Connecticut has a lot to offer in terms of business incentives and benefits. Its prime location near major markets, thriving small business community, and access to an educated and highly skilled workforce make this state attractive to entrepreneurs.
If you plan to start a business in Connecticut, though, choosing how to structure your business can seem like a challenging decision. Electing to form an S corporation (S corp) could not only help you save money at tax season, but also take advantage of many other benefits available to small businesses in Connecticut.
This guide will walk you through the process of forming your Connecticut S corp and provide a few tips to help you keep it in good standing.
Want to form an S corp elsewhere? Check out our other How to Start an S Corp guides to learn more.
We recommend using a professional formation service like Tailor Brands to get your S corp up and running in no time.
Factors to Consider Before Starting an S Corp in Connecticut
Before forming an S corp, you have to consider the following factors:
- Is an S corporation the best strategy for your business?
- S corporation restrictions
- Are S corp tax advantages right for you?
Is an S Corporation the Best Strategy for Your Business?
For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.
S Corporation Restrictions
S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read our What Is an S Corporation guide for full details.
Are S Corp Tax Advantages Right for You?
An S corporation is a tax designation that can be elected by an LLC or corporation. With an S corp, business owners are considered employees of the company and must receive a reasonable salary. Since all S corps technically have employees, the s corp must run payroll.
In order to benefit from a Connecticut S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take large distributions in addition to their salary.
How to Form a Connecticut S Corp
There are two main ways to start an S corp:
- By forming an LLC and electing S corp tax status from the IRS when you request your employee identification number (EIN)
- By forming a corporation and electing S corp status from the IRS
We recommend forming an LLC because it’s simpler and more cost-effective.
Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.
Steps for Forming an LLC and Electing S Corp Status in Connecticut
Starting a Connecticut LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Tailor Brands to guide you through this process.
There are five basic steps to start an LLC and elect S corp status:
Step 1: Name Your LLC
Step 2: Choose a Registered Agent
Step 3: File the Certificate of Organization
Step 4: Create an Operating Agreement
Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status
Step 1: Name Your LLC
Choosing a company name is the first and most important step in starting your LLC in Connecticut.
Be sure to choose a name that complies with Connecticut naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a Connecticut LLC:
- Your name must contain the words “limited liability company” or the abbreviation “L.L.C.” or “LLC”. “Limited” may be abbreviated as “Ltd.,” and “company” may be abbreviated as “Co.”
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Your name must be distinguishable from any existing business in your state.
- Your name must not include any words that imply that the company is organized for anything other than its permitted purpose.
- Certain restricted words (e.g., Bank, Attorney, University) may require additional paperwork and a licensed individual, such as a doctor or lawyer, to be part of your LLC.
You can also read the Connecticut state statute about LLC naming guidelines for more information.
2. Is the name available in Connecticut? You can use the business records search on the CT Business One Stop website to see if your desired LLC name is available.
3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.
Find a Domain Now
Step 2: Choose Your Connecticut Registered Agent
You must elect a registered agent for your Connecticut LLC.
An LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Certificate of Organization.
Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.
Connecticut Registered Agent Consent to Appointment
Registered agents in Connecticut must consent to their appointment by signing the Certificate of Organization in written or electronic form.
Step 3: File the Connecticut LLC Certificate of Organization
The Connecticut Certificate of Organization is used to officially register an LLC.
OPTION 1: File Online With CT Business One Stop
- OR -
OPTION 2: File by Mail or in Person
State Filing Cost: $120, payable to the Secretary of State
Business Service Division
Connecticut Secretary of the State
P.O. Box 150470
Hartford, CT 06115
Business Service Division
Connecticut Secretary of the State
165 Capitol Ave., Suite 1000
Hartford, CT 06106
Step 4: Create an LLC Operating Agreement
An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.
For more information, read our Connecticut LLC Operating Agreement guide.
Our operating agreement tool is a free resource for business owners.
Step 5: Get an EIN and Complete Form 2553 on the IRS Website
An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS.
Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.
Visit our Form 2553 Instructions guide for detailed help with completing the form.
This is the form to elect S corp tax status for your LLC:
Ready to start saving on your taxes?
We recommend using a formation service to start your Connecticut S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your Connecticut S Corp Compliant
After you register your business and elect the S corp tax designation for it, you’ll want to ensure you follow state laws to remain in good standing. Every year, you’ll need to file an annual report and pay all the proper state and local taxes.
Connecticut S Corp Annual Report
By March 31 each year, your Connecticut S corp must file an annual report with the Connecticut Secretary of State and pay the filing fee. The annual report allows you to update the state with any important changes pertaining to your business.
Even if your business didn’t undergo any major changes in the past year, you must still file an annual report or you risk having the state dissolve your business. For more information, check out our Connecticut Annual Report guide.
Connecticut S Corp Taxes
S corporations benefit from pass-through taxation, meaning the business’s profits pass-through to S corp owners’ individual tax returns. S corp owners make money from their reasonable salary and distributions, and Connecticut S corp owners can expect to pay the following taxes:
Federal Self-Employment Taxes
Self-employment taxes cover social security and medicare. The self-employment tax rate is 15.3%, and money you take as salary will be subjected to the self-employment tax. However, distributions are not subjected to this tax.
Federal Income Taxes
Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets as well as the percent owed will change each year. Both your salary and distributions are subjected to federal income tax.
Register for a Connecticut State Tax Identification Number
If you operate a business in Connecticut, you’ll need to register with the Connecticut State Department of Revenue Services to obtain a state tax Identification number. You’ll need this number to file and pay your various Connecticut state taxes.
Connecticut Income Taxes
Connecticut’s state income tax rate ranges from 3% to 7%, depending on an individual’s income. Some states have income tax rates that exceed 10% while others have no income tax. While Connecticut’s income tax rates may be higher than other states, it still has a lot to offer business owners.
Connecticut Sales and Use Tax
Connecticut businesses selling taxable services or goods must register for a sales tax permit and pay annual sales and use taxes via the Connecticut State Department of Revenue Services.
Connecticut has a sales tax rate of 6.35%. But, unlike many other states, it doesn’t have additional sales taxes imposed by local jurisdictions. This means Connecticut’s 6.35% sales tax is the same no matter where your business operates within the state.
Additional State Taxes
The Connecticut State Department of Revenue Services also lists additional taxes your business may have to pay, depending on its industry, location, and number of employees.
Some examples of these state-specific taxes that may apply to businesses in Connecticut include:
- Alcoholic Beverage Tax
- Healthcare Center Tax
- Highway Use Fee
- Room Occupancy Tax
- Tobacco Products Tax
- Tourism Surcharge Tax
For more information, visit the Connecticut State Department of Revenue Services website.
Connecticut Local Taxes
Whether your business is based in Hartford, Stamford, or a smaller Connecticut city, check with your local government to ensure your business complies with local laws and pays all appropriate local taxes.
Start a Connecticut S Corp FAQ
What is an S corp?
An S corporation (S corp) is a tax designation that an LLC or a corporation can elect.
Are taxes for LLCs and S corps the same?
No. The default taxes for an LLC and taxes for an S corp are not the same.
With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.
With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.
What is a reasonable salary for an S corp?
S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.
What is a distribution?
A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.
Can I still use my DBA name if I elect to be an S corp?
LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.
Can I switch from an LLC to an S corp in Connecticut?
If you already formed an LLC in Connecticut, you can update its tax classification by electing S corp status. Your business just needs to meet the minimum requirements set by the IRS. Electing S status for your LLC doesn't change your business’s structure. It only updates your business’s tax designation.
Is Connecticut a good state in which to form an S corp?
There’s no one perfect state in which to form an S corp because each state has its own benefits and incentives. Starting an S corp in Connecticut can prove beneficial given the state’s abundance of government programs and supportive small business environment.