Quick Summary: North Carolina’s income tax rate has dropped to 4.25% in 2025 and will fall to 3.99% by 2026. Lake Norman residents and business owners can benefit—but only with the right planning. This guide explains what the tax changes mean for you and how to use them strategically.

1. Overview of North Carolina’s Income Tax Cuts

North Carolina is one of the few states with a flat personal income tax rate. That rate has been gradually declining:

  • 2024: 4.5%
  • 2025: 4.25%
  • 2026 (projected): 3.99%

This reduction creates opportunities—but only if you align your income and deductions accordingly. (NCDOR Source)

2. What This Means for Lake Norman Residents

If you live in Cornelius, Davidson, Huntersville, or Mooresville, this means lower tax on your income—but not necessarily a lower tax bill overall unless you plan wisely.

Examples:

  • A household making $125,000 annually could save $300–$400 in state taxes for 2025.
  • Strategic retirement contributions or charitable giving could further reduce taxable income.

3. Business Owner Strategy: What to Do Right Now

Lake Norman has a thriving small business scene—from tech startups to real estate pros. Here are key action steps:

  • Review Your Entity Type: Is an S Corp right for you? Or are you overpaying in self-employment tax?
  • Update Estimated Tax Payments: Align your Q2–Q4 payments with the new lower rate to avoid overpaying.
  • Use Section 179 or Bonus Depreciation: Offset income by investing in qualifying assets before year-end.

🔗 Explore our NC Proactive Tax Planning Services

4. Planning Tips Before the 2026 Rate Drop

With another tax cut expected in 2026, now is the time to:

  • Time Your Income: Consider accelerating income into 2025 if your rates will drop further in 2026.
  • Defer Deductions: Push business expenses to 2026 to lower tax in a higher-rate year.
  • Plan Big Moves: Property sales, business exits, or stock liquidation may benefit from coordinated timing.

5. Frequently Asked Questions

Q: Will my local property tax go down too? A: No. Property tax is governed at the county level (Mecklenburg, Iredell, etc.) and unaffected by state income tax cuts.

Q: Should I change my business structure now? A: Possibly. Many LLC owners benefit by electing S Corp status around the $50K+ net income mark. We’ll help you decide.

Q: Do these tax cuts affect retirees? A: Yes—especially if you have retirement income, capital gains, or part-time business income in NC.

6. Final Thoughts: Don’t Waste the Opportunity

North Carolina’s tax reductions are real—but they don’t mean much without planning. The difference between doing nothing and taking advantage of these cuts could be thousands over the next few years.

Smart moves now = long-term savings.

📅 Schedule a consultation to review your 2025 strategy

Polaris Tax & Accounting works with clients across Lake Norman, including Cornelius, Davidson, Huntersville, and Mooresville. Let’s turn these tax law changes into an advantage for you