Colorado S Corporation Tax Return: Everything You Need to Know
When filing a Colorado S corporation tax return, there are some state-specific filing requirements and guidelines you need to be aware of. 3 min read
2. What Are the State Tax Filing Requirements for a Colorado S Corporation?
3. Federal Tax Requirements
4. Other Business Taxes
5. Form 106 Instructions
When filing a Colorado S corporation tax return, there are some state-specific filing requirements and guidelines you need to be aware of.
Colorado Taxation for S Corporation
In comparison to partnerships and sole proprietorships, Colorado S corporations are typically audited less frequently. Although the corporation itself does not pay any taxes, an informational tax return must be filed. In terms of the corporation's income and losses, these values are reported on each shareholder's personal tax return. In turn, all losses help offset other forms of income.
All losses and income are allocated based on each owner's percentage of the corporation. Under certain circumstances, Colorado offers an alternative to income tax. This is known as a gross receipts tax, and in order to qualify:
- Your only activity in the state of Colorado must be making sales.
- Of those sales, the total must equal $100,000 or less in total.
- You may not own or rent any real estate in Colorado.
What Are the State Tax Filing Requirements for a Colorado S Corporation?
By creating an S corporation, you will be able to avoid double taxation. This means that your company will be treated as a pass-through entity. All associated income will be passed on to the company's shareholders and directors. With that being said, just because an S corporation does not need to pay federal taxes, does not mean that the company is not expected to file a return. In fact, in the state of Colorado, corporations must file an informational tax return at both the state and federal levels.
To qualify as an S-Corp in the state of Colorado, you must file Form 2553 with the IRS. In certain states, you must also file at the state level. This applies to corporations based only in New Jersey, Arkansas, Ohio, New York, and Wisconsin. In addition, unlike most states, Colorado does not charge a franchise tax to businesses.
Federal Tax Requirements
All Colorado S corporations are required to file a tax return at the federal level. More specifically, as an S-Corp in the state of Colorado, you need to file Form 1120S. Your Colorado tax return will refer to your federal tax return, so it is important that you complete all federal paperwork first. Since the S Corporation has to distribute a 1120S Schedule K-1 to each shareholder, each individual is able to better understand their share of the company's deductions, profits, and credits. In turn, these values are reported on their personal tax returns.
Other Business Taxes
Even though S Corporations do not need to pay state business taxes, they may be subject to other state taxes. For example, depending on the type of business, you may also be responsible for collecting sales tax. If your corporation currently sells physical property, you must seek a Colorado sales tax license and charge sales tax on each purchase.
In addition, if you are making sales at a location other than your primary location, you need to obtain a "special event" license. This can be obtained from the Department of Revenue. You are responsible for maintaining all associated sales records. It is important to remain organized, as you need to file a sales tax return annually.
Form 106 Instructions
All S corporations in Colorado need to complete and file Form 106. Simply complete lines 11-31 in order to pay tax on Colorado sourced income. You do not need to complete any other forms. Once you have completed this form, you can submit the paperwork on your computer or your tablet on the Colorado Department of Revenue website. If for whatever reason you cannot file online, you can mail your forms and payment to the following address: COLORADO DEPARTMENT OF REVENUE, Denver, CO 80261-0006.
When preparing your Colorado tax return, it is imperative that you fully understand what you are required to file and when. This is particularly the case for S corporations who are in their first year of business. To avoid any penalties and to remain in good standing, do not be shy to ask questions. If at any time you are unclear about what you are required to report and file, seek professional advice.
If you need help to file a Colorado S corporation tax return, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.