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N.C. tax overhaul: Five tips on the new forms

By David Ranii
dranii@newsobserver.com

Tax experts and the state Department of Revenue helped us cut through what can look like complicated tax withholding forms. Their advice:

1. Determine which form is right for you. The NC-4 EZ should work for taxpayers who don’t itemize deductions, and even for some who do.

The NC-4 EZ includes three small tables for figuring out how many allowances you should claim based on your income, number of children under age 17 and your filing status – single, married filing separately, married filing jointly, qualifying widow(er) or head of household.

Be aware that the state’s new income tax system eliminates personal exemptions, as well as a number of tax credits that were previously available – both of which boosted the number of allowances a taxpayer would claim. Tax experts say that the demise of personal exemptions is flummoxing some taxpayers when they fill out the forms.

Consequently, most taxpayers should claim fewer withholding allowances than they did in the past.

Some tax accountants are advising their individual clients that if they don’t want to owe anything when they file their state income tax, simply claim zero allowances.

2. Those who expect significant itemized deductions may want to use form NC-4. It’s more complicated, but don’t panic. Most of it is a worksheet, not the form that has to be filled out. The most important part is knowing how much in itemized deductions (mortgage interest, property taxes and charitable contributions) you expect to have. Use last year’s tax return as a guide.

3. Take that itemized deduction number and subtract your standard deduction. For example, if you’re married filing jointly, the standard deduction is $15,000. If you anticipate $20,000 in itemized deductions, the number you carry forward – think of it as your net itemized deductions – is $5,000.

4. If you have significant dividends or interest income or significant federal adjustments (deductible IRAs, student loan interest deduction, moving expenses, etc.), you’ll need to make further adjustments to your net itemized deductions. If not, move on to the next step.

5. Divide your net itemized deductions by $2,500. (Each allowance is worth $2,500.) If your net itemized deductions are $5,000, you and your spouse would claim a total of two allowances on your NC-4s. For example, you and your spouse could each claim one allowance; or you could claim zero allowances and your spouse could claim two.

It’s a good idea, of course, to check with your accountant or the state Revenue Department if you have any questions.

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