The state of CT passed a “new” tax on small business entities (S corps and Partnership returns) starting in 2018. Prior to this tax, the entity would give the owner(s) a K-1 and then the owner(s) would pay the CT income tax when the personal tax return was filed. The new tax mandates the entity to pay the tax on the income. Connecticut will then give that owner credit for the tax that was paid by the entity on their personal return so they are not paying tax on the same income twice.
The legislature passed this with the intention of getting around the new federal SALT limitations for residents. In classifying the tax as an “entity tax” the suggestion is that it is deductible by the entity as a business expense. The only issue will be if the IRS determines that this is not a deductible expense.
Please feel free to contact us for more information or visit the State of CT website at 2018-Pass-Through-Entity-Tax