Unincorporated Business Tax
WHO IS SUBJECT TO THE TAX?
Any individual, fiduciary or unincorporated entity, including a partnership, proprietorship or trust, conducting, engaged in or liquidating any trade, business, profession or occupation.
A partnership includes, but is not restricted to, a syndicated group, joint venture or other unincorporated organization.
HOW IS THE TAX COMPUTED?
The tax is imposed at the rate of 5% of the taxable net income. The tax shall not be less than $250.
Only an unincorporated business with gross income in excess of $50,000 and adjusted net income in excess of $15,000 shall be subject to the Unincorporated Business Tax. These threshold amounts are subject to proration for taxpayers conducting, engaged in or liquidating any trade, business, profession or occupation for less than one year or becoming incorporated during the year.
Gross income is that gross income as determined for federal income tax purposes. In determining gross income, the following federal tax forms shall be used:
Form 1040, Schedules C, E and F; Form 1065 (Partnership); Form 1041 (Fiduciaries).
The following items shall be excluded from gross income:
(1) interest or dividend income attributable to obligations of the United States and its possessions to the extent includible in gross income for federal income tax purposes;
(2) dividends and capital gains subject to the Connecticut Capital Gains and Dividends Tax;
(3) interest or dividend income exempt from tax by the Connecticut General Statutes;
(4) the amount attributable to refunds of state and federal taxes to the extent includible in gross income for federal income purposes;
(5) the amount treated as a dividend received from a foreign corporation on account of foreign taxes deemed paid when the foreign tax credit is elected for federal income tax purposes; and
(6) the amount of income or gain realized but not recognized for federal income tax purposes.
Adjusted net income is the excess of net income over the following exemptions from net income:
(1) that portion of net income subject to tax under the provisions of Chapters 207 through 212a, inclusive, of the Connecticut General Statutes; and
(2) that portion of net income received from business conducted without this state and so apportioned.
Net income is the excess of gross income over deductions directly connected with or incurred in the conduct of the unincorporated business and allowable for federal income tax purposes.
The following deductions shall not be allowed:
(1) salaries or other compensation paid to a proprietor or partner for services or for the use of capital or amounts paid as guaranteed or fixed payments to a proprietor or partner;
(2) federal or state taxes on income or profits;
(3) interest on indebtedness incurred, bond premium amortized, income from obligations or securities, or expenses paid or incurred in the production of income or the management of property held for the production of income, which interest, premium, income or expenses are derived or incurred in the production of income which is excluded from gross income.
WHAT IS TAXABLE NET INCOME?
Taxable net income is that amount derived by:
(1) exempting that portion of net income subject to tax under the provisions of Chapters 207 through 212a, inclusive, of the Connecticut General Statutes; then
(2) deducting the amount of 50% of apportioned net income or $15,000, whichever amount is greater, then
(3) deducting the amount of contributions in any income year by a proprietor or partner to a retirement plan, qualified for tax deferment in accordance with federal income tax provisions, up to $1,750 per proprietor or partner; then
(4) the remaining balance, which shall be the net income received from business conducted in this state, in the event that the unincorporated business conducts, is engaged in or is liquidating a trade, business, profession or occupation in states in addition to Connecticut.
WHAT CREDITS ARE ALLOWED?
Once the amount of tax liability is determined, tax credits are allowed for amounts expensed on: waste treatment facilities; air pollution abatement facilities; cooperative work education programs; machine tool and metal trades apprenticeship programs; and manufacturing facilities. (For information, refer to Statutes.) These are the same credits allowed for corporation tax computations.
WHEN MUST THE RETURN BE FILED?
The return must be filed within 105 days of the conclusion of the income year (April 15 for calendar year taxpayers).
WHEN MUST THE TAX BE PAID?
Any taxpayer whose estimated tax liability will exceed $500 must pay 50% of the estimated tax by the 15th day of the seventh month of the current income year (July 15 in the case of calendar year taxpayers).
Any taxpayer whose tax liability for the preceding income year did not exceed $500 and which did not reasonably expect that its tax liability for the current income year would exceed $500 until after the last day of the sixth month of the current income year but before the first day of the twelfth month shall pay 50% of the estimated tax by the 15th day of the twelfth month.
Statutory interest at the rate of 1 1/4% per month of fraction thereof shall be assessed on that portion of the estimated tax not paid when due.
|Determination of Tax Liability:||Firm A||Firm B||Firm C|
|Apportioned to Connecticut||60%||100%||10%|
|Net Apportioned to Connecticut*||48,000.00||80,000.00||8,000.00|
|Net Income Apportioned to Conn.||48,000.00||80,000.00||Not Liable|
|Less: 50% of Net Apportioned to Conn. or $15,000, whichever is greater||24,000.00||40,000.00||-|
|Contribution Retirement Fund||1,750.00||1,750.00||-|
|Tax Net Income||22,250.00||38,250.00||-|
|Tax Due (5%)||1,112.50||1,912.50||-|
*Threshold: Gross Income $50,000.00 - Adjusted Net Income $15,000.00