Steps to Pay Your Connecticut Small Business Taxes
If you are a Connecticut small business owner, you likely already know that paying taxes is an important part of staying legally compliant. If you fail to file or file incorrectly, you could face serious penalties both financially and legally. .
Fortunately, we’re here to help! In this short guide, we’ll go over the types of Connecticut small business taxes you might face as a small business owner, where to file them, and when they are due. We’ll also show you the products and services we offer that can help prepare your business for tax filing time.
If you’re looking for more comprehensive compliance help, our Worry-Free Compliance Service can help keep your business’s documents in one place. It can also keep you up to date on annual reports and other required filings.
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses to learn more.
Step 1: Establish your Connecticut business’s corporate income tax obligations
Corporate Income Taxes
Connecticut imposes the corporation business tax on businesses that file as C corporations for federal income tax purposes. Corporations that carry on business, or have the right to carry on business in Connecticut, may have to file an annual corporation business tax return and register with the Connecticut Department of Revenue Services (DRS). There’s no fee to register. Some businesses are exempt from the corporation business tax, but they may still have to file a return.
The current Connecticut business tax rate for corporations is 7.5%. Your corporation business tax liability is the greater of your business’s net income base tax or capital base tax. The DRS’s site breaks this down in detail and provides examples that will help you with your tax calculations.
Your Connecticut corporation’s return is due on the 15th day of the month following the due date of the federal tax return. For most corporations, this means that the Connecticut return is due on May 15.
Pass-Through Entity Taxes
A pass-through entity (also known as a flow-through entity) is a business structure where all income passes through to the company owners. The owners then claim the income on their personal income tax returns.
Connecticut imposes a pass-through entity tax on the following business types:
- S corporations
- Limited liability companies (LLCs) that are treated as partnerships or S corporations for federal income tax purposes
There are two ways to calculate the pass-through entity tax, and the DRS provides guidance on how to do this. The return is due on the 15th day of the third month following the end of the business’s taxable year. You must file the return online through the DRS’s filing system myconneCT.
Step 2: Determine your Connecticut business’s employment taxes
Connecticut employers must withhold taxes from an employee’s paycheck if the employee is a Connecticut resident and performs services within the state. An employer is anyone who has an office or does business in Connecticut and is considered an employer for federal withholding tax purposes. As of 2021, the withholding tax rate in Connecticut is 6.99%.
All filings and payments must be done electronically in one of the following ways:
- Online using the myconneCT filing system
- W-2 and 1099 Electronic Filing Specifications through the IRS
- Federal/State Employment Taxes (FSET) Program
The due date for withholding tax depends on how often the employer’s wage payment schedule. The DRS’s witholding tax website provides a detailed breakdown of the due dates.
Step 3: Establish your Connecticut business’s additional state tax obligations
There are many different Connecticut small business taxes that your company may be obligated to pay.
Connecticut imposes a statewide sales and use tax on the retail sale, lease, or rental of most goods and taxable services. This also applies to businesses that operate a hotel, motel or lodging house. As of 2021, the sales tax rate is 6.35%. For a list of exceptions from the sales and use tax, check out the DRS’s Managing Sales Tax page on its website.
You must obtain a sales and use tax permit either online or in person from the DRS before making any sales. Filing due dates are set up on either a quarterly or monthly basis. When you register to file online, you’ll know how frequently to file.
A franchise tax is a tax on the privilege of doing business within a state. The Connecticut Secretary of State collects a corporate franchise tax from each business incorporated under Connecticut law.
The franchise tax rate is one cent per share up to and including the first 10,000 authorized shares. The rate changes as the amount of shares increases. Your franchise tax obligation will be a minimum of $150, and it’s due at the time you file the incorporation documents with the state.
The Connecticut Department of Labor imposes unemployment tax on employers. The goal of this tax is to provide funding necessary to pay benefits for employees who become unemployed for unavoidable reasons. Employers with one or more employees (full- or part-time) must register their business online, by mail, or by fax.
Connecticut’s unemployment tax rate ranges from 1.90% to 6.80%, with new employers owing 3%. This tax is imposed only once the employee makes a base wage of $15,000.
Connecticut specifically taxes certain goods, such as alcohol, cigarettes, and certain motor vehicles. This is known as an excise tax. The DRS has a list of excise tax forms on its website that may be applicable to the types of goods your business sells.
Step 4: Prepare to file and pay your Connecticut business taxes
Connecticut’s DRS handles most of the tax filings for businesses. Their online filing system is called myconneCT. To register, you’ll need basic information about your business, such as your Connecticut Tax Registration Number or Federal Employer ID Number (EIN).
There are other agencies, such as the Secretary of State and Department of Labor, that impose business taxes in Connecticut and have their own online filing systems.
As you prepare to file and pay your Connecticut small business taxes, you need to get your business records in order. Here are some examples of what you may need:
- Previous year’s tax returns
- Sales records
With our ZenBusiness Money App, we can help you manage your business finances with ease. You can quickly receive payments and create invoices, all while keeping track of your records on your dashboard. When it’s time to prepare your taxes, the information you need will be available and organized. The ZenBusiness Money App also allows you to add taxes as a separate line item on each invoice.
Do I need an accountant?
Most small businesses need professional accounting help to make sure their taxes are done correctly. The last thing you want is to erroneously fill out a form or miss a filing deadline completely, and not having one could mean that you miss important tax savings like self-employment deductions.
The IRS has a helpful guide on tax return preparer credentials and qualifications, which you can find on its website. When in doubt, ask for help.
How We Can Help
While you may not enjoy doing your Connecticut small business taxes, you have to accurately and promptly file them. With the ZenBusiness Money App, we have the expertise, support, and resources to prepare you for tax filings. Not only will we send you reminders about upcoming deadlines, but we also organize your business documents, so you have access to what you need when you need it.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
- How much can a Connecticut small business make before paying taxes?
It’s difficult to put a number on this because each business is so unique. There are deductions and tax credits available that can reduce a small business’s tax liability. However, in Connecticut, regardless of how much your business makes, you must pay sales tax on the sale, lease, or rent of taxable services and goods, and corporations owe the corporation business tax on their income, regardless of how much it is.
- What percentage does a Connecticut small business pay in taxes?
This amount varies depending on your business entity type, business activities, whether you have employees, and how much revenue you generate.
- How does a Connecticut small business pay taxes?
Almost all taxes are filed online now. Each tax-issuing agency or department has its own online filing system. For example, the Connecticut DRS requires businesses to file and pay electronically using their system called myconneCT.
- Do I have to file taxes for my small business in Connecticut?
Most likely, yes. If you sell, lease, or rent taxable goods or services, then you will owe, at a minimum, sales tax and will have to file a return. This applies to most small businesses in Connecticut. Then, of course, there are a multitude of other taxes your small business may be subject to depending on its business activities. For example, the corporation business tax is a tax on the income of Connecticut corporations, and the pass-through entity tax is imposed on LLCs, partnerships, and sole proprietorships.