Not tax advice. Computation tools only. Have a professional check your work before filing.
openaccountants
openaccountants/skills/nc-income-tax.md

Use this skill with your AI agent

View on GitHub

Paste this skill into your AI agent's context, or save the file to your project. Works with any AI agent that reads markdown.

nc-income-tax.md221 lines9.4 KB
v1North Carolina
Not yet verified by an accountantContact accountant
1---
2name: nc-income-tax
3description: >
4 Use this skill whenever asked about North Carolina individual income tax for
5 self-employed / sole proprietors. Trigger on phrases like "North Carolina income tax",
6 "NC income tax", "Form D-400", "NCDOR income tax", "NC self-employment tax".
7jurisdiction: US-NC
8version: "0.1"
9validation_status: ai-drafted-q3
10---
11 
12# North Carolina Individual Income Tax Skill — Self-Employed / Sole Proprietor
13 
14> **Scope.** This skill covers North Carolina Form D-400 (Individual Income Tax Return)
15> for full-year NC residents who are sole proprietors or single-member LLC owners.
16> Tax year 2025 (returns filed in 2026). North Carolina uses a flat income tax rate.
17>
18> **Quality tier.** Q3 — AI-drafted, not independently verified. All outputs must be
19> reviewed by a qualified tax professional before filing.
20 
21---
22 
23## Section 1: Metadata
24 
25| Field | Value |
26|---|---|
27| Tax type | Individual income tax |
28| Jurisdiction | North Carolina (US-NC) |
29| Tax year | 2025 (filed 2026) |
30| Primary form | Form D-400 |
31| Supporting schedules | D-400 Schedule S (Additions/Deductions), D-400TC (Tax Credits), D-400 Schedule A (NC Itemized Deductions) |
32| Tax structure | Flat rate |
33| Rate | 4.25% (TY 2025) |
34| Filing deadline | April 15, 2026 |
35| Extension deadline | October 15, 2026 |
36| Tax authority | North Carolina Department of Revenue (NCDOR) |
37| Website | https://www.ncdor.gov |
38| Statute | N.C.G.S. Chapter 105, Article 4 |
39 
40**Sources:**
41- NCDOR, Tax Rate Schedules: https://www.ncdor.gov/taxes-forms/individual-income-tax/tax-rate-schedules
42- NCDOR, 2025 D-401 Individual Income Tax Instructions: https://www.ncdor.gov/2025-d-401-individual-income-tax-instructions/open
43- Session Law 2023-134 (rate schedule for future years)
44 
45---
46 
47## Section 2: Quick reference — rates and thresholds
48 
49### Tax rate
50 
51| Tax year | Rate | Source |
52|---|---|---|
53| 2025 | 4.25% | Session Law 2023-134; NCDOR Tax Rate Schedules |
54| 2026 | 3.99% | Session Law 2023-134; NCDOR Tax Rate Schedules |
55 
56North Carolina applies a single flat rate to all taxable income regardless of filing status or income level.
57 
58### Standard deduction (TY 2025)
59 
60| Filing status | Standard deduction |
61|---|---|
62| Single | $12,750 |
63| Married filing jointly | $25,500 |
64| Married filing separately | $12,750 |
65| Head of household | $19,125 |
66 
67### Child deduction (TY 2025)
68 
69| NC AGI threshold (MFJ) | Deduction per child |
70|---|---|
71| Up to $40,000 | $3,000 |
72| $40,001 – $60,000 | $2,500 |
73| $60,001 – $80,000 | $2,000 |
74| $80,001 – $100,000 | $1,500 |
75| $100,001 – $120,000 | $1,000 |
76| $120,001 – $140,000 | $500 |
77| Over $140,000 | $0 |
78 
79NC does not have personal exemptions — the child deduction is the only per-dependent benefit.
80 
81### Local income tax
82 
83North Carolina does **not** permit local income taxes.
84 
85---
86 
87## Section 3: How this skill works with the federal return
88 
89North Carolina taxable income starts with **federal adjusted gross income (AGI)** from federal Form 1040, Line 11.
90 
911. **Start with federal AGI** → D-400, Line 6
922. **Add NC additions** (Schedule S, Part A) — items NC adds back that were excluded or deducted federally
933. **Subtract NC deductions** (Schedule S, Part B) — items NC excludes that were included federally
944. **Result = NC adjusted gross income**
955. **Subtract** the NC standard deduction (or NC itemized deductions) and child deduction
966. **Result = NC taxable income** → multiply by 4.25%
977. **Subtract credits** (D-400TC) → final tax due or refund
98 
99### Key addition modifications (Schedule S, Part A)
100 
101| Addition | Description |
102|---|---|
103| Interest from other states' bonds | Interest income from bonds of states other than NC |
104| Bonus depreciation add-back | NC does not conform to IRC §168(k) bonus depreciation |
105| Section 179 excess | NC limits §179 to $25,000 (does not conform to federal expanded amount) |
106 
107### Key subtraction modifications (Schedule S, Part B)
108 
109| Subtraction | Description |
110|---|---|
111| US government bond interest | Interest from US Treasury obligations |
112| Retirement benefits (Bailey Settlement) | Certain state/local government retirees exempt per court settlement |
113| Social Security | NC does not tax Social Security benefits |
114 
115---
116 
117## Section 4: Self-employed specific rules
118 
119### Self-employment income flow
120 
121Schedule C net profit flows into federal AGI, which flows into NC AGI. NC has no separate self-employment tax — the 4.25% rate applies to all taxable income including self-employment income.
122 
123### Estimated tax
124 
125NC requires estimated tax payments if you expect to owe **$1,000 or more** after subtracting withholding and credits.
126 
127| Installment | Due date |
128|---|---|
129| 1st quarter | April 15 |
130| 2nd quarter | June 15 |
131| 3rd quarter | September 15 |
132| 4th quarter | January 15 (following year) |
133 
134Form NC-40 is used for estimated tax payments.
135 
136### Depreciation decoupling
137 
138NC does not conform to federal bonus depreciation under IRC §168(k). Taxpayers must add back the difference between federal and NC-allowed depreciation on Schedule S. NC follows its own depreciation schedule (generally pre-TCJA rules). This is critical for self-employed taxpayers with significant equipment or vehicle purchases.
139 
140### Section 179
141 
142NC limits the Section 179 deduction to **$25,000** (not the federal expanded amount). Any excess must be added back on Schedule S.
143 
144---
145 
146## Section 5: Tier 1 rules — deterministic
147 
148| Rule ID | Rule | Source |
149|---|---|---|
150| NC-T1-01 | NC taxable income = federal AGI ± NC modifications − standard/itemized deduction − child deduction | N.C.G.S. §105-153.4 |
151| NC-T1-02 | Tax = NC taxable income × 4.25% (TY 2025) | N.C.G.S. §105-153.7; Session Law 2023-134 |
152| NC-T1-03 | Standard deduction: $12,750 (S), $25,500 (MFJ), $12,750 (MFS), $19,125 (HOH) | N.C.G.S. §105-153.5(a)(1) |
153| NC-T1-04 | NC §179 limit = $25,000 | N.C.G.S. §105-153.6 |
154| NC-T1-05 | NC does not conform to IRC §168(k) bonus depreciation | N.C.G.S. §105-130.5B |
155| NC-T1-06 | Estimated tax required if expected liability ≥ $1,000 | N.C.G.S. §105-163.15 |
156| NC-T1-07 | NC does not tax Social Security benefits | N.C.G.S. §105-153.5(b)(8) |
157 
158---
159 
160## Section 6: Tier 2 rules — requires judgment
161 
162| Rule ID | Situation | Guidance |
163|---|---|---|
164| NC-T2-01 | **Multi-state income:** Taxpayer has income from another state | NC taxes all income of residents; credit for taxes paid to other states available on D-400TC. Allocation requires review. |
165| NC-T2-02 | **Business vs. hobby determination** | NC follows federal hobby loss rules. If IRS disallows Schedule C, NC deductions are also disallowed. |
166| NC-T2-03 | **IRC conformity date changes** | NC references IRC as of a specific date. If federal law changed after NC's conformity date, add-backs or subtractions may be required. Verify conformity date for the tax year. |
167| NC-T2-04 | **Home office deduction** | NC conforms to federal home office deduction rules. Flows through federal AGI. No separate NC adjustment needed. |
168| NC-T2-05 | **Net operating losses** | NC conforms to federal NOL rules with modifications. Post-2017 NOLs limited to 80% of taxable income. Carryforward only (no carryback). |
169 
170---
171 
172## Section 7: Supplier pattern library
173 
174| Input needed | Where to find it |
175|---|---|
176| Federal AGI | Federal Form 1040, Line 11 |
177| NC additions | Schedule S, Part A (computed from federal return) |
178| NC deductions | Schedule S, Part B (computed from federal return) |
179| Standard deduction | Based on filing status |
180| Child deduction | Based on NC AGI and number of qualifying children |
181| Tax credits | D-400TC (credit for taxes paid to other states, child tax credit, etc.) |
182| Estimated tax payments | NC-40 records |
183| NC withholding | W-2 Box 17 / 1099 NC withholding amounts |
184 
185---
186 
187## Section 8: Form mapping
188 
189| Form D-400 Line | Description | Source |
190|---|---|---|
191| Line 6 | Federal adjusted gross income | Federal 1040, Line 11 |
192| Line 7 | Additions from Schedule S | Schedule S, Part A total |
193| Line 9 | Deductions from Schedule S | Schedule S, Part B total |
194| Line 11 | NC standard deduction or NC itemized deductions | Computed |
195| Line 13 | Child deduction | Based on NC AGI and dependents |
196| Line 14 | NC taxable income | Line 6 + Line 7 − Line 9 − Line 11 − Line 13 |
197| Line 15 | NC income tax | Line 14 × 0.0425 |
198| Line 20 | Tax credits | D-400TC total |
199| Line 23 | NC tax withheld | W-2s / 1099s |
200| Line 25 | Estimated tax payments | NC-40 payments |
201 
202---
203 
204## Section 9: Refusal catalogue
205 
206| Refusal ID | Trigger | Response |
207|---|---|---|
208| R-NC-01 | Part-year or nonresident | "NC part-year and nonresident returns require Schedule PN. This is outside the scope of this skill." |
209| R-NC-02 | Corporate or S-corp return | "This skill covers individual income tax only (Form D-400). Corporate returns (CD-405) are not covered." |
210| R-NC-03 | Estate or trust return | "NC fiduciary returns (Form D-407) are not covered by this skill." |
211| R-NC-04 | Amended return | "NC amended returns (Form D-400X Amended) are not covered." |
212| R-NC-05 | Pass-through entity tax | "NC PTET elections are not covered by this skill." |
213 
214---
215 
216## Disclaimer
217 
218This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional before filing or acting upon.
219 
220The most up-to-date, verified version of this skill is maintained at [openaccountants.com](https://openaccountants.com).
221 

Run this skill, then get an accountant to check it

After running the full skill pack in your AI agent, sign up and upload your worksheet. We'll connect you with a trusted accountant in our network who can review your numbers before you file.

Sign up to submit a review

Quality

Q3: AI-drafted

AI-generated with structure and citations. Not independently verified.

Needs deep research against tax authority websites to reach Q2.

Accountant Review

Not yet reviewed

About

Use this skill whenever asked about North Carolina individual income tax for self-employed / sole proprietors. Trigger on phrases like "North Carolina income tax", "NC income tax", "Form D-400", "NCDOR income tax", "NC self-employment tax".

US-NCty-2025

Use this skill

This skill is open source and free to use in any AI agent. Copy it, download it, or clone the repo. If you find an error, flag it — a licensed accountant will review.

1 of 2 in the US-NC workflow: