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How Oregon’s new business tax rates apply

November 6, 2013

Harris Berne Christensen LLPHarris-Berne-Christensen
Lake Oswego Law Firm,

Oregon has adopted new business income tax rates. Find out if you qualify and, if not, you may want to consider changing your ownership structure.

As part of Oregon’s October 2013 special session, the Oregon Legislature adopted new business income tax rates that will take effect in 2015. Owners of partnerships, LLCs, and S corporations will be able to apply lower rates to business income if they meet two requirements: (1) the income cannot be “passive” (e.g., must be owners actively employed by their business); and (2) the business must have one non-investor employee.

What are the current tax rates?

Business income up to $2,000 is taxed at 5 percent; income from $2,001-$5,000 is taxed at 7 percent; income from $5,000-$125,000 at 9 percent; and income above $125,000 is taxed at 9.9 percent.

What are the new tax rates?

For tax years starting January 1, 2015, qualified business income up to $250,000 will be taxed at 7 percent; income from $250,001 to $500,000 will be taxed at 7.2 percent; income from $500,001 to $1 million at 7.6 percent; income from $1,000,001 to $2.5 million at 8 percent; income from $2,500,001 to $5 million at 9 percent; and income above $5 million at 9.9 percent.

These new business income tax rates give a significant tax cut to business owners . . . if they have the correct business structure and if they meet the requirements. Owners of C corporations, sole proprietorships or owners of LLCs that file with the IRS as a sole proprietorship are not eligible. If you are not eligible under your current ownership structure, you may want to consider restructuring to take advantage of these new rates.

  
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