Business Tax Attorneys in
Nederland & Broomfield, Colorado

People starting a business enterprise in Colorado may wonder what’s in store for them from a tax standpoint. The answer will depend in most part on your business structure — sole proprietorship, partnership, LLC, C corporation, or S corporation.

Colorado’s tax for both corporations and individuals stands currently at 4.63% of your federally reported taxable income. You must compute your federal income for tax purposes before completing your state tax return.

If you’re facing a tax issue, or just starting out with your business and are new to the taxation process, contact us at The Law Offices of Daniel T. Goodwin. We have been serving clients for nearly 50 years in or around Nederland and Broomfield, Colorado, and all surrounding Front Range areas, as well as the Peak-to-Peak region.

Tax Filing by Business Structure

Most business structures feature a “pass-through” tax filing requirement, which means income passes along to the owners, partners, or LLC members, who then pay their portion of the income as personal taxes. Colorado also has a corporation tax as well as an alternative tax on gross receipts, to be described below. Corporations and individuals are both taxed at 4.63% of federally reported income.

Here is the breakdown of how business taxation works in Colorado:

  • SOLE PROPRIETORSHIP: As a sole owner, income from your business passes directly to you, for which you must pay taxes — both nationally and in-state. Your state tax will be assessed at 4.63% (plus any alternative minimum tax, or AMT, that shows up on your federal return).
  • PARTNERSHIPS: Income from the business passes along to the partners, who then pay their portion on their state and federal taxes (plus any alternative minimum tax). The income will be determined from your federal return.
  • LIMITED LIABILITY COMPANIES (LLCs): The LLC does not file taxes as a separate entity. Instead, the owners — who are called “members” — will pay their portion of the income on their personal state and federal returns (again subject to AMT). If the LLC members so choose, they can register the LLC as a corporation, in which case they would have to follow the rules for a C corporation.
  • S CORPORATIONS: An S corporation is formed as a traditional corporation but then files with the IRS for “S” status. As an S corporation, the shareholders are responsible for filing and paying federal and state taxes on their personal returns (again with AMT considerations). The corporation does not file any separate state or federal return.
  • C CORPORATIONS: Traditional corporations, or C corporations, are responsible for the entity’s income and taxes, and must file both federal and state tax returns as a corporation. The Colorado tax rate is the same as for individuals (4.63%).

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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.

Business Tax Attorneys Serving Nederland & Broomfield, CO

At The Law Offices of Daniel T. Goodwin, we help businesses with taxes and other issues. We understand tax law and stand ready to assist by filing and estimated tax requirements or dealing with complex legal challenges that may arise. We have offices in Nederland and Broomfield and serve clients in the Peak-to-Peak and Front Range areas. Call our office today for help!