The way you pay taxes in North Carolina will change substantially after Dec. 31. So financial experts advise planning now to be ready for what’s coming. Gov. Pat McCrory signed the changes into law last summer. Many residents may not be aware of them now, but they will affect 2014 income and expenses, said Ernie Nivens, a financial services consultant in Gastonia. “People don’t think about it until it impacts their life,” he said. The revisions were aimed at simplifying the state’s tax code. Personal income earned next year will be taxed at a flat rate of 5.8 percent. Standard deduction amounts will increase. A number of deductions and tax credits, which North Carolina residents have grown used to, have been eliminated. Here are a few of the tax credits going away or changing after this year:
1. The per-kid credit
North Carolina is one of four states that offers a child tax credit. It will continue to do so, though the benefit will vary depending on your income. The current tax credit is $100 per child. That credit will increase to $125 for working married couples making less than $40,000, and heads of household making less than $32,000. It will also increase to $125 for singles or couples filing separately who make less than $20,000. Taxpayers making more than $100,000 will no longer receive the tax break.
2. The child-care credit
Until the end of this year North Carolina residents get a tax credit for money they spend on child and dependent care, said Mike Jennings, operations manager at Jackson Hewitt Tax Service in Gastonia. The state credit knocks 7 to 13 percent of eligible expenses off your final tax bill. The specific percentage has depended on filing status, income and type of dependent. The credit was limited to $390 per dependent with a maximum of $780. The perk will be eliminated in 2014. The state maintains that increasing the standard deductions across the board will help balance it out. “They’re trying to make up for all the things you’ll be losing by saying, ‘just take off this higher amount as a standard deduction,’” Jennings said.
3. The college savings credit
Right now, the money you put into an NC 529 plan can be deducted from your tax bill. The NC 529 is an investment account for college savings. Any North Carolina resident can open one, either for themselves or for another person of any age. But the deduction goes away after 2013. That means individuals have until the end of the year to put up to $2,500 in the accounts and still get the tax deduction. Couples can make a tax-deductible contribution of up to $5,000. A further tax advantage to the 529 will remain even after the year ends and the deduction disappears. The earnings North Carolinians put in the account are free from federal and state taxes.
4. The education credit
Tax credits for educational expenses in North Carolina softened the blow of paying college tuition, fees and related expenses. But that credit will be another thing of the past. If you must pay for educational expenses, as many people do, there’s little you can do about it. But most people shouldn’t come out on the negative end, Jennings said. “You’re getting a bigger standard deduction to cover the credits you’re no longer getting,” he said. Nivens said a good way to recoup money from a lost credit is to begin some kind of a home-based business — even one as simple as making a simple product or multi-level marketing, such as Amway. Such home-based business owners can deduct their total expenses from travel, or the use of a telephone, computer, or home office supplies, from their total income.