Connecticut Tax Planning – What to Know Before Filing

Spring has sprung, and so has the annual rush of tax preparation—filled with calculations, paperwork, and looming deadlines. Surprisingly, 31% of Americans admit to putting off their tax filings, while 1 in 4 feel unprepared to tackle their 2025 returns.

For Connecticut residents, understanding the state’s tax laws is essential to helping maximize deductions, avoiding penalties, and securing a seamless filing process. With over 35 years of experience in comprehensive tax and financial planning, Agemy Financial Strategies has helped clients navigate Connecticut’s evolving tax landscape.

As a Connecticut-based fiduciary firm with offices in Colorado, we provide personalized guidance to help your tax strategy align with your broader wealth management plan. In this blog, we’ll explore everything you need to know about filing your Connecticut taxes, including recent tax changes, key deductions, and proven strategies to help reduce your tax burden. Let’s dive in!

Connecticut State Income Tax 

Connecticut implemented its first state income tax on August 22, 1991, with a flat 4.5% rate to address a $963 million budget deficit. Since then, the state has transitioned to a progressive income tax system, which now includes seven tax brackets–ranging from 2% to 6.99% for the 2024 tax year (the taxes you’ll file in 2025). 

The state taxes you owe depend on your income, filing status, and any deductions or credits you qualify for. Connecticut’s tiered tax system means that as your taxable income increases, so does your tax rate. Wondering how these tax brackets apply to your filing status? Below is a breakdown of Connecticut’s income tax brackets and rates for single filers, married couples, and other filing categories.

Connecticut Sales Tax

As of 2025, Connecticut maintains a statewide sales tax rate of 6.35%, applicable to the retail sale, lease, or rental of most goods and taxable services. Notably, Connecticut does not impose additional local sales taxes, resulting in a uniform rate across the state.

Exceptions to the Standard Sales Tax Rate: 

• Rental Vehicles: The rental or leasing of a passenger motor vehicle for 30 consecutive calendar days or less is taxed at 9.35%.
• Computer and Data Processing Services: A reduced tax rate of 1% is applied to computer and data processing services.
• Luxury and Specific Items: A tax rate of 7.75% applies to most motor vehicles over $50,000. Jewelry (real or imitation) priced over $5,000. Articles of clothing or footwear, handbags, luggage, umbrellas, wallets, or watches are over $1,000. 

Connecticut Property Tax

Connecticut’s property taxes are among the highest in the United States. The state’s average effective property tax rate is 1.92%, significantly higher than the national average of 1.07%. Unlike many states where counties administer property taxes, Connecticut assigns this responsibility to individual cities and towns. Each municipality sets its mill rate, which determines the tax payable per $1,000 of assessed property value.

Connecticut Inheritance and Estate Tax

Connecticut does not impose an inheritance tax. However, it does have an estate tax that applies to estates exceeding certain thresholds. Connecticut imposes a flat 12% tax on estates valued at more than $13.61 million (i.e., the federal estate tax threshold for 2024). It’s important to note that if the decedent resided in a state that imposes an inheritance tax, beneficiaries may be liable for that state’s inheritance tax regardless of their state of residence.

Therefore, it’s advisable to consult the specific laws of the decedent’s state to determine any potential tax obligations. For personalized guidance on navigating Connecticut’s tax landscape, Agemy Financial Strategies is here to assist. Our team of fiduciary advisors is committed to acting in your best interest, helping you find solutions tailored to your individual needs and financial goals.

Recent Tax Changes in Connecticut

Tax laws constantly evolve, and staying informed about the latest updates can help you maximize savings and avoid surprises when filing your return. The Connecticut Department of Revenue Services (DRS) has introduced key changes that may impact your 2024 tax return. These updates affect income tax brackets, deductions, and credits, potentially influencing your overall tax liability.

Here’s what you need to know about the latest Connecticut tax changes and how they might impact your filing:

1. Retirement Income Tax Exemptions

Connecticut has expanded its retirement income tax exemptions, offering greater relief for retirees. Here’s how these changes may benefit you:

• If you receive individual retirement account (IRA) distributions (not including Roth IRAs), you can deduct 50% of those amounts, with deductions increasing to 100% by 2026.
• If you receive income from the Teachers’ Retirement System (TRS), you can deduct 50% of it from your state taxes.
• If you’re retired from the railroad (tier I and tier II railroad retirement benefits) or military, you can deduct 100% of your retirement pay.

2. Income Taxes Paid to Other Jurisdictions 

Wealthier individuals with out-of-state income (from investments, rental properties, or remote work) can claim a credit for taxes paid to other states, reducing double taxation.

3. Historic Homes Rehabilitation Tax Credit 

A 30% refundable credit (up to $30,000) on the costs of rehabilitating historic homes can benefit high-income homeowners and investors who restore qualifying properties.

4. Green Energy Credits

Connecticut offers various credits and incentives to encourage sustainability, including the Residential Clean Energy Credit (30% of the cost of solar panels and battery storage), rebates for energy-efficient home upgrades, and the CHEAPR program for electric vehicle purchases.

Common Tax Mistakes to Avoid

Navigating Connecticut’s tax laws can be complex, and even small errors can lead to unnecessary penalties or missed opportunities for savings. Awareness of common tax mistakes can help you stay compliant and optimize your financial strategy. Here are some key pitfalls to watch out for:

1. Failing to File on Time 

Missing tax deadlines can lead to costly penalties and accrued interest, making filing on time or requesting an extension essential. Even if you can’t pay your full tax bill immediately, filing on time can help you avoid additional penalties. Here are some key deadlines to look out for:

• April 15, 2025 – Deadline to file 2024 Connecticut and federal tax returns.
• October 15, 2025 – Extended tax return deadline (if requested by April 15).

The fiduciary advisors at Agemy Financial Strategies can help you stay ahead of tax deadlines, file correctly, and plan for any payments to minimize penalties and interest.

2. Misreporting Income
Even if you don’t receive a W-2 or 1099, you’re still responsible for reporting all taxable income to the state. Failing to report all income sources accurately can lead to audits, penalties, and unexpected tax liabilities. Connecticut taxes various income streams, including:

• Wages
• Self-employment earnings
• Rental income
• Certain investment gains

Confirming that the income reported on your tax return matches what the IRS and the Connecticut Department of Revenue Services (DRS) receive from employers and financial institutions is important. Agemy Financial Strategies can help you track and report all income sources accurately, helping provide compliance while identifying potential deductions to reduce your taxable income.

3. Not Claiming Available Deductions & Credits
Many Connecticut residents overpay on taxes simply because they don’t take advantage of available deductions and credits. These tax-saving opportunities can help reduce your taxable income or lower your overall tax liability. Failing to claim these deductions and credits can mean leaving money on the table! The fiduciary advisors at Agemy can help you identify and maximize every tax-saving opportunity.

4. Neglecting to Pay Estimated Taxes
If you’re self-employed, own a business, or have significant investment income, failing to make quarterly estimated tax payments can lead to unexpected tax bills, penalties, and interest charges. Unlike W-2 employees who have taxes withheld from their paychecks, freelancers, independent contractors, business owners, and investors must calculate and pay taxes on their income throughout the year. Planning ahead is key to avoiding surprises at tax time. Agemy Financial Strategies can help you estimate your tax liability and implement strategies to help minimize your tax burden.

Tax Planning Strategies to Reduce Your Liability

Smart tax planning can help you keep more of your hard-earned money while helping ensure compliance with Connecticut tax laws. Leveraging strategic deductions, credits, and investment choices can help reduce your potential tax burden and enhance your long-term financial security. Below are key strategies to help minimize your tax liability.

1. Maximize Retirement Contributions

Saving for retirement isn’t just about securing your future—it’s also a powerful tax-saving strategy. These contributions can help reduce your taxable income while helping you build long-term wealth.

• 401(k) and Traditional IRA Contributions: Pre-tax contributions lower your taxable income, reducing your tax bill today while allowing your investments to grow tax-deferred.
• Health Savings Account (HSA): If you have a high-deductible health plan, HSA contributions are triple tax-advantaged—meaning they reduce taxable income, grow tax-free, and can be withdrawn tax-free for qualified medical expenses.
• Roth conversions: Converting a traditional IRA to a Roth IRA can be a strategic move. This allows for tax-free withdrawals in retirement, which is especially useful if you expect to be in a higher tax bracket later.

2. Utilize Tax-Loss Harvesting

Investment losses aren’t always bad—they can be used strategically to help reduce your tax liability. Tax-loss harvesting involves selling underperforming investments to offset capital gains from winning investments, lowering your taxable income.

• Offset Capital Gains – If you’ve realized capital gains, selling investments at a loss can help neutralize the tax impact.
• Carry Forward Losses – If your losses exceed your gains, you can use up to $3,000 to offset ordinary income each year and carry forward any remaining losses to future tax years.

3. Consider Charitable Giving

Donating to charity supports causes you care about and offers valuable tax benefits.

• Donate Appreciated Stocks – Instead of selling stocks and paying capital gains taxes, you can donate them directly to a charity, avoiding capital gains while still receiving a tax deduction.
• Donor-Advised Fund (DAF)– A DAF allows you to bundle multiple years’ worth of donations, helping you exceed the standard deduction in a year while distributing funds over time. This strategy can be particularly effective for high-income earners looking to maximize tax savings.

4. Review Your Tax Withholding

If you’re not reviewing your tax withholding regularly, you could be overpaying (giving the government an interest-free loan) or underpaying (leading to a surprise tax bill).

• Check Your W-4 Form – Make sure the amount withheld from your paycheck aligns with your expected tax liability. Adjustments may be needed if you’ve experienced income changes, marriage, dependents, or significant deductions.
• Avoid Penalties – Underpaying taxes throughout the year can result in penalties and interest. Ensuring accurate withholding can prevent unexpected tax bills when you file.

Final Thoughts

Tax planning is a critical part of wealth management. By staying informed about Connecticut’s tax laws and making the most of available deductions and credits, you can optimize your strategy and avoid unnecessary penalties.

At Agemy Financial Strategies, we provide personalized tax planning guidance designed to align with your unique financial goals. As fiduciary advisors, we are committed to acting in your best interest—helping you find the right solutions for your needs. Our comprehensive financial planning helps ensure your taxes and investments work together to support your long-term success.

Contact us today for more information on our tax and financial planning services.

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FAQs About Connecticut Tax Filing

Who is required to file a Connecticut income tax return?

Anyone who lives in Connecticut, earns income or operates a business must file a state income tax return if their income meets the required threshold. Agemy Financial Strategies can assist you in navigating state tax requirements, helping ensure compliance while maximizing deductions and minimizing tax liabilities.

Can I file my Connecticut taxes electronically?

You can file online using MyConnectCT or authorized e-file providers. Our team can assist you through the tax filing process and help determine the best filing method for your financial situation.

What if I work remotely for a company outside Connecticut?

Under the convenience of the employer rule, Connecticut may still tax your income unless you can prove you are working out of state for business necessity. Our team can help you navigate state tax laws to avoid unnecessary taxation while staying compliant.

Are estimated tax payments required in Connecticut?

If you expect to owe more than $1,000 in state taxes, you must make quarterly estimated tax payments. Our fiduciaries can help you calculate and plan your estimated payments to avoid penalties and keep your finances on track.

What happens if I miss the tax filing deadline?

If you miss the deadline, you may face penalties and interest charges. Filing for an extension gives you until October 15th, 2025, but payments are still due by April 15th, 2025. We can assist in managing deadlines, filing extensions if necessary, and creating a proactive tax plan to prevent costly penalties.

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Disclaimer: This article is for informational purposes only and should not be considered tax, legal, or financial advice. Consult the qualified fiduciary advisors at Agemy Financial Strategies for guidance specific to your situation.