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