Colorado Corporate Tax: Everything You Need to Know
It is a business tax related to the gross taxable income of the majority of businesses and corporations registered or doing business within Colorado borders.3 min read
Colorado corporate tax is a business tax related to the gross taxable income of the majority of businesses and corporations registered or doing business within Colorado borders. Businesses are required to file an annual tax return, and may include deductions such as wages paid, cost of products sold, and other applicable business expenses. Thus, corporate income tax is similar to personal income tax, except that it's for businesses. It revolves around a bracketed tax system.
Colorado Corporate Tax for S Corporations
S Corporations' tax designation prevents corporations from being taxed twice. Instead of requiring taxation from both the corporation and its shareholders, income and tax liability passes through the corporation and directly to its shareholders (which is why this type of taxation is referred to as "pass through"). Both at the federal level and Colorado state level, this type of business avoids corporate tax. However, S corporations still have tax filing requirements and are required to report their income.
Colorado businesses must file both federal and state tax returns. S corporations registered or conducting business in Colorado must complete the following:
- Federal Tax Return - S corporations operating in Colorado must file a federal tax return. The federal return must be completed first, as the state tax return will reference what is reported on the federal return. The correct IRS form for S corporations is 1120S. The company must distribute 1120S Schedule K-1 to each shareholder. This form shows the shareholder their portion of the company's profits, deductions, and credits and can be used for their personal tax return.
- Colorado Form 106 - Form 106: Income Tax Returns for Pass-Through Entities must be filed for each year that an S corporation is conducting business in Colorado. The deadline to file Colorado Form 106 is three and a half months after the conclusion of the corporation's tax year. This means that for tax years that end in December, the form is due April 17th. This form requires the business to report both the corporation's income and the profit distribution to each shareholder.
- Colorado Form DR 0107 - For shareholders who are not residents of Colorado, forms DR 0107 and DR 0108 must be filed to make sure each shareholder fulfills their Colorado state tax liabilities. Nonresident shareholders are required to sign DR 1017 and agree to file a Colorado state income tax return. The corporation includes the signed forms with their yearly tax return.
- Colorado Form DR 0108 - As of 2012, the company must withhold 4.63 percent of the income of each nonresident shareholder and send this payment by utilizing form DR 0108. An individual DR 0108 form is required for each nonresident shareholder associated with payment, and each form is required to be filed along with Form 106.
- Additional Business Taxes - S corporations are not liable for state business taxes, but they can be responsible for other state taxes. For example, they might be required to pay sales tax. If the corporation sells physical personal property, they must acquire a Colorado sales tax license and charge sales tax.
If a corporation makes sales at a location outside of their normal business location, they must also acquire a special event license from the Department of Revenue. The corporation must keep track of all sales records and then submit a yearly sales tax return. The Department of Revenue will mail this to licensed businesses.
Colorado Corporate Tax for Nonprofit Corporations
Some types of nonprofit organizations registered within Colorado borders will be allowed to exempt some or all of their qualifying income from both federal and state income taxes. In Colorado, certified 501(c) nonprofit corporations are exempt from the state corporate income tax. The most common tax-exempt corporations include:
- Labor unions and workers' organizations
- Tax-exempt recreational organizations, including social clubs and recreational groups
- Educational and scientific institutions, including nonprofit schools, colleges, and universities, and some research institutions
- Tax-exempt religious institutions, including churches, mosques, temples, and synagogues
- Tax-exempt charities
To qualify for tax-exempt status in Colorado, a nonprofit corporation must be considered a 501(c) organization and acquire a Nonprofit Tax-Exempt ID Number from the IRS. Colorado may require additional paperwork to be filed with the Colorado Department of Revenue in order to gain exemption.
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