$50,000 Tax Deduction for North Carolina Small Business Owners

Pay no tax on the first $50,000 of net business income starting with the 2012 tax year!  That’s right; many North Carolina business owners will become eligible for an up to $50,000 North Carolina income tax write-off thanks to the recent passage of North Carolina House Bill 200 and North Carolina Senate Bill 267.

Qualifications to Write-off the North Carolina $50,000 Tax Deduction

The new North Carolina deduction for business owners allow a single business owner to deduct up to $50,000 of net business income included on the federal return that is not considered passive.  Married business owners can deduct up to $50,000 each.  Typically business owners who report income on federal Schedule C, E, and/or F are eligible for the North Carolina $50,000 tax deduction.

North Carolina Passive vs. Non-Passive Income Definitions

So what exactly is passive income?  North Carolina defers to the Internal Revenue Code (IRC), specifically Internal Revenue Code 469, to define passive income.  Generally, passive activities are business activities in which there is material participation.  Per IRS guidance, “you materially participate in an activity if you are involved in the operation of the activity on a regular, continuous, and substantial basis”.  However there are very specific rules, especially for real estate professionals.  IRS Publication 925, Passive Activity and At-Risk Rules, provides a plain language examples of passive activities.

How to Claim the $50,000 Business Income Deduction

Qualified North Carolina net income is deducted on Line 48 of the North Carolina Form D-400.    Become a Facebook fan to get automatic updates on this deduction by clicking on this link http://www.facebook.com/simplytaxes.

Simply Taxes, LLC is a local year-round tax preparation firm with an office located in North Raleigh. Our Raleigh accountants are ready to work one-on-one with you to help maximize your refund opportunity and to provide other tax services in a professional manner.

The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.

Related Articles:

What’s New for 2012 Taxes (Due April 2013)?

Sources:

North Carolina Department of Revenue Directive PD-12-2

US Treasury Regulations Section 1.469

North Carolina House Bill 200

North Carolina Senate Bill 267

 

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