As summer winds down, these final months give business owners a chance to do more than close the books; they provide an opportunity to reduce taxes, strengthen cash flow, and prepare for what’s ahead. Here are five key tax areas where Connecticut businesses can benefit from a proactive year-end review.
Estimated Tax Payments
If your business pays estimated taxes, remember that the fourth-quarter federal and Connecticut payments are due January 15, 2026. Many business owners simply roll forward the same quarterly amounts without considering year-to-date performance. That can lead to overpaying and straining cash flow or underpaying and facing penalties.
- If you’ve had a stronger-than-expected year, adjusting upward now can save you from interest and penalty charges in April.
- If income is lower than expected, you may be able to scale back your final payment and preserve cash.
Tip: Use the IRS safe harbor rule (paying 100% of the prior year’s tax liability, or 110% if your AGI is over $150,000) as a benchmark, but check whether paying based on actual 2025 income will free up cash without exposing you to penalties.
Connecticut Pass‑Through Entity Tax (PTE Tax)
As of 2024, Connecticut made the PTE tax optional for partnerships and S corporations. The election is due when filing Form CT-1065 or CT-1120SI, and once you choose, it cannot be revoked for that year. This decision can have a major impact on both business and personal cash flows.
- For some businesses, paying the PTE tax allows the entity to deduct the tax at the federal level, effectively restoring the deduction lost under the federal SALT cap. This can create meaningful savings for some business owners.
- For others, especially those with owners outside Connecticut or in states that don’t recognize the election, the benefit may be limited or could even create mismatches.
Tip: Model both scenarios (electing in vs. opting out) before year-end to understand how the choice affects not only your entity’s return but also your owners’ individual tax positions.
Retirement Contributions
Setting up or funding a retirement plan before December 31 can reduce taxable income for the year and enhance employee retention. Options include SIMPLE IRAs, SEP IRAs, and 401(k) plans, each with different setup deadlines and contribution limits.
- Small businesses may also qualify for federal tax credits of up to $5,000 annually for the first three years to offset startup and administrative costs.
- Adding an auto-enrollment feature to a new or existing plan can increase participation and qualify you for an additional $500 credit each year.
Tip: Even if you’re not ready to fund large contributions now, establishing the plan before year-end gives you flexibility, and you can still make deductible contributions up until your filing deadline (plus extensions).
Income Timing Strategy
With potential tax law changes expected in 2026, including the expiration of certain provisions from the 2017 Tax Cuts and Jobs Act, the question of whether to accelerate expenses or defer income is more important than ever.
- If tax rates rise in 2026, you may benefit from recognizing more income in 2025 at today’s lower rates.
- Conversely, if your business expects a downturn in 2026, you may want to defer income and accelerate deductions into 2025.
Tip: Don’t make this decision in a vacuum; run side-by-side projections under different scenarios. This is one of those areas where a small tweak in timing (billing earlier, delaying large equipment purchases, adjusting bonus payouts) can shift thousands of dollars in tax liability.
Local Sales, Use, and Property Tax Compliance
Connecticut’s business tax obligations don’t stop at the state or federal level. Towns and cities across the shoreline impose property tax declarations on equipment, furniture, and fixtures, often due in the fall. Additionally, sales and use tax filings can vary in frequency depending on your business volume.
- Use tax traps: Businesses that purchase equipment or supplies online without paying sales tax are still responsible for reporting and paying use tax to the state.
- Property tax declarations: Different cities have different assessment schedules, so don’t assume one deadline applies everywhere. Missing a filing can mean losing exemptions or being hit with unnecessary penalties.
Tip: Do a year-end sweep to review all fixed asset purchases, online orders, and leases to ensure both sales/use and property tax filings are complete and accurate.
Why It Matters
Year-end planning isn’t just about closing books. For Connecticut business owners, it’s an opportunity to manage cash flow, reduce taxes, and set a solid foundation for the year ahead. A little strategic planning now can mean big savings and fewer surprises come tax time. We encourage you to reach out to us for help running scenarios and looking ahead so we can do what we can to reduce your tax burden.