This week is Mob Week on AMC. We get to watch classic Mob movies like The Godfather, Scarface and The Untouchables.
Unfortunately every week is Mob Week for Connecticut taxpayers.
In 2011 the State of Connecticut passed their largest tax increase ever. The highest state income tax rate was increased from 5% to 6.7%.
While the income tax is the most visible tax and gets most of the attention, Connecticut taxpayers are subject to many other taxes. The State of Connecticut sales tax increased from 6% to 6.35%. Oh and don’t forget about the gas and alcohol taxes. The local real estate and personal property taxes on vehicles continues to increase. If Connecticut taxpayers don’t plan appropriately, they can also be subject to Connecticut estate tax. While the federal estate tax exclusion has risen to $5 million, the State of Connecticut estate tax exclusion is only $2 million.
The tax burden is particularly heavy on the self-employed in Connecticut. In addition to Connecticut Income Tax, they have to pay federal income tax and social security tax on their net income. For a successful self-employed person in Connecticut, it’s easy to have a combined tax bracket of 50%.
What can Connecticut Taxpayers do about this?
Start with the obvious; contribute the maximum to your retirement plan. This would include 401(k) plan, Roth 401(k) plan or a SIMPLE Plan. Additionally, if you can afford it and you are eligible, contribute to an IRA or a Roth IRA.
Municipal bonds issued from Connecticut might be appropriate for taxpayers in the higher tax brackets.
If you need to fund college education expenses for children or grandchildren, fund the Connecticut Higher Education Trust (“CHET”) plan. A married couple filing a joint return can deduct up to $10,000 on their Connecticut return for this contribution.
Self-Employed Taxpayers in Connecticut that operate an unincorporated business should consider hiring their children under age 18.
Some Connecticut taxpayers have just decided to pull up stakes and go elsewhere. The highest profile individual to move on was Billionaire Eddie Lampert. He is a hedge fund manager that owns ESL Investments. He must see sunnier skies in his new home of Florida where there is no income tax…or estate tax….
ACTION ITEM: While it may not be as dangerous as crossing Michael Corleone, Connecticut taxpayers are feeling the pressure of higher taxes.
Thomas F. Scanlon, CPA, CFP®
Photo From Creative Commons
Tom Scanlon has over thirty years experience in public accounting with an extensive background in the areas of financial, tax, and estate planning. He prides himself on providing in-depth and customized solutions to privately held businesses and their owners. He is a Certified Public Accountant and Certified Financial Planner®. Tom is a frequent speaker for area organizations and has recently been quoted on CNBC, Fox 61 News and AARP's blog. Tom also has been a guest columnist for numerous publications including The Wall Street Journal, Barron's, Money Magazine, The Hartford Courant, The Hartford Business Journal, and The New Haven Register. He is a member of the American Institute of Certified Public Accountants, the Connecticut Society of Certified Public Accountants, and the Financial Planning Association. Active in the community, Tom supports a variety of not-for-profit organizations.
Ok a bit of a difficult topic to fully comprehend but I’m trying my best to fathom it out. Connecticut used to have a high average absolute tax, but unless I’m misinformed it also had a very high per capita income.
A couple with a joint taxable income of between $500,000 and $1,000,000 now pay 6.7% tax. But a couple earning $100,000 and $200,000 now pay 5.5% tax, up from 5%. Expensive cars will be taxed higher but for a modest automobile it is not too severe.
I’m no expert but the huge deficit has to be sorted somehow and I may be wrong but yes it means increases for all but the only drastic rise is on the highest earners and if that drives off the likes of Eddie Lambert then so be it and is somewhat inevitable if other states are more lenient on the wealthy and corporations.
I’m not so sure that the lowest earners are being hit so badly in fact my understanding is that the lowest earners get tax credits so it depends whom you are trying to please, the rich or the poor. Naturally the rich are screaming louder.
Maybe I have it wrong and its all down to how you word it but if there is a deficit of billions as is the case then what has to be, has to be.