How to Start an S Corp in Connecticut

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.

To learn more about the tax advantages of an S corp, read our LLC vs. S corp guide and take a look at our S Corp tax calculator.

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.

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.