Alternative Minimum Tax
The Colorado AMT applies to individuals and follows the federal implementation of an alternative minimum tax in 1969 to ensure that high-income individuals cannot escape paying taxes. The AMT is triggered when income reaches a certain level (which changes yearly), and that income is then recomputed by deleting certain itemized deductions, including exemptions for dependents, the standard deduction, state and local taxes, and sometimes even a mortgage.
In Colorado, the AMT is set at 3.47% of the amount that one’s “alternative minimum taxable income exceeds their Colorado normal tax,” according to the Colorado Department of Revenue. In other words, if your “normal tax” is on $100,000 of income, but your AMT income is $120,000, you’ll need to pay an additional 3.47% in state taxes on that $20,000 difference.
Gross Receipts Taxation
While states employ a franchise tax, Colorado instead uses a gross receipts tax as an alternative to corporate taxes, but it applies only in certain circumstances, generally for online, mail, or phone operations. Gross receipts taxation applies if:
- The taxpayer’s only activity in Colorado is making sales
- Those sales must total $100,000 or less
- The taxpayer does not own or rent real estate in Colorado
Estimated Tax Payments,
Penalties, & Other Precautions
Though tax returns in both Colorado and at the federal level are generally due on April 15 of the year following the conclusion of the previous business year, taxes not withheld must be paid periodically in advance of the filing date. This is called making estimated payments.
The IRS requires partnerships, sole proprietors, and S corporations to make estimated payments if they expect to owe a tax of $1,000 or more. C corporations must make estimated payments if they expect to owe just $500. If payments are not made on time, penalties can accrue. You are expected to pay at least 90% of taxes owed in advance.
In addition to penalties for not submitting estimated tax payments, you can be docked once you file if taxes are still owed. Even if you file your return on time, the IRS can assess a penalty of 0.5% per month — up to a maximum of 25% — on the balance owed if you do not pay all taxes due by the filing deadline.
Taxes withheld from employees must also be submitted electronically. You must deposit federal income tax withheld and both the employer and employee Social Security and Medicare taxes. You also must report on the taxes you deposit, as well as report wages, tips, and other compensation paid to employees.