Magazine article The CPA Journal

Tax Planning in the Connecticut Tax Environment

Magazine article The CPA Journal

Tax Planning in the Connecticut Tax Environment

Article excerpt

As you already know, Connecticut has imposed a conventional income tax for periods beginning September 1, 1991. For 1991 and 1992, income will be taxed at the rate of 1.5% and 4.5%, respectively. Taxable income is computed based upon federal adjusted gross income subject to adjustments specific to the state of Connecticut (i.e., non-Connecticut municipal bonds, etc.). The impact of using federal AGI is that Connecticut will allow the deduction of net capital and net passive losses to the extent allowable under federal law, as differentiated from New Jersey's Gross Income Tax, which does not allow them at all. More importantly, for non-residents with Connecticut source income, such Connecticut source losses can be used to offset other Connecticut income.

However, the old taxation arrangement of AGI-based taxation of dividends and interest and a flat tax on capital gains was in effect through August 31, 1991. This means that for 1991, a dual computation is necessary: approximately 2/3 under the "old" method and 1/3 under the new income tax. The 1.5% rate for the new 1991 income tax is based upon the entire year's income and incorporates the necessary reduction for the partial year (1/3 of 4.5%). Computation of the tax liability under the old method for interest and dividends will be similar; i.e., based on the full year's interest and dividends and federal AGI but at a reduced tax rate. Lastly and most importantly, for 1991 interest, dividends, and capital gains will be taxed under both methods. …

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