We hope that your summer is treating you well. You may have heard a few weeks ago that Governor McCrory signed in to law some rather substantial NC tax law changes. Unless otherwise noted, the changes are effective January 1, 2014. The tax law changes touch personal income tax, corporate income tax, some components of sales tax, as well as the estate tax.
NC Personal Income Tax
- There will be a flat 5.8% NC Income Tax Rate. This is a decrease of the 6-7.75% tax rate that previously existed.
- Repealed personal exemption amounts and increased the standard deductions.
- Mortgage Interest and real estate tax itemization will be limited to $20,000 combined for non-rental properties.
- There will be no deductions for the first $2,000 or $4,000 in retirement income.
- Eliminates the $50,000 non-passive business income deductions. If you have this type of income will need to increase your NC estimated tax payments in 2014. You may also want to analyze whether it is more beneficial to accelerate or decelerate the recognition of income for 2013.
- Eliminate the tax deductibility of contributions to the NC 529 College Savings plan. If you want maximum tax benefits then try to maximize your deductible contributions in 2013 ($5,000 if married filing jointly, otherwise $2,500).
- Qualified Business Venture / Qualified Grantee Business credit expires. If you are investing in or via one of these businesses, you may consider accelerating investments in to 2013 while the credit is still available.
NC Corporate Income Tax
- C Corporations will have a rate of 6%. This rate will lower to 5% in 2015 and could drop even more if state revenue targets are met.
NC Sales Tax
- State rate stays the same for sales tax (4.75%) and groceries (2%). If county rates stay the same, we will see the same sales tax rates as we have in the past (7% in New Hanover County, 6.75% in Pender and Brunswick Counties).
- Most services are still not subject to sales tax. However, service contracts will be subject to sales tax.
- College cafeteria food and newspapers will now be subject to sales tax.
- Tickets to most entertainment events will be subject to sales tax.
- The back to school sales tax holiday is repealed.
NC Estate Tax
- There will no longer be a NC estate tax.
Proposed Future NC Changes
There is legislation that has not been passed (but could be) that will address Section 179 accelerated depreciation limitations. If HB 14 is passed it would be limited to $25,000 annually. That limit currently stands at $250,000. Businesses with large equipment purchases will feel the brunt of this change.
Tax law changes increase the value and return of tax planning. Let us know if you'd like to discuss your specific situation.