TMTW #86 – New $50,000 Business Deduction for N.C. Businesses in 2012

Tax and Money Tip of the Week
New $50,000 Business Deduction for N.C. Businesses in 2012
March 28th, 2012 | No. 86

New $50,000 Business Deduction for N.C. Businesses in 2012 

For tax years beginning on and after January 1, 2012, N.C. General Statute 105.134.6(b)(22) provides a deduction in calculating North Carolina taxable income equal to “An amount not to exceed fifty thousand dollars ($50,000) of net business income the taxpayer receives during the taxable year. In the case of a married couple filing a joint return where both spouses receive or incur net business income, the maximum dollar amounts apply separately to each spouse’s net business income not to exceed a total of one hundred thousand dollars ($100,000). For purposes of this subdivision, the term ‘business income’ does not include income that is considered passive income under the Code.”
1. What is “Business Income?” As we understand it, the NC Department of Revenue is currently considering “business income” to include Schedule C, Schedule F, and Schedule E income as long as the income is not “passive income.”

  • Does business income include rental income reported on Schedule E (whether owned by the taxpayer individually or owned through a partnership or a S corporation)? The NC Department of Revenue is considering an answer to this question.
  • Does business income include W-2 wages paid to an S corporation owner? Representatives of the NC Department of Revenue have suggested that W-2 wages paid to anyone (including S corporation owners) will not constitute “business income.”

2. When is Business Income “Passive?” General Statute 105.134.6(b)(22) provides that the $50,000 deduction does not apply to income that is “considered passive income under the Code.” The NC Department of Revenue is currently considering an answer to this question.

I will keep you informed as the North Carolina Department of Revenue provides additional information concerning this important new deduction for 2012.
Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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