How Is an LLC Taxed in Colorado?
The Colorado LLC members report the LLC’s profits and losses on individual tax returns, and each LLC member will be taxed at the 15.3% federal self-employment tax rate (12.4% for social security and 2.9% for Medicare). Colorado LLC members should also expect to pay the flat Colorado income tax rate of 4.40%.
Understanding Colorado LLC Tax Classifications
Taxation in Colorado varies depending on factors such as an LLC’s nature, locality, and tax election. While LLCs typically benefit from pass-through taxation by default, they can elect to be taxed as a sole proprietorship, partnership, or corporation for federal tax purposes.
Pass-Through Taxation and Self-Employment Tax
- Pass-Through Taxation: LLCs do not file their own tax return; instead, taxes are passed on to the owners’ personal returns.
- Self-Employment Tax:
- 12.4% for Social Security
- 2.9% for Medicare
Certain business types such as architects and chiropractors may require a state license and fee.
Is Colorado a good state to form an LLC? Incorporating in Colorado can protect your personal assets from business liabilities.
Colorado Business Taxes for LLCs
Business taxes are a requirement, and an LLC will need to pay various taxes to the state and federal governments.
Colorado LLCs use pass-through taxation and are free from paying corporate income tax. However, if you choose to tax your LLC as a C-Corp, the entity will be subject to corporate income tax.
Colorado State Taxes
- Personal Income Tax: 4.55%, with deductions available for single and married taxpayers
- Corporate Income Tax: 4.55% on Colorado taxable income
State Taxes for Colorado LLCs
Income Taxes
- Personal Income Tax for individuals and LLCs is a flat rate of 4.4%.
- Corporate Income Tax for corporations and LLCs taxed as C Corps is at a rate of 4.4% since 2022.
Working with a qualified accountant is essential for determining your small business taxes, which can range from $300 to $900 for tax filing services.
Colorado State Income Tax Requirements
- Single-Member LLCs: No state-level return; owner files personal return.
- Multi-Member LLCs: May need to file a state-level Partnership return; owners file personal returns.
For specific advice and tax filing, it’s best to consult with an accountant.
Local Sales Taxes
Colorado’s local sales taxes vary widely, with rates between 0% and 8.3%, averaging 4.89%. Local income taxes may also apply in cities like Aurora and Denver.
Colorado Sales Tax License
LLCs selling tangible property must pay a sales tax of 2.9%. Additionally, a federal self-employment tax of 15.3% applies, and a 4.55% corporate tax if elected as a C-Corp.
Filing and Penalties
Late filing or payment to the Colorado Department of Revenue incurs a penalty of 5.5% of the tax due monthly, up to 12%. For taxes below $100, the penalty is $5 per month.
Who Must File
All Colorado S corporations must file a federal tax return using Form 1120S, and the state tax return is based on the federal return.