In November 2021, the North Carolina Department of Revenue (NCDOR) enacted new legislation to allow eligible pass-through entities (S-Corporations and Partnerships) a new tax deduction, which occurs on the business returns. These pass-through entities typically do not pay income tax. The tax is normally paid at the individual level (i.e. pass-through) on the Form 1040 tax return. The federal government allows an itemized deduction on the individual tax return on Schedule A for state taxes paid. The deduction is limited, however, to $10,000. This new method of paying the tax at the business level circumvents the $10,000 limitation and allows for greater tax savings. In order to take advantage of this new tax deduction, an election must be made on the 2022 pass-through business tax return. The election is made annually on a timely filed return. Businesses that plan to elect to pay the North Carolina (NC) income tax at the entity level will need to consider paying estimated taxes through the business in 2022 for NC. NC will not charge underpayment penalties to electing businesses in 2022 and any estimated taxes can be calculated and paid by December 31, 2022.
There are numerous circumstances and conditions to analyze in order to determine if making this election will be beneficial to your business. Please contact us and consult with our team for your specific situation.
Click here to learn more about this topic.
Submitted by Jeremy Fortner
Source: North Carolina Department of Revenue