Business Taxes in CT: Structures, Payments, and Compliance

In Connecticut, businesses can choose from several tax structures, including sole proprietorships, partnerships, S corporations, and C corporations.

A sole proprietorship is the simplest and most common structure, where the business and owner are one entity for tax purposes.

Businesses in CT are required to make estimated tax payments each quarter to the state, with the first payment due on April 15th for the January 1 - March 31 period.

These payments can be made online, by phone, or by mail, and are due on the 15th day of the month following the end of each quarter.

Failure to make timely payments can result in penalties and interest, so it's essential to stay on top of these payments.

Curious to learn more? Check out: When Are Quarterly Business Taxes Due

A business structure can affect how taxes are handled in Connecticut. LLCs have a different tax situation, varying by how they're taxed, state and local tax rules, sales and use tax requirements, and employee status.

To register your LLC in Connecticut, you'll need to get an EIN Number, also known as a Federal Tax Identification Number, which will be used for filing taxes with local, state, and federal governments. You can get an EIN Number online from the IRS.

Pass-through taxation means the responsibility for reporting tax information from an LLC "passes through" the LLC to the LLC Members, who then pay taxes on any LLC profits on their personal 1040 tax return. This is because of LLC pass-through taxation, where the LLC Members are responsible for reporting income (or losses) on their personal tax return.

Some business types are required to register for industry-specific taxes, and Connecticut also requires all businesses operating in the state to register for a State Tax ID Number, which can be done using the Department of Revenue's myconneCT system.

A pass-through entity tax is imposed on partnerships, S corporations, and LLCs that are treated as partnerships or S corporations for federal income tax purposes, with a tax rate of 6.99 percent applying to either taxable income or an alternate tax base.

Here's an interesting read: How to Prepare Taxes for a Small Business

An LLC's tax situation can be complex, but it's essential to understand how taxes are paid. Each LLC has a different tax situation, so the taxes paid vary depending on factors like how the LLC is taxed, state and local tax rules, sales and use tax requirements, and whether the LLC has employees.

The IRS treats all Single-Member LLCs as Disregarded Entities for tax purposes, meaning the owner files the return and pays federal income taxes. If the LLC is owned by another company, it's taxed as a branch or division of the parent company.

There are several options for how the IRS can treat your LLC for tax purposes. By filing Form 2553 with the IRS, your LLC can request to be taxed like an S-Corporation, which can help businesses save money on self-employment taxes.

An LLC taxed as an S-Corporation can save on self-employment taxes, but there are additional expenses to consider. Most new business owners shouldn't make this tax election until their business is established and revenue is consistent.

Here's an interesting read: Irs Mailing Address for Business Taxes

Single-Member LLCs in Connecticut usually don't file a state-level return, but the owner files a personal state-level return that includes the LLC's profits or losses. Multi-Member LLCs in Connecticut may need to file a Partnership return at the state-level, and the owners file a personal state-level return that includes the LLC's profits or losses.

Pass-through entities, including LLCs, are subject to an income tax rate of 6.99 percent in Connecticut. This rate applies to either taxable income or an alternate tax base, which is determined by using personal taxpayer sourcing rules.

Here's a summary of the tax options for LLCs:

If you're an employer in Connecticut, you're required to register your business with the Connecticut Department of Labor to pay unemployment tax. This tax is used to fund benefits for employees who become unemployed due to unavoidable reasons.

The unemployment tax rate in Connecticut varies, ranging from 1.90% to 6.80%. New employers, however, owe a flat rate of 3%.

In Connecticut, state and local taxes can be complex, but understanding the basics can save you time and money. You'll need to register for a State Tax ID Number with the Department of Revenue using myconneCT.

The amount of taxes owed for your LLC depends on various rules, including how your LLC is taxed, state and local tax rules, sales and use tax requirements, and whether you have employees. This means each LLC has a different tax situation, and the taxes paid vary.

You may need to file and pay income taxes with your local municipality, and the tax rates vary by location. For example, the statewide sales tax rate is 6.35%, but some items are subject to higher rates, such as the rental or leasing of a motor vehicle for a period of 30 consecutive calendar days or less, which is taxed at 9.35%.

Here's a summary of the tax rates for some common items:

In Connecticut, local taxes can be a bit complex, but don't worry, I've got you covered.

You and/or your LLC may need to file and pay income taxes with your local municipality (town, city, county, etc.). This is known as local income tax.

Local jurisdictions impose no additional sales taxes in Connecticut, except for specific exceptions like rental or leasing of a motor vehicle for a period of 30 consecutive calendar days or less, which is taxed at 9.35%.

Here's a summary of the exceptions to the statewide sales tax rate of 6.35%:

You can also contact your municipality to check on their requirements for local income taxes. We recommend hiring an accountant to prepare and file your local income taxes.

A different take: Filing Taxes No Income

If you're a marketplace facilitator, you'll need to register with the Department of Revenue to secure a Sales and Use Tax Permit. This is a requirement for entities that facilitate retail sales of at least $250,000 by marketplace sellers.

For more insights, see: What Is Sales Tax

To qualify as a marketplace facilitator, you must provide a forum to list or advertise tangible personal property that's subject to sales and use taxes, including digital goods or taxable services. This can be done directly or indirectly, or through agreements with third parties.

You'll also need to collect receipts from customers and remit payments to the marketplace sellers. In addition, you'll receive compensation or other consideration for provided services.

Here are the key requirements for marketplace facilitators:

When you're an LLC in Connecticut, the IRS has several options for how to treat your business for federal tax purposes.

You'll need to choose from options like sole proprietorship, partnership, S corporation, or C corporation, each with its own tax implications.

As a sole proprietor, you'll report business income and expenses on your personal tax return, using Schedule C. This can be a straightforward option, but it means you'll be personally liable for business debts.

Alternatively, you can choose to be taxed as a partnership or S corporation, which can provide more flexibility and potentially lower tax rates.

Additional reading: Taxes on Sale of Business S Corp

When you're an LLC owner, you have options for how the IRS treats your business for tax purposes. There are several different options for how the IRS can treat your LLC for tax purposes.

You can choose to have your LLC taxed as a sole proprietorship, which means you'll report business income and expenses on your personal tax return. This option is often a good choice for single-member LLCs.

The IRS can also treat your LLC as a partnership, which means you'll need to file a partnership tax return and provide each partner with a Schedule K-1. This option is often used by multi-member LLCs.

Alternatively, you can choose to have your LLC taxed as a corporation, which means you'll need to file a corporate tax return and pay taxes on the business's profits. This option can provide more liability protection and tax benefits for your business.

Consider reading: Llc Taxed

Withholding is a crucial aspect of federal taxes, especially for businesses that operate in specific states.

If you have employees, you're responsible for withholding income taxes from their paychecks.

You'll need to register with the Department of Revenue for withholding tax before collecting these taxes.

Registration can be done online through the Taxpayer Service Center (TSC) or by mail.

In addition to withholding taxes, you'll also need to register for workers' compensation and unemployment taxes with the Department of Labor.

Excise taxes are a type of tax that specifically targets certain goods, such as alcohol and cigarettes.

In some states, like Connecticut, excise taxes are used to tax goods like motor vehicles. This is why it's a good idea to check with your state's Department of Revenue Services (DRS) for a list of excise tax forms that may apply to your business.

To file and comply with Connecticut business taxes, you'll need to register for a State Tax ID Number with the Department of Revenue using myconneCT. You'll also need to obtain an EIN Number, also known as a Federal Tax Identification Number, which is required for opening an LLC bank account and filing taxes with local, state, and federal governments.

For more insights, see: Federal Business Taxes

To prepare for tax filing, gather your business records, including your EIN, previous year's tax returns, sales records, invoices, and receipts. You can use online filing systems like myconneCT to register and file your taxes.

Some businesses may also need to file additional forms, such as Form CT-1040, Form CT-1065, or Form CT-1120SI, depending on factors like business location, industry, and number of employees. Be sure to check the specific tax requirements for your business.

Here are some Connecticut business taxes you may need to pay:

You'll want to develop a compliance strategy that takes into account the various tax requirements for your Connecticut business. This includes registering for a State Tax ID Number, which can be done through the Department of Revenue using myconneCT.

The type of taxes your LLC pays will depend on how it's taxed, state and local tax rules, sales and use tax requirements, and whether you have employees. Industry-specific taxes may also apply.

To make informed decisions, it's essential to understand the different tax forms and taxes that may apply to your business. These can include Form CT-1040, Form CT-1065, and Form CT-1120SI, as well as taxes like Corporation business tax, Controlling interest transfer tax, and Net income tax.

If your LLC elects to be taxed as a Corporation, you'll need to consider the implications of this decision. It's recommended to speak with an accountant before making a corporate election.

Prior to the enactment of Connecticut's pass-through entity tax (PET), partnerships, LLCs, and S corporations were not subject to income tax. However, for tax years beginning on or after January 1, 2018, a 6.99 percent tax is imposed on these entities, which is offset by a credit for personal income tax equal to 93.01 percent of the business owner's share of the tax paid by the entity.

To prepare for tax filing, you'll need to gather essential business records, including your EIN, previous year's tax returns, sales records, invoices, and receipts. The ZenBusiness Money App can help you manage your business finances and keep track of your records.

Explore further: What Is 1099 Tax Form

The closing conference is a crucial step in the audit process. During this meeting, you'll have a short period to contest the auditor's findings with them.

Any issues with exemptions, proof of tax paid, or calculations are worth addressing with the auditor. These are the types of issues that can be resolved at this stage.

Legal interpretations of sales tax law are often not resolvable at this stage, so it's best to focus on the facts. The auditor will make adjustments to the audit assessment where necessary after this conference.

Notice of assessment will be issued after the adjustments are made. If you're unable to resolve the issue with the auditor, the next step is to appeal or protest the issue with the Connecticut Department of Revenue Appellate Division.