NC Deduction for Net Business Income
NC State legislators passed an important law in July of 2011. The Appropriations Act of 2011 affects many small business owners in North Carolina. This law allows most small business owners a substantial deduction beginning for tax year 2012, up to $50,000 (or if married up to $100,000) on their personal income tax returns. Sole Proprietors, Partnerships, S Corporations and Farms will generally qualify for this deduction, as long as you are actively managing the business. Salaries earned do not count for this deduction, only the profits generated from the business. Using current NC income tax rates, a taxpayer could save up to $3,500 in NC income taxes ($7,000 if married, and each taxpayer qualified for the deduction). There are many factors to take into account when planning for this income tax deduction, such as, partnership guaranteed payments, personal W-2 wages from S-Corp income, and depreciation options. In order to maximize the deduction, proper planning is critical.
Update:
The North Carolina Department of Revenue has issued guidance on the Deduction of Net Business Income for tax years beginning on or after January 1, 2012. For more details see the attached link.
http://www.dornc.com/practitioner/individual/directives/pd-12-2.pdf