North Carolina Department of Revenue Tells Us Why We May Want to Wait to File Our NC Tax Returns

On January 15th, the North Carolina Department of Revenue (NCDOR) published a notice that talks about the effects of the Federal extenders tax bill that was passed on North Carolina taxpayers—both individuals and businesses. Because North Carolina income tax uses federal taxable income as the starting point for calculating North Carolina corporate taxable income, and uses federal adjusted gross income as the starting point for North Carolina individual taxable income, therein lays the issue for us right now.

For North Carolina, when they refer to the federal law, it is referring to the federal law as of a specific date. For right now, that date is the Internal Revenue Code as of December 31, 2013. As we know, the new tax law was signed into law on December 19, 2014. So, all those pro taxpayer items that got extended won’t apply for North Carolina income tax purposes as of today.

The North Carolina General Assembly is not scheduled to convene until January 28, 2015. So, the NCDOR is stating that taxpayers should consider waiting to file their tax returns until the General Assembly gets back and takes action about this. If the North Carolina tax return is filed before the General Assembly takes action, amended returns may need to be filed to take into account any action that the General Assembly takes.,

There is a Revenue Laws Study Committee for North Carolina who makes recommendations to the General Assembly about revenue laws. On January 13, 2015, they adopted a recommendation that the General Assembly adopt the Internal Revenue Code as of January 1, 2015, which would then encompass the Federal law change from December 19, 2014. However, they also recommended that North Carolina not follow some of the provisions that the Federal law contained.

These recommendations that North Carolina differ from the Federal law include:

For both businesses and individuals:

North Carolina would add back 85% of the bonus depreciation allowed on the federal return.

North Carolina would add back 85% of the difference between the federal Section 179 expense (using the $500,000 dollar limitation and the $2,000,000 investment limitation) and the North Carolina Section 179 expense (using the $25,000 dollar limitation and the $200,000 investment limitation).

Additional differences for individuals:

Adding back to North Carolina taxable income and amount excluded from federal taxable income for the discharge of qualified principal residence indebtedness

Adding back to North Carolina taxable income the amount deducted from federal taxable income for qualified tuition and related expenses

Adding back to North Carolina taxable income the amount excluded from federal taxable income for qualified charitable distributions from an IRA for someone who is 70 ½ years old or older.

Reducing the North Carolina deduction for qualified residence interest paid by the amount of mortgage insurance premiums included in the residence interest paid deduction that is allowed on the federal tax return (if the individual claims itemized deductions on the North Carolina tax return).