Connecticut Corporation
Advantages and Disadvantages

Connecticut Corporation Advantages and Disadvantages

Connecticut Corporation - Articles of Incorporation must be drafted and submitted to the Connecticut Secretary of State, Corporations Division. Once articles of incorporation have been successfully filed, your Connecticut Corporation has been formed and this begins its existence as a Connecticut corporate entity.

Should I form a Connecticut Corporation?

A corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Connecticut Corporation Advantages and Disadvantages:

Advantages of a Corporation

  • Shareholders have limited liability for the corporation's debts or judgments against the corporations.

  • Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)

  • Corporations can raise additional funds through the sale of stock.

  • A corporation may deduct the cost of benefits it provides to officers and employees.

  • Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.

  • A corporation pays 15% federal income tax on taxable income up to $50,000; 25% tax on income from $50,001 - $75,000; 34% tax on income from $75,001 - $100,000; 39% tax on income from $100,001 - $335,000; and 34% tax on income over $335,000.
  • A sole proprietor who filed a federal income tax return under the status of married, filing jointly, would pay 15% federal income tax on taxable income up to $35,800; 28% tax on income from $35,801 to 86,500; and 31% tax on income over $86,501.

Disadvantages of a Corporation

  • The process of incorporation requires more time and money than other forms of organization.
  • Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
  • Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible form business income, thus this income can be taxed twice.

Federal Tax Forms for Regular or "C" Corporations

  • Form 1120 or 1120-A: Corporation Income Tax Return
  • Form 1120-W Estimated Tax for Corporation
  • Form 8109-B Deposit Coupon
  • Form 4625 Depreciation

Connecticut’s 2011 Business Tax Climate Ranks 47th

Connecticut ranks 47th in the Tax State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. Neighboring states rank as follows: New York (50th), Massachusetts (32nd), New Hampshire (7th), Vermont (38th) and Rhode Island (42nd).

Connecticut's Individual Income Tax System

Connecticut's personal income tax system consists of three separate brackets with a top rate of 6.5% kicking in at an income level of $500,000. That top rate ranks 19th highest among states levying an individual income tax. In 2008, state-level individual income tax collections were $2,002 per person, which ranked highest nationally.

Connecticut's Corporate Income Tax System

Connecticut's corporate tax structure consists of a flat rate of 7.5% on all corporate income. Among states levying corporate income taxes, Connecticut's rate ranks 22nd highest nationally. In 2008, state-level corporate tax collections (excluding local taxes) were $153 per capita, ranked 20th highest among states that tax corporate income.

Connecticut Sales and Excise Taxes

Connecticut levies a 6% general sales or use tax on consumers, above the national median of 5.85%. In 2007 combined state and local general and selective sales tax collections were $1,424 per person, which ranked 21st highest nationally. Connecticut's gasoline tax stands at 41.9 cents per gallon (4th highest nationally), while its cigarette tax stands at $3.00 per pack of twenty (2nd highest). Additionally, Connecticut levies a 5.8% gross receipts earnings tax on oil companies, which is collected at wholesale. The sales tax was adopted in 1947, the gasoline tax in 1921 and the cigarette tax in 1935.

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