Yes, Colorado does recognize disregarded entities. A disregarded entity is not separately treated as a partnership, corporation, or trust for federal income tax purposes. This means that the entity’s income, losses, deductions, and credits are treated as if they were directly earned or incurred by the owner of the entity.
An S corp Colorado entity is a standard corporation operating in the state of Colorado that has elected a special tax status with the IRS.
Disregarded Entity. Furthermore, you’ll learn about specific types of businesses that can be categorized under this classification such as those operated by spouses in community property states or QREITs and Subchapter S subsidiaries.
This guide will explain what a disregarded entity LLC is, how it works in terms of taxes and liability, and the pros and cons of choosing this structure for your business. We make business formation EASY.
LLC Taxation in Colorado
The IRS classifies LLCs as pass-through entities by default. As LLCs are pass-through entities, the owners of the LLC will pay the flat Colorado income tax rate of 4.63% on the profits. This is different from corporations as it avoids double taxation because the LLC and the owners are considered a single legal entity.
The cost to start a Colorado limited liability company (LLC) is $50. This fee is paid to the Colorado Secretary of State when filing the LLC’s Articles of Organization.
How long does it take to set up an LLC in Colorado?
Time to process your corporation or LLC formation varies by state with routine processing taking 4 – 6 weeks or even more in the slowest states.
Do LLCs pay taxes in Colorado? The limited liability company does not file its own tax return. Income tax applies based on where the owner lives, not where the LLC is formed.
Alternatively, LLCs can elect to be taxed as an S corporation (S corp) or C corporation (C corp). If S corporation tax status is elected, LLC members can be taxed as employees of the business, potentially reducing the tax burden.
Starting a Single-Member LLC
Does Colorado recognize single-member LLCs? Yes, a single-member LLC in Colorado provides liability protection and flexibility in management and taxation, while avoiding the higher corporate tax rates.
How do you register an LLC in Colorado?
- Name your LLC.
- Choose a registered agent in Colorado.
- File Articles of Organization with the Secretary of State ($50 fee).
- Obtain an EIN for banking or employing purposes.
The process typically takes 10-15 days.
What taxes do LLCs pay in Colorado?
As LLCs are pass-through entities, the owners pay Colorado’s 4.63% flat income tax rate on profits. LLCs can also elect S corp or C corp status.
Setting up a single-member LLC allows you to enjoy limited liability and simplicity, with business profits subject to personal income tax rates rather than higher corporate rates.
What do you need to form a single-member LLC in Colorado?
- File Articles of Organization.
- Choose a unique name.
- Pay a $50 state fee plus optional $25 name reservation fee.
- Obtain an EIN for a bank account or employees.
- No separate operating agreement is required.
Is a bank account required for a single-member LLC? No, but it is strongly recommended.
Most new single-member LLCs need an EIN for federal tax purposes, even those taxed as sole proprietors, in order to open a bank account or have employees. The EIN should use the name and tax ID number of the single member owner.
In summary, forming a single-member LLC in Colorado provides liability protection at a low cost while allowing pass-through taxation. An operating agreement is not required but a dedicated bank account is recommended. Be sure to obtain an EIN if you need to open a bank account or hire employees.