NC Dept. of Revenue issues Directive on $50k Business Income Deduction
North Carolina has a new law, G.S. 105-134.6(b)(22), that grants business owners a deduction of up to $50,000 of their net business income from NC taxable income. The income must be reported on Form 1040 Schedules C, E or F, and no deduction for passive income is allowed. The North Carolina Department of Revenue just issued a Directive that answers FAQs on the new law.
Unfortunately folks like me who own small businesses that are incorporated cannot benefit from the deduction. However, those who own 100% of a business and want the protection that a separate legal entity provides can establish a limited liability company (LLC). A single member LLC is disregarded for tax purposes by the IRS, so the income is reported on the owner’s Schedule C. At a tax rate of seven percent, the savings could equal $3,500 per year.