Every small business must pay its taxes to remain legally compliant with federal and state tax laws. However, navigating complicated tax requirements can feel overwhelming. Because small business owners need to focus on growing their business, we put together this guide on the types of state taxes you might face as a Colorado business owner and how we can help make the experience smoother.
With our Worry-Free Compliance Service, we can handle your company’s ongoing state filings. You don’t need to worry about missing Colorado’s state-required annual reports or filing deadlines. We track business documents and ongoing compliance requirements. You receive alerts for filing events.
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses to learn more.
Step 1: Establish your Colorado business’s corporate income tax obligations
Most states impose taxes on corporations based on the company’s income. Therefore, the first step in meeting your business tax obligation is to verify the corporate income tax obligations for Colorado small business taxes.
Filing Requirements for Corporations in Colorado
All corporations required to file a federal tax return must file a Colorado income tax return. Business owners must file business income tax returns by the 15th day of the fourth month after the end of the company’s tax year. Many corporations choose a calendar year for their tax year. If so, the state corporate tax return would be due by April 15th of each year.
As with federal corporate tax returns, the company may file for an extension to file a Colorado corporate tax return. However, the extension is only for filing the tax return. It doesn’t extend the requirement to pay taxes.
Income Taxes for Small Businesses in Colorado
Unlike pass-through entities, corporations that earn income within Colorado must pay corporate income taxes. Pass-through entities, such as sole proprietorships and many limited liability companies, “pass through” the business income to the company owners. The owners pay personal income taxes on the business income.
Corporations pay income taxes in Colorado based on the company’s federal taxable income reported to the Internal Revenue Service. The corporation’s net income may be modified by subtractions and additions as required by Colorado tax laws. Some deductions allowed on federal tax returns aren’t permitted when calculating Colorado small business taxes.
Colorado Small Business Tax Rates
The Colorado business tax rate for corporate income taxes for tax years beginning in 2020 is 4.55%. Always verify the Colorado business tax rate because the rate is subject to change in future years.
A corporation may choose to pay business taxes in Colorado of .05% of its annual gross receipts from sales in or into Colorado instead of based on its adjusted federal taxable income. The corporation must meet these qualifications to pay taxes based on annual gross receipts:
- The C corporation must file a Colorado return
- The C corporation’s only income in Colorado must be from sales
- The company can’t own real estate or rent real estate within Colorado
- The company’s gross annual sales in or into Colorado must total $100,000 or less
Corporations in Colorado must pay estimated tax payments if the net state tax liability for the year exceeds $5,000. Business owners pay estimated income taxes in four quarterly installments equal to 25% of the total annual tax requirement.
The quarterly tax requirement equals 70% of the corporate net tax liability for the current tax year or 100% of the net tax liability for the previous year (if the corporation meets specific requirements). Estimated quarterly corporate income tax payments are due the 15th day of the month in April, June, September, and December.
Failing to remit required estimated taxes could result in a tax penalty. Tax penalties aren’t charged for corporations with less than $5,000 in net tax liability for the tax year.
Step 2: Determine your Colorado business’s employment taxes
Businesses that transact business or receive income from Colorado sources and compensate an employee for services performed must register with the Colorado Department of Revenue as an employer. Generally, whenever employee compensation is subject to federal wage withholding, the wages are also subject to Colorado wage withholding.
Employers are responsible for paying state withholding taxes, even if the employer doesn’t withhold the tax from the employee’s wages. The Colorado Income Tax Withholding Worksheet for Employers (DR 1098) explains the method for calculating wage withholding. Employers must submit wage withholding payments and file returns weekly, monthly, or quarterly, depending on the employer’s annual Colorado wage withholding liability.
Employers must prepare and file W-2 statements for each employee. The statements must be filed with the Department of Revenue and supplied to the employee by January 31st of each year.
Step 3: Establish your Colorado business’s additional state tax obligations
A Colorado small business may have additional state tax obligations. Common business tax obligations that could apply to your small business include, but might not be limited to the following.
Colorado collects sales tax on retail sales of tangible personal property. Typically, sales tax isn’t charged for services performed unless a specific law taxes the service. The Colorado Department of Revenue collects sales tax for the state and many local municipalities.
Businesses are required to collect sales tax and remit those taxes to the Department of Revenue. The company must also maintain a sales tax license. The filing requirements and due dates for sales tax are determined when the business receives its license but could be changed in the future. Businesses can find more information about Colorado sales taxes on the Sales & Use Tax page on the state’s website.
Franchise or Privilege Tax
A franchise or privilege tax is an amount imposed on a company for doing business within a state. Franchise taxes may be a flat fee or based on a company’s net worth. Colorado doesn’t impose franchise or privilege taxes.
Most employers are subject to unemployment taxes if they pay wages of at least $1,500 or more in a calendar quarter or employ at least one person for at least one day during 20 weeks in a calendar year.
Unemployment tax is based on employee wages. There is an annual maximum amount a small business must pay in Colorado unemployment taxes. Quarterly reports and premium payments are due by the last day of the month in April, July, October, and January.
Excise taxes are taxes on specific goods, activities, and services. These taxes are in addition to any sales tax charged by the state. For example, Colorado imposes excise taxes on several products, including cigarettes, nicotine products, tobacco products, liquor, marijuana, and fuel.
Small businesses must apply for a license to sell these products. The filing and payment requirements for excise taxes depend on the type of product being sold.
Step 4: Prepare to file and pay your Colorado small business taxes
There are several steps that successful small businesses take as they prepare to file and pay their taxes.
Learn how to file small business taxes in Colorado
Small businesses can register online with the Colorado Department of Revenue. By registering, you can learn how to file small business taxes in Colorado online. To register for a Revenue Online Account, you will need:
- An email address
- Federal employer ID number or Colorado Account Number
- Proof of identification
- Tax type
Companies can conduct many of their tax requirements online. The Department of Revenue provides detailed instructions and guides for each subject.
Gather records and information
You can make filing your small business taxes easier by gathering and organizing your records. Tracking income and expenses throughout the year ensures accurate business records.
Examples of documents that you might need to prepare and file business tax returns include:
- Invoices and receipts
- Sales records
- Employment records
- Copies of previous years’ tax returns
- Bank account statements
- Credit card statements
- Accounting documents
- Balance sheet
- Income statement
Tracking invoices and managing business finances can be time-consuming for a small business owner. However, we can help make the task easier and more convenient. Our ZenBusiness Money App tracks the information you need to prepare and file business tax returns.
Decide whether you need an accountant
Most small businesses need professional accounting help to ensure that they meet their Colorado tax obligations. Honest mistakes can result in costly penalties and fees. Because an error can result in an overpayment or underpayment of taxes, it’s wise to consider hiring an accountant.
The Internal Revenue Service provides a Tax Return Preparer Credentials and Qualifications guide on its website that provides more information about the subject.
How can we help you with your small business taxes?
We’re here to help Colorado small businesses stay compliant with state laws. Our ZenBusiness Money App makes it easy for you to send invoices, manage clients, and get paid. Our Smart Dashboard provides an easy-to-use centralized location for managing invoices and payments. Having this information in one location can also make it easier to calculate your company’s income for tax purposes.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.