Seniors, Small Business Owners Struggle With Fewer Deductions
We're seeing it in every community across our state, North Carolina's working and middle class taxpayers are struggling with the tax changes that have shifted the burden away from the wealthy and onto seniors and small business owners.
A lot of North Carolina state income tax filers are prepared annually to pull out their checkbooks and pay additional taxes due to an investment boon, home sale or employment bonus. Others await big refunds to get back taxes withheld unnecessarily from their paychecks.
But the pain may be more than anticipated or the windfall less than expected approaching Wednesday's tax day deadline — the end of the first full filing season under new tax rules approved by the Republican-led General Assembly in 2013.
Many itemized deductions were eliminated or limited in the tax overhaul law starting with the 2014 tax year in exchange for a lower, flat income tax rate. Three rates — 6, 7 and 7.75 percent — are now condensed to one rate that fell to 5.8 percent last year.
Certified public accountants that help fill out income tax returns for their clients — people who generally have more complicated tax situations — are seeing a good number of higher tax obligations compared to previous years, said Asheville CPA Rollin Groseclose.
While some higher tax bills or smaller refunds are the result of people making more money in a recovering economy, others can be attributed to scaled-back deductions that no longer track closely to federal deductions, he said.
"It's a big shift for people," said Groseclose, chairman of a tax reform task force within the North Carolina Association of CPAs. Now itemized state tax deductions are essentially kept to charitable contributions and a combined $20,000 on home mortgage insurance and real estate property taxes.
Gone are deductions on taxes for personal property like cars, boats and motorcycles, as well as mortgage insurance payments. Originally designed for small-business owners, a deduction on their first $50,000 of income is also repealed.
The eliminated deduction getting the most attention may be the one for medical expenses. Since many older adults live on fixed incomes exempt from taxes anyway, like Social Security, they aren't benefiting from a lower income tax rate to make up for the loss.
"It's cost me thousands on my income tax," said Thomas Kreimeier, 73, of Hendersonville, who is retired from the heating and air conditioning business. "I don't think enough noise had been made about this."