 Over the summer, the North Carolina General Assembly enacted Session Law 2021-180. This new law allows pass-through entities (“PTE’s”) to elect to pay North Carolina income tax at the entity level instead of the individual level. If you are receiving this email then you have a “PTE” and this relates to you. What is a PTE? As most of you understand, your business (S-Corp or LLC) issues you a K-1 at year end showing the taxable profit that must be picked up as income on your personal tax return. You then pay Federal and NC taxes on that profit. What’s changed? Now you can elect (choose) to have your business pay the NC taxes instead of you individually. NC has a flat tax of 5%. Why would I want to do this? Tax savings. Since the “business” is now the entity on the hook for the taxes then it becomes a deduction or reduction in taxable income to the federal government. Example: The business has PTE profit of $100,000. The NC Tax due on this income is $5,000. If you choose to have the business pay the tax then your new PTE profit is $95,000. If your top tiered tax bracket for federal purposes is at 22% then that is a tax savings of $1,100. Okay….I want to do that. What’s next?
I will be reaching out to you very soon about sending in payments. The NC taxes need to be paid in the current calendar year to take full advantage of the savings. The first installment will be handled in the month of September and the second installment will be handled in the month of December. |