On July 17, 2013, the North Carolina General Assembly ratified NC House Bill 998 (House 77-36, Senate 32-17). Six days later, Governor McCrory signed the bill into law. The reformation of NC Tax Code has begun with House Bill 998 amending code sections concerning both individuals and businesses.
One particular amendment for all you business owners to note is the change to the corporate tax rate. The current corporate income tax rate is 6.9%. In 2014 and 2015, the rate will drop to 6 and 5%, respectively, and, if certain revenue targets are met, the rates will drop further to 4 and 3% in 2016 and 2017, respectively. Some anticipate that this rate drop will improve NC’s State Business Tax Climate Index Score from 44th to 17th best.
House Bill 998 has also effectuated four major changes in the code sections concerning individuals. First, the current income tax rate will drop from the current maximum rate of 7.75% and minimum rate of 6% to a flat rate of 5.8% in 2014 and 5.75% in 2015. Second, the standard deduction has been increased from $3,000 to $7,500 and $6,000 to $15,000 for taxpayers filing a single or joint tax return, respectively. Third and contrarily, legislators have set precedent by capping the mortgage interest and property tax deduction at $20,000.
Fourth, through Part VIII, Section 7(a) of House Bill 998, North Carolina has joined the ranks of many other states by repealing its estate tax! Sounds great? Because North Carolina and the Federal Government only tax estates exceeding $5,250,000 in value, if your estate does not exceed this value, the repeal of the NC Estate Tax does not directly affect you. Even for individuals with an estate that does exceed $5,250,000, this repeal only slightly affects their total estate tax bill because the Federal Estate Tax has, in fact, not been repealed. For example, in 2013, with the NC Estate Tax repealed but the Federal Estate Tax still in place, an individual owning an estate of $6 million and $10 million will pay only $80,640 and $222,192 less, respectively, in total estate taxes.
Nevertheless, these tax laws are always changing; the next NC Congress could decide to reenact the estate tax. So, if you would like to start your own NC Corporation or have questions concerning tax planning contact us anytime at NC Planning.