Connecticut Income Tax for Business Owners: Sole Proprietors, LLC Members and S Corp Owners
Connecticut Income Tax for Business Owners: Sole Proprietors, LLC Members and S Corp Owners
If you run a business in Connecticut, your business profit almost always ends up on your personal return. Most owners of pass-through businesses do not pay a separate state business income rate. Their share of profit is taxed under Connecticut's personal income tax. Some owners also face a corporate-level tax or an optional entity-level election, and the rules depend on how your business is structured. This guide explains how Connecticut income tax and other Connecticut business taxes apply to the three most common setups: sole proprietors, LLC members and S corporation shareholders.
Disclaimer: This article is informational only. It is not legal or tax advice, and it does not replace advice from a qualified attorney or certified public accountant (CPA). Tax rates, thresholds and forms change every year, so confirm every figure with the Connecticut Department of Revenue Services (DRS) before you file or pay.
How business income reaches your Connecticut return
Connecticut personal income tax starts with your federal adjusted gross income (AGI). Business profit that appears on your federal return flows into that starting point, and Connecticut then makes its own adjustments. For most owners, the result is that business profit reported on a federal schedule is carried to Form CT-1040, the Connecticut resident income tax return.
Your federal tax classification decides which federal schedule or form your income appears on. Connecticut generally starts from your federal return, so the classification you use federally is the one you carry into the state return. Confirm your classification with your CPA before you file, especially if you changed structures during the year.
Sole proprietors
If you operate as a sole proprietor, you report business income and expenses on federal Schedule C. Your net profit from Schedule C is included in federal AGI and carried to your CT-1040. There is no separate Connecticut business income return for a sole proprietorship, and Connecticut does not impose an entity-level tax on it. Your profit is taxed at the same personal rates as your wages or any other income.
Two points catch new owners off guard. First, you owe tax on net profit whether or not you withdraw the money from the business account. Second, the profit you owe tax on is not the same as the cash in your bank account, because equipment purchases, loan principal and owner draws each affect cash differently than they affect taxable income. Track both numbers from the start.
LLC members
An LLC is a state filing, not a tax classification. Federal rules decide how the LLC is taxed, and Connecticut follows that result. A single-member LLC is disregarded by default, so its income is reported on the owner's Schedule C, the same as a sole proprietorship. A multi-member LLC is taxed as a partnership by default. It files a federal partnership return, and each member receives a Schedule K-1 showing that member's share of income, deductions and credits. Each member then reports that share on the CT-1040. An LLC that elects corporate treatment is taxed as a corporation instead, as described below.
Connecticut does not add a franchise tax or annual privilege tax on LLCs. The only recurring state charge most LLCs see is the $80 Annual Report fee filed with the Secretary of the State. That is a filing fee, not an income tax, and it is due every year whether or not the business earned a profit.
Partnership-taxed LLCs also have the option to use the pass-through entity tax, which is covered in its own section below. Members should review that election with a CPA before the year begins, because it changes who pays the Connecticut tax and when.
S corporation shareholders
An S corporation is a federal tax election, not a separate kind of company. A corporation or LLC that makes the election files a federal corporate return, and each shareholder receives a Schedule K-1 showing that shareholder's share of the company's income, deductions and credits. Shareholders report that income on the CT-1040 in much the same way that partnership members do.
Two details need care. First, wages you pay yourself as an employee of the S corporation are not business profit. They are reported on a W-2 and taxed as wages, and the IRS expects shareholder-employees to take reasonable compensation. Second, the corporate-level tax treatment for S corporations differs from the rules for an LLC that elects corporate treatment. Connecticut's Corporation Business Tax and any minimum or entity-level charges that apply to S corporations are not the same question as your personal income tax. Confirm with DRS and your CPA which corporate-level tax applies to your S corporation before you assume the company owes nothing at the entity level.
Connecticut personal income tax rates
Connecticut's personal income tax for 2024 and later uses seven brackets under CGS 12-700. For single filers, each rate applies only to the portion of Connecticut taxable income that falls inside its band:
| Income band (single filers) | Rate |
|---|---|
| Up to $10,000 | 2% |
| $10,000 to $50,000 | 4.5% |
| $50,000 to $100,000 | 5.5% |
| $100,000 to $200,000 | 6% |
| $200,000 to $250,000 | 6.5% |
| $250,000 to $500,000 | 6.9% |
| Over $500,000 | 6.99% |
Do not use this single-filer table for a joint return or a head of household return, because those filers have different bracket thresholds. The low-rate benefit also phases out at higher incomes, so the simple table will not give you the exact tax at the top of the income range. Use the current rate schedule in the CT-1040 instructions published by DRS, or ask your CPA to run the calculation.
Connecticut does not have a separate rate for business income. Your business profit is added to your other income and taxed under the same brackets. That is why a strong year in the business can push you into a higher band even if your wages stayed the same.
Pass-through entity tax: the optional election
Connecticut offers an optional Pass-Through Entity Tax (PET) for LLCs taxed as partnerships and for S corporations. When you elect it, the business pays tax at the entity level to DRS, and the election is made each year. The election is annual and irrevocable for that year, so you cannot reverse it once the year's election is made.
The PET is a planning tool, not an automatic discount. It changes where and how the Connecticut tax is paid, and whether it lowers your combined state and federal tax depends on your income, your other deductions and your federal situation. Connecticut's rules for the election are detailed, and the timing and rate are set by DRS. Confirm the current rate, election method and deadline on the DRS website at https://portal.ct.gov/drs before you decide. Ask your CPA to model both paths side by side.
Corporation Business Tax for LLCs taxed as corporations
An LLC that elects to be taxed as a corporation does not pass its income straight to members. Instead, the company pays the Corporation Business Tax (CBT). The CBT is 7.5% of apportioned net income, with a $250 minimum. Connecticut also imposes a capital base tax that is being phased out under CGS 12-219: 0.16% for 2026, 0.11% for 2027, and none from 2028 onward.
Companies with total income of $100 million or more on federal Form 1120 line 11, or companies that file as part of a combined unitary group, also pay a 10% surtax. Most small businesses will not reach that threshold, but larger groups should confirm it with a CPA. Members of a corporate-taxed LLC generally report distributions they receive as dividends on the CT-1040, and that treatment is different from the pass-through method above.
Estimated tax payments
Owners with no employer withholding must pay Connecticut tax during the year. Estimated personal income tax is paid on Form CT-1040ES in installments. DRS sets the due dates each year, so check the current CT-1040ES before you make a payment and do not rely on last year's calendar. If you wait until filing time to pay a year of business profit, you may owe interest or penalties on the underpayment. Confirm how the rules apply to your situation with DRS or your CPA.
A practical approach is to set aside a fixed percentage of each business deposit in a separate tax account and make the installment payments from that account. Adjust the percentage after your CPA reviews the year's results, not after the return is due.
No local income tax
Connecticut has no local income tax. No city or town adds its own income tax on your business profit, so the state return is the only income tax return you need to plan for. Local government does affect your business in other ways, including property taxes, local permit fees and zoning rules, but those are separate from income tax.
Other filings to keep separate from income tax
Business owners often mix up income tax with other filings. Keep the following separate in your planning:
- Entity registration: Connecticut has no general state business license. Forming an LLC means filing a Certificate of Organization with the Secretary of the State through Business.CT.gov. That filing is a registration, not a license, and its fee is $120. Check the Business.CT.gov business forms and fees page for current amounts.
- Sales and Use Tax Permit: If you sell taxable goods or services, you need a sales tax permit from DRS. The permit carries a $100 registration fee, must be displayed at each location, and has nothing to do with your income tax return. The state sales tax rate is 6.35%.
- Trade name: If you operate under a name other than your legal name, file a Trade Name Certificate with the town clerk in the town where the business is primarily transacted, not with the state. The fee is $20.
- Trade licenses: Licensing depends on your industry. Agencies such as the Department of Consumer Protection, the Department of Public Health, the Insurance Department and the Department of Banking issue licenses for regulated trades. Local zoning, health and occupancy approvals may also apply through your town or city, or a local health district.
Recordkeeping and when to hire a professional
Keep a separate business bank account and record income and expenses at least monthly. Save receipts and invoices, and keep your records for as long as the return can be reviewed. Ask your CPA how long that period is for your situation, because it depends on the filings involved.
Hire a CPA before you choose a structure or make an election, and again before you file. The cases where professional review matters most include an S corporation, an LLC that elects corporate treatment, a multi-member LLC considering the pass-through entity tax, income that moves between states, and any year when business profit pushes you into a higher bracket. Use an attorney for operating agreements, ownership changes and any dispute about how profit is allocated among owners.
Official Connecticut resources
- Connecticut Department of Revenue Services: https://portal.ct.gov/drs
- DRS sales tax information: https://portal.ct.gov/drs/sales-tax/tax-information
- Connecticut Secretary of the State, Business Services Division: https://portal.ct.gov/sots/business-services/bsd
- Business.CT.gov business forms and fees: https://business.ct.gov/business-services/business-forms-and-fees
- Connecticut Small Business Development Center: https://ctsbdc.uconn.edu/
This article is informational only and is not legal or tax advice. Confirm every rate, fee, deadline and form with the agency named above, and consult a qualified CPA or attorney before you make decisions about your Connecticut business taxes.