an additional up-front filter will now be applied to all tax refund requests to analyze the demographic information reported on a return. This analysis will then assign a “probability of fraud” factor that will determine how the return is then further processed by ODT.
If a return is pulled for review, ODT’s additional security measures will require some taxpayers to successfully complete an Identification Confirmation Quiz, before the return will continue to be processed. If a taxpayer’s return is selected for identity confirmation they will receive a letter from ODT directing them to our website (www.tax.ohio.gov). The website will provide access to the quiz, detailed instructions on how to complete it, and frequently asked questions for reference. Taxpayers without Internet access will be directed to call ODT at 1-855-855-7579, for assistance with completing the quiz.

The additional screening and security measures will unfortunately slow the processing of electronic and paper returns, and the issuance of refunds. Electronic returns requesting a refund may take up to 15 days to be direct deposited this year, and paper returns could take up to 30 days for a physical check to be mailed out.”

Ohio Residency Requirements Change for Income Tax Purposes

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Ohio increased the number of “contact periods” allowed before a person is considered an Ohio resident for state income tax purposes from 182 to 212.

Contact periods are defined as being away overnight from their abode outside the state and while away are in Ohio for part of two consecutive days.

That means someone whose residence is outside Ohio could remain in the state up to about seven months without being considered an Ohio resident for income tax purposes.

2014 Tax Extenders Officially Announced

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Congress has once again extended the “extenders,” a varied assortment of more than 50 individual and business tax deductions, tax credits, and other tax-saving laws which have been on the books for years but which technically are temporary because they have a specific end date. This package of tax breaks has repeatedly been temporarily extended for short periods of time (e.g., one or two years), which is why they are referred to as “extenders.” Most of the tax breaks expired at the end of 2013, but now, in the recently enacted Tax Increase Prevention Act of 2014, the extenders have been revived and extended once again. The package generally renews the tax breaks for one year through the end of 2014, allowing businesses and individuals to claim them on their 2014 returns. The list of extended provisions includes several important tax breaks for individuals and businesses.

The extended individual provisions include:

  • the $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary material used by the educator in the classroom;
  • the exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income;
  • the deduction for mortgage insurance premiums deductible as qualified residence interest;
  • the option to take an itemized deduction for State and local general sales taxes instead of the itemized deduction permitted for State and local income taxes;
  • the increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes;
  • the above-the-line deduction for qualified tuition and related expenses; and
  • the provision that permits tax-free distributions to charity from an individual retirement account(IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70½ or older.

Some of the extended business credits and special depreciation and expensing rules include:

  • the research credit;
  • the work opportunity tax credit;
  • 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements;
  • 50% bonus depreciation (extended before Jan. 1, 2016 for certain longer-lived and transportation assets);
  • the election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation;
  • the enhanced charitable deduction for contributions of food inventory;
  • increase in expensing (up to $500,000 write-off of capital expenditures subject to a gradual reduction once capital expenditures exceed $2,000,000) and expanded definition of property eligible for expensing;
  • the exclusion of 100% of gain on certain small business stock;
  • the basis adjustment to stock of S corporations making charitable contributions of property;
  • the reduction in S corporation recognition period for built-in gains tax;
  • two provisions dealing with multiemployer defined benefit pension plans (dealing with an automatic extension of amortization periods and shortfall funding method and endangered and critical rules), are extended through 2015