Starting A Business

If you or someone you're close to is starting a small business in Colorado, in today's market and economy, you know you are going to face some challenges. As part of pertinent information to know or learn, you may be asking what is the business tax rate in Colorado? Your business taxes will be one of the most important aspects to manage in the overall picture. Tax strategies, careful tax planning and yearly tax preparation can be the key to financial success. 

This is why shrewd business owners hire a terrific financial advisor or an exceptional CFO, right from the start. If you're struggling with your numbers, or perhaps just beginning your journey, remember Boyd Group Services when you want to maximize your chances for success. Let's find out all about corporate income tax rates and other information on income taxes, in relation to businesses or corporations, in Colorado.

Colorado State Taxes

We all know about the IRS, our federal taxes, and basic requirements regarding federal income tax rates, from doing our yearly federal income tax returns. But what about our state taxes? Well, we know that all states are different, for one thing! So we will talk strictly about Colorado, for the sake of this article.

The Colorado Department of Revenue, like most all other states, has its own set of rules and tax rates in regards to business taxation, depending on the type of business or corporation you are, and the amount of Colorado sales or taxable income you make per tax year. Let's start by examining the different types of corporations and businesses.

Colorado's Corporate Income Tax

Top Rated Corporate Tax System

Colorado was rated one of the top 10 states for their corporate tax system, in 2020. In 2008, they passed legislation that made it a single factor apportionment system, in which the amount a company pays in corporate income tax is based on their Colorado sales only. The corporate income tax rate as of 2020 is a flat 4.55%, based on the business's assessed net income equaling the sales made in Colorado, for the previous tax year. 

Prior to this 2008 legislation, Colorado business owners could choose one of two methods of taxation that involved either a combination of payroll, sales and property or a special method of property and sales. This makes Colorado one of the states business owners prefer. 

S Corporations

If you are an S corporation in Colorado, you do not have to pay a corporate income tax. However, the shareholders will take their profit (or loss), split it up, and then must report it as taxable income on their personal income tax returns. The Colorado Department of Revenue will not collect any business tax from S corporations, also known as pass-through entities, which themselves are not subject to additional federal taxation, either. 



C Corporations

On the other hand, a Colorado corporate income tax rate for regularly constructed C corporations is the new standard, as of 2020, at 4.55%. This is down from 4.63%, which was the Colorado corporate income tax rate for the previous 20 years, ever since the year 2000, representing a cut of 0.08%. This corporate income tax is paid to individual states for basically the legal privilege of doing business within them, and all these same states have a different corporate income tax rate. 

Limited Liability Corporations or LLCs

When starting an LLC, another kind of business organization, businesses will receive an ID number which is said to be for tax purposes. This number effectively makes you a business taxpayer, with the ability to start recording business expenses as tax deductions, ultimately reducing your taxable income on your corporate income tax return. 

It is important to note that for income taxes, an LLC is classified the same as a partnership, and as such does not pay separate corporate income tax to Colorado or federally, except through members' personal income taxes. Like S corporations, members of the LLC take the profits and split it among members, who must report it on their state income taxes, and pay the 4.55% as taxable income. The LLC itself is not taxed, unless designated as a corporation.

Other Businesses

A partnership is designated the same as an LLC, with the partners taking the amount of the company revenue and splitting it up between them, then reporting their share individually. A sole proprietorship is much the same, except you are the only member, so you don't have to share profits. Depending on multiple factors, you'll want to carefully organize your business in the smartest way possible, as far as choosing the right type of tax classification. 

Boyd Group Services is here to help you with all your business tax needs, as a B2B company that offers expertise in tax and financial services for growing your small business. We estimate most small businesses just starting out are paying an amount anywhere from 30-50% higher in taxes than they need to be, here at Boyd Group Services. Call to schedule a free in-depth analysis on your small business today. 

State Sales Tax Rates

The other kind of Colorado taxes you'll need to know about as a business is the state sales tax rate. It is important to note that Colorado, it is important to register with the Colorado Department of Revenue with your location for tax reasons, as the sales tax rate varies greatly depending on the local municipality. The base state sales tax rate is 2.9%, but this amount can be as much as 11.2% depending on where in Colorado you are. It's important to know the sales tax rate to be able to charge your customers accordingly. 

For businesses selling tangible, physical products, knowing the sales tax rate is very important, because the sales tax amount is owed to the Colorado Department of Revenue. This means that, as a small business owner, you will be collecting the state and county sales tax rates on the products you sell, for them. Then you are responsible for periodically sending them this amount, usually on a quarterly basis. 

For example, the sales tax rates in the city of Colorado Springs, for example, as of January 1st, 2021 has decreased from 3.12% to 3.07%, but the combined sales tax rates of what businesses are supposed to collect for the state of Colorado equals 8.20%, for businesses  in Colorado Springs.

In Conclusion

Depending on your taxable income, you fall into specific income tax brackets that determine the overall tax rate you will pay on your personal income tax returns. Reducing the amount of taxable income is one of the most important and valuable things you can do to increase your cash flow. This increases your ability to take advantage of growth opportunities when they present themselves. Boyd Group Services specializes in these kinds of services, so do your business the favor of scheduling a free in-depth analysis, and see how we can help you, today.