Did you know? Small business owners in NC exempt from 1st $50K income in 2012! (Charlotte: rent, credit)

[RDUBiker]

May make some people upset, but makes me happy as a small business owner...for this year they're exempting the first $50K of non-passive income (net). Married business owners can double it to $100K.

Article:

New loophole for businesses will cost North Carolina $336M a year | CharlotteObserver.com

Some details (consult an accountant for more - I'm not an accountant!):

Pay no tax on the first $50,000 of net business income starting with the 2012 tax year! That’s right; many North Carolina business owners will become eligible for an up to $50,000 North Carolina income tax write-off thanks to the recent passage of North Carolina House Bill 200 and North Carolina Senate Bill 267.

Qualifications to Write-off the North Carolina $50,000 Tax Deduction
The new North Carolina deduction for business owners allow a single business owner to deduct up to $50,000 of net business income included on the federal return that is not considered passive. Married business owners can deduct up to $50,000 each. Typically business owners who report income on federal Schedule C, E, and/or F are eligible for the North Carolina $50,000 tax deduction.


North Carolina Passive vs. Non-Passive Income Definitions
So what exactly is passive income? North Carolina defers to the Internal Revenue Code (IRC), specifically Internal Revenue Code 469, to define passive income. Generally, passive activities are business activities in which there is material participation. Per IRS guidance, “you materially participate in an activity if you are involved in the operation of the activity on a regular, continuous, and substantial basis”. However there are very specific rules, especially for real estate professionals. IRS Publication 925, Passive Activity and At-Risk Rules, provides a plain language examples of passive activities.

[CHTransplant]

Yeah, this was the one termed "deduction for rich law firm partners" during the budgeting process.

[DieselRunner]

Sweet! I'm also a small business owner but had no idea this had been passed. Thanks for the post!

[JQ Public]

Now alls I need is $500k to by a small business

[goldenage1]

Does it count if you are collecting rent on a house?

[RDUBiker]

Originally Posted by CHTransplant

Yeah, this was the one termed "deduction for rich law firm partners" during the budgeting process.

I'm certainly not a "rich law firm partner" or anywhere near it, but I'll take the credit.

Originally Posted by DieselRunner

Sweet! I'm also a small business owner but had no idea this had been passed. Thanks for the post!

Originally Posted by JQ Public

Now alls I need is $500k to by a small business

Lots of small businesses cost less than that. In fact you can start one from scratch. Hurry up and start one with next to nothing, then earn $50k and pay no tax. You still have 3 full months left

Originally Posted by goldenage1

Does it count if you are collecting rent on a house?

Collecting rent is typically considered passive income, so just by that alone my guess (again I'm not an accountant so you should really consult one for this) is no. On top of that unless you have incorporated the business or at least have a partnership or LLP on the books my guess on that part is also no.

[Sean_CLT]

Just a quick assumption, but if you are not a "professional landlord" (someone that spends the majority of his time managing properties) then it's not a true small business. Becoming professional has implictions on the Federal forms too, so it's not to be taken lightly.

[coped]

Welfare for the wealthy at the state level.

[Sean_CLT]

Since it's the first $50,000 exempted, this is a progressive tax, so it helps both wealthy and non-wealthy businesspeople.

Starting new businesses is hard on many levels, so I see this as a good thing. Large corporations are being stingy with hiring right now, so we need more start-ups.

[coped]

Originally Posted by Sean_CLT

Since it's the first $50,000 exempted, this is a progressive tax, so it helps both wealthy and non-wealthy businesspeople.

Starting new businesses is hard on many levels, so I see this as a good thing. Large corporations are being stingy with hiring right now, so we need more start-ups.

I understand that opening a business is hard and risky. But they should have had a much lower cap on it for it to truly be progressive. The bill allows business with up to $850,000 in revenue to qualify. That's a lot of very law partners and business owners getting $3,500 checks there while the state is laying off teachers (who don't get the $3,500), increasing tuition, and reducing court services. This is going to cost the state a lot of money and benefit a select few.