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Taxes on Business Income in Connecticut

Filed under State Taxes. Fact checked on February 12, 2013.

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Corporations are required to pay income tax on business income attributable to Connecticut. This tax is computed at the rate of 7.5 percent of corporate taxable net income is required in Connecticut. (An additional temporary 10 percent corporate tax surcharge is imposed during 2009, 2010 and 2011, but only on companies with gross revenues in excess of $100 million.) Sole proprietorship and pass-through entity income is reported on the individual's tax return.

In Connecticut, you're generally free to choose to operate your business as a C corporation, S corporation, partnership, limited liability company (LLC), or sole proprietorship. However, the entity type you select for your business may, in some cases, decide whether you or your business pays income taxes on the business income. These are the taxes in effect as of January 1, 2012.

Regular Corporations Subject to Corporate Income Tax

A 7.5 percent corporation business tax for the privilege of doing business in Connecticut is imposed on corporations carrying on, or authorized to carry on, business in the state.

S Corporations Are Taxed At Individual Rates

Connecticut S corporations are not subject to the corporation business income tax. This means that an S corporation does not have to pay state tax on a corporate level. However, $250 business entity tax is imposed on any corporation required to file an annual report with the Connecticut Secretary of State. This tax must be paid to the Department of Revenue Services by the 15th day of the fourth month following the close of the entity's taxable year. The tax should be paid with Form OP-424, Business Entity Tax Return.

Partnerships Are Taxed At Individual Rates

If you operate your business as a partnership, your partnership will not be taxed on its net income. Instead, partners must include in their Connecticut taxable adjusted gross income their distributive share of partnership income. However, a $250 business entity tax is imposed on any limited liability partnership or limited partnership required to file an annual report with the Connecticut Secretary of State. This tax must be paid to the Department of Revenue Services by the 15th day of the fourth month following the close of the entity's taxable year. The tax should be paid with Form OP-424, Business Entity Tax Return.

LLCs Are Taxed Based on Federal Election

Connecticut law recognizes businesses operating as limited liability companies (LLCs). Domestic and foreign LLCs in Connecticut are treated in the same manner as under the federal income tax law (either taxed at individual tax rates or at corporate tax rates). Accordingly, your LLC will not be taxed on its net income if it is treated as a partnership. Instead, members must include in their Connecticut taxable adjusted gross income their distributive share of LLC income. However, $250 business entity tax is imposed on any limited liability company required to file an annual report with the Connecticut Secretary of State. This tax must be paid to the Department of Revenue Services by the 15th day of the fourth month following the close of the entity's taxable year. The tax should be paid with Form OP-424, Business Entity Tax Return.

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