2018 Connecticut Legislative Changes Impact Income Tax

The Connecticut General Assembly enacted legislative changes during the 2018 regular session that affect the Connecticut Personal Income Tax calculation.

Highlights of the changes include the following:

For taxable years beginning on or after Jan. 1, 2017, a taxpayer who deducts IRC § 168(k) bonus depreciation on their federal income tax return for property placed in service after Sept. 27, 2017, must add back such deduction when computing Connecticut adjusted gross income.

Where there is an addback of bonus depreciation for a year, the taxpayer may deduct 25% of the disallowed deduction for each of the four succeeding tax years, beginning with the year following the year of the addback.

The foregoing applies to individuals, partnerships, LLCs treated as partnerships for income tax purposes, and S corporations.

For taxable years beginning on or after Jan. 1, 2018, a taxpayer must add back 80% of the IRC § 179 deduction taken for federal income tax purposes.

The 80% added back may be deducted over the four succeeding tax years (25% per year), beginning with the year following the year of the addback.

The foregoing applies to individuals, partnerships, LLCs treated as partnerships, and S corporations.

For taxable years beginning on or after Jan. 1, 2018, a general partner of a qualified venture capital fund (as defined in the Code of Federal Regulations) can, in calculating Connecticut adjusted gross income, subtract the income generated by investments in eligible Connecticut bioscience businesses that was included in federal adjusted gross income.

For this purpose, a general partner is a partner of a general partnership, a general partner of a limited partnership, and a partner of a limited liability partnership.

A general partner should use Schedule CT-BIO, Bioscience Worksheet, to calculate the amount to be subtracted.

Beginning on or after Jan. 1, 2018, partnerships and S corporations doing business in Connecticut or with Connecticut-source income are no longer required to pay Connecticut Income Tax on behalf of their nonresident partners or shareholders.

After Jan. 1, 2018, audits of returns where there is a failure to disclose a reportable transaction (as defined in IRC § 6707A), that is also required to be disclosed for federal purposes, will be subject to a 75% penalty.  Prior to Jan. 1, 2018, the penalty applied to “listed transactions.”

A notice of deficiency assessment with the 75% penalty, in respect to returns that fail to disclose a reportable transaction, may be mailed at any time not later than six years after the subject return was filed.

The difference in treatment of the bonus depreciation modification and the IRC § 179 modification should be considered by taxpayers when deciding which provision to take advantage of even though there may be no federal income tax difference. Because Connecticut is facing a large budget deficit, we expect additional tax changes this legislative session. Just this week, Connecticut’s new governor proposed massive sales and use tax changes that impact most industries. We will keep you apprised of any changes as they develop.

Matt Nick, Director, State and Local Tax Services
matthew.nick@CohnReznick.com
(860) 271-7933

Cindy Galamgam, Senior Manager, State and Local Tax Services
cynthia.galamgam@CohnReznick.com
(959) 200-7239