The state of Connecticut recently enacted a new tax on pass-through entities that WILL affect S-Corporations and Partnerships. But rest assured, this new tax has your long term interests in mind.
Pass-through entities that do business in Connecticut must now pay a 6.99% entity-level tax on all Connecticut-sourced income. This means that pass-through entities are now subject to pay tax on their own income instead of passing the tax along to partners, shareholders, or members.
This tax was initiated in direct response to the federal Tax Cuts and Jobs Act of 2017, which imposed a limit of $10,000 on individual deductions for state and local taxes paid. Although pass-through entities are now subject to a new, unheard of tax, partners, shareholders, and members will reap the benefits on their personal tax return; individuals with interest in pass-through entities who have paid this tax are now entitled to a credit on their individual Connecticut tax return to prevent being taxed twice. Additionally, this credit will not impact the $10,000 cap on what they can claim Federally for state and local taxes paid.
The new pass-through entity tax requires four quarterly estimated tax payments due April 15th, June 15th, September 15th, and January 15th.
Additionally, Connecticut requires ALL payments to be direct debited. Therefore, please send us a void check along with the rest of your 2018 tax information to ensure a timely completion of your return.
Despite the change, do not be alarmed! You will not be overtaxed – in fact, this new tax could help you in the long run. As always, we consider it a priority to keep our clients up-to-date on recent tax law changes and are eager to help you navigate tax law changes this year. Contact us to prepare your tax return and maximize your deductions!