The contingency language in the future rate reductions was a compromise between the North Carolina Senate and House of Representatives. From an income tax rate perspective, in comparison to neighboring states, North Carolina should be attractive to businesses. If the contingencies are met, the individual income tax rate will be reduced to 2.49%. 17 This year’s budget legislation implements the lower individual income tax rates earlier than originally planned and provides for three further possible rate reductions contingent on certain state revenue “triggers” being satisfied. In 2021, the state enacted legislation phasing out the corporate income tax beginning in 2025. North Carolina’s budget legislation follows the state’s recent trend of reducing income taxes. 9 The statute was amended to replace the “S corporation” language with “an entity that is classified as a corporation for federal income tax purposes.” 10 For the 2022 tax year, a partnership that could not make the PTE election on its timely filed tax return may make the election by filing an amended return by Oct. 8 Existing law permits an eligible partner to be a partnership, including an entity that is classified as a partnership for federal income tax purposes, or an S corporation. 7 This provision now also includes a trust that solely has individuals, estates, trusts, or organizations described in IRC Sec. Existing law allows an eligible partner to be a trust described in Internal Revenue Code (IRC) Sec. 6 As amended, an expanded group of trusts and corporations are allowed to be partners in a partnership making a PTE tax election. The legislation amends the elective PTE tax regime with retroactive effect for tax years beginning on or after Jan.
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