Not only do businesses need to worry about IRS and Department of Revenue scammers, but now there is a new scam regarding the NC Secretary of State. For more information: http://www.secretary.state.nc.us/corporations/pdf/ncbusinessfilingservicesnotice.pdf. If you have any questions or concerns regarding this scam or any others, please contact our office.
Category Archives: Businesses
2013 NC Tax Law Changes for Businesses
On July 23, 2013 NC Governor Pat McCrory signed the recently passed tax revisions into law. The changes will take effect January 1, 2014 for tax years 2014 and beyond. Here are the highlights of what did and did not change (not an all-inclusive list):
(See separate list for changes to Individual taxes)
- Corporate tax rate drops from 6.9% to 6% in 2014 and to 5% in 2015. Further rate reductions will depend on whether tax revenue targets are met in 2016 and 2017.
- Tax credits for research & development are extended until 2016.
- Tax credits for film production will expire in 2015.
- Various other tax credits will be allowed to expire as scheduled under current law.
- No change to franchise tax calculation.
- No change to state sales tax rate.
- No change to how food is taxed (sales tax) although some specialized bakery items lose their preferred tax rate status effective July 1, 2014.
- Prescription drugs remain exempt from sales tax.
- Movie tickets and other amusements now subject to full sales tax rate instead of reduced privilege tax rate.
- Tax rate levied on electricity and piped natural gas increases from 3% to 7%.
- Changes made to various other sales tax categories (too numerous to list here but are to very specific sales).
- Back-to-school sales tax “holiday” is eliminated.
- State gasoline tax capped to 37.5 cents through June 30, 2015.
If you have questions about any of these changes, please contact our office.
Health Care Act
On June 28th, 2012 the U.S. Supreme Court voted to uphold the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA). What does this mean for taxpayers?
Starting with tax years beginning after December 31, 2012 (so January 1st, 2013 for calendar year taxpayers) there are additional taxes that will be levied:
The 0.9% Medicare Tax:
An additional 0.9% Medicare tax on wages and self-employment income for individuals with compensation in excess of $200,000 ($250,000 for married couples filing jointly, $125,000 for married couples filing separately). Employers will be required to withhold the extra 0.9% from an employee’s paycheck if the employee receives wages over $200,000. However, it is possible to get into this tax class without having sufficient withholding to cover the extra tax.
For instance, say I make $150,000 and my spouse also makes $150,000. Since individually we do not make over $200,000, our employers will NOT be withholding this additional tax from our paychecks. We will have to pay the additional Medicare tax with our 2013 tax returns. These amounts would increase our tax bill by $450.
The 3.8% Medicare Tax:
This change is a little more complicated. This tax will be placed on the lesser of Net Investment Income or Modified AGI (adjusted gross income). First, what is investment income? This can include many different things like interest, dividends, capital gains, annuities, and royalties. Rents can also be included as unearned income, but the rules for determining if rents are earned or unearned are beyond the scope of this article. Specifically excluded from Net Investment income are self-employment income, income from an active trade or business, IRA or qualified plan distributions and income from charitable remainder trusts.
The threshold amount for Modified AGI is $250,000 (Married filing jointly), $125,000 (Married filing separately) or $200,000 (all other taxpayers).
For example, say my spouse and I are filing together and have $300,000 in salary income and $100,000 of Net Investment Income. The amount subject to the 3.8% surtax is the less of our Net Investment Income ($100,000) or the amount of our Modified AGI (salary + investment income) over the threshold ($400,000-$250,000 = $150,000). Because Net Investment Income is lower than the amount of the threshold ($100,000 versus $150,000), the amount subject to the tax would be $100,000 and the surtax payable is $3,800.
For more information, or a detailed analysis of how these laws will impact you, please contact our office.
2013 Payroll Tax Update
As you have probably heard on the news yesterday Congress, passed an extension of the “Bush-era” tax rates for most taxpayers. The President has not yet signed the bill into law but that is expected to happen later today.
Although this sounds like the rates will be identical to 2012 there are actually subtle differences which will result in slightly different tax amounts for the same income. For example, there are slightly higher personal exemption and standard deduction amounts in 2013 and those are factored in to the tables most employers use. The boundaries of the tax brackets usually vary a small amount from year to year. We are monitoring our sources and will let you know where to find revised tax tables as soon as they are published.
If you are in a position where you MUST calculate payroll for 2013 before the new rates are available then continue to use the Circular E tax tables for 2012. We should certainly have revised tax tables by the end of the week.
As expected, the “payroll tax holiday” which resulted in a lower Social Security withholding percentage for employees the last two years was NOT extended. You should resume withholding 6.2% FICA (Social Security) and 1.45% Medicare on all 2013 wages. The employer matching percentages will be those same amounts. The earnings limit for FICA in 2013 is $ 113,700. There is still no limit for Medicare withholding.
Be sure to use the revised amounts when computing 941 tax payments for pays which occur in 2013.
Many of you will be depositing fourth quarter 941 taxes for December before January 15. You should use the old matching rules when calculating that tax payment and be sure to indicate it is for the fourth quarter.
If you need help in calculating your payroll or have any questions regarding this, please contact our office.
North Carolina Deduction for Net Business Income
For tax years beginning January 1, 2012, North Carolina offers a new deduction for taxpayers who include net business income in their Adjusted Gross Income (AGI) as reported on their North Carolina individual income tax return. The statute allows a deduction of up to $50,000 of net business income included in AGI that is not considered passive under Internal Revenue Code (IRC). For married couples filing a joint return where both spouses report a net business income, the maximum amount applies separately to each spouse’s net business income included in AGI, not to exceed a total of $100,000.
Net business income that is not considered passive is the total of all business incomes and losses (excluding passive incomes and passive losses) reported on Federal Schedules C, E, & F. For income or loss reported on Schedule E Part II, non-passive business income or loss is computed by subtracting non-passive loss and deductions allowed under IRC Section 179 (with respect to non-passive income) from non-passive income.
IRC Section 469 and Treasury Regulation §1.469 provide the official interpretation on when income or loss is considered passive. Generally real estate rental income or loss is considered passive – whether individually owned and reported on Schedule E Part I or reported on Schedule E Part II from a pass-through entity. There are however cases where taxpayers may qualify and subsequently the real estate rental income or loss may be recharacterized from passive to non-passive (i.e. taxpayer considered to be a real estate professional); in this instance the taxpayer is entitled to the net business income deduction.
If you need help in determining the amount of the net business income deduction to which you are entitled, please contact our office.
Additional 0.25% Local Sales & Use Tax For 4 North Carolina Counties
Effective April 1, 2012, the local sales and use tax in Buncombe, Durham, Montgomery and Orange counties increases to 2.25% from 2.0%; this increases the general State and local tax rate to 7.00% from the current 6.75% in these four counties. While the additional 0.25% local sales and use tax increase applies to all transactions subject to the general rate of sales and use tax (as provided in NC General Statute 105-164-4), the increase does not apply to sales of food subject to the 2.00% rate of tax.
Thus beginning April 1, 2012, the general State and local tax rate is 6.75% (4.75 + 2.00) in seventy-six (76) counties; 7.00% (4.75 + 2.25) in twenty-three (23) counties including Alexander, Buncombe, Cabarrus, Catawba, Cumberland, Duplin, Durham, Halifax, Haywood, Hertford, Lee, Martin, Montgomery, New Hanover, Onslow, Orange, Pitt, Randolph, Robeson, Rowan, Sampson, Surry and Wilkes; and 7.25% (4.75+2.5) in one (1) county, Mecklenburg (Charlotte).
If you have any questions about this rate change, please contact our office.
2012 Pension Plan Limitations
The Internal Revenue Service (IRB-2011-103) announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2012. Some of the limitation changes are detailed below, other applicable pension plan limitations can be viewed on our website’s Contributions & Allowance tab for 2012. For additional information and retirement planning assistance, please contact our office.
• The elective deferral (contribution) limit for employees participating in 401(k), 403(b), most
457 plans and the federal government’s Thrift Savings Plan increases from $16,500 to 17,000.
The catch-up contribution for taxpayers aged 50 or older remains unchanged at $5,500.
• The deduction for taxpayers making contributions to a Traditional IRA is phased out for married couples filing jointly (MFJ) who have a modified adjusted gross income (MAGI) between $92,000 to $112,000, where the spouse making the IRA contributions is covered by a workplace retirement plan. For singles and heads of household who are covered by a workplace retirement plan, the MAGI phase-out range is from $58,000 to $68,000. For a taxpayer who is not covered by a workplace retirement plan but is married to someone who is covered, the MAGI deduction phase-out range is between $173,000 to $183,000.
• The adjusted gross income (AGI) phase-out range for married couples filing jointly making contributions to a Roth IRA is $173,000 to $183,000 for 2012. For singles and heads of household the phase-out range is $110,000 to $125,000. For a married taxpayer who is filing a separate return and covered by a workplace retirement plan the phase-out range remains $0 to $10,000.
• The AGI limit for the retirement savings contribution credit (saver’s credit) is $57,500 for married couples filing jointly; $43,125 for heads of household; and $28,750 for singles and married individuals filing separately.
• The annual compensation limit under Sections 401(a)(17), 404(I), 408(k)(3)(C) and 408(k)(6)(D)(ii) increases to $250,000.
• The limitation for defined contribution plans under Section (415(c)(1)(A) increases in 2012 to $50,000.
NC Sales Tax rate to decrease effective July 1, 2011
The North Carolina Sales Tax rate will decrease by 1% starting July 1, 2011. In most counties this will reduce the overall rate from 7.75% to 6.75%. This change affects the state portion of the rate so when you complete the sales tax coupon for July and future months the state portion of the rate will now be 4.75%. The county rate will remain at the current percentage based on the county in which you collect tax:
Mecklenburg (Charlotte) county rate is 2.5% for a new combined rate of 7.25%
Alexander, Catawba, Cumberland, Duplin, Haywood, Hertford, Lee, Martin, New Hanover, Onslow, Pitt, Randolph, Robeson, Rowan, Sampson, Surry and Wilkes county rates are 2.25% for a new combined rate of 7%
All other counties (including Durham, Wake, Orange and Alamance) remain at 2% for a new combined rate of 6.75%
If you have any questions about this rate change, please contact our office.
Expanded 1099 Reporting Requirements Repealed
On April 14, 2011, the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act was signed into law. This Act repeals both the expanded Form 1099 information reporting requirements mandated by the 2010 health care legislation and also the Form 1099 reporting requirements imposed on taxpayers who receive rental income enacted as part of the 2010 Small Business Jobs Act. Basically businesses and taxpayers who receive rental income from real estate revert back to the Form 1099 reporting requirements prior to the passage of the 2010 Patient Protection and Affordable Care Act and 2010 Small Business Jobs Act, as if either Act had never occurred.
The 2011 legislation did not however repeal the increase in the information reporting penalties that were also mandated in the Small Business Jobs Act of 2010. The minimum and tiered penalties under IRC 6721 remain the same as enacted by the 2010 Act.
Change in Social Security Withholding
Under the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (H.R. 4853), as of January 1, 2011 the amount of Social Security withheld from an employee’s paycheck has changed. For 2011, 4.2% is withheld from the employee’s paycheck (down from 6.2%). The employer share of Social Security remains at 6.2%. Please see the illustration below.
Gross: $ 1000.00
SS: ($ 42.00)
Medicare: ($ 14.50)
Federal ($ 100.00)
State: ($ 75.00)
The paycheck to Jan should be $768.50.
The Federal Payroll Deposit (which must now be done over the phone or online as Form 8109 deposits through banks will no longer be accepted) should be as follows:
Employer Social Security (6.2%) $ 62.00
Employee Social Security (4.2%) $ 42.00
Employer Medicare (1.45%) $ 14.50
Employee Medicare (1.45%) $ 14.50
Federal Withholding $100.00
Total Deposit $233.00
If you have already paid your employees before updating the Social Security withholding, you are required to make up for any underpayments. The new rate must be in place by January 31, 2011 and all underpayments must be reimbursed to employees through paychecks by March 31, 2011. If you use payroll software (such as Quickbooks), it may make the changes automatically, but we recommend that you verify that the correct amounts of Social Security are being withheld.
If you have any questions regarding any of these changes, please contact our office.