Colorado LLC Taxes

Understanding the tax obligations your Colorado LLC will be faced with is essential to ensure it remains compliant with local, state, and federal regulations.

In this guide, we'll look at the various types of Colorado LLC taxes that may apply to your business as well as offer a detailed look into how to go about correctly filing your LLC taxes in this state.

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

How Is an LLC Taxed in Colorado?

Taxation in Colorado isn’t applied in the same way to all LLCs – instead, it varies depending on a number of 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 one of the following:

• C Corporations: The LLC is treated as a separate entity to its owners, paying corporate income tax rates on its total profit while the owners also pay personal income taxes on any distributions they take.
• S Corporations: In return for paying owners a “reasonable salary,” the LLC’s remaining profits are distributed among members without a need to pay FICA or self-employment taxes on them.

The following sections go into the various tax responsibilities of your LLC at local, state, and federal levels in Colorado to help you ensure your LLC navigates them effectively.

Colorado Local Taxes

The local laws and tax regulations differ greatly between different localities in Colorado, where there are currently a number of unique taxes in place at a local level.

Below is a list of tax types that your city or county may impose:

Sales and Use Taxes

In addition to the statewide rate, many localities in Colorado impose their own additional sales and use taxes that businesses selling tangible products in these areas must pay. It’s up to each city and county to decide whether to impose a local sales tax and, if so, the rate at which it will be charged.

In Colorado, these local sales taxes usually fall anywhere between 0% and 8.3%, with the current average being 4.89% – this leads to quite a wide variation in the total sales tax rate a business may need to pay depending on where it’s based. 

For example, the city of Las Animas imposes a city sales tax rate of 4%, whereas the city of Manassa imposes its own sales tax rate of 1%.

Note: For up-to-date information, use the Colorado Department of Revenue’s Sales Tax Lookup tool.

Income Taxes

In addition to the statewide income tax rate of 4.4%, a number of cities in Colorado impose their own local income tax for businesses and their employees to pay, including:

• Aurora
• Denver
• Greenwood Village
• Glendale
• Sheridan

These local income taxes, which are known as Occupational Privilege Taxes (OPTs), are fees levied on both employees and employers that vary from city to city. For example, businesses in Denver must pay $4/month for each employee, while those in Glendale must pay $5/month for each employee instead.

Note: For the most up-to-date information on any of these cities’ rates and calculations, you’ll need to refer to the official body’s website for the specific city you’re interested in. 

Property Tax

In Colorado, there is no statewide property tax; instead, it is set and managed by each county’s appraisal district and tax assessor-collector's office. These local governmental bodies will appraise the value of your business’s property, applying the local property tax rate to it in order to calculate your tax bill.

For more information on how property tax works in your local area, this means you’ll need to get in contact with either your county’s:

• Appraisal District: For questions about appraisal methodology, exemptions, property values, and special inventory appraisal.
• County Taxes Assessor-Collector Office: For questions about tax rates, tax bills, payment options, and any other information related to paying property taxes.

Note: To help you find the relevant contact information, you can use the county tax office directory provided by the Colorado Comptroller of Public Accounts.

Recommended Service: Schedule a free consultation with 1-800Accountant to ensure your business remains legally compliant. 

Colorado State Taxes

Every state has its own regulations and rules that dictate how it taxes individuals and businesses. Below is a list of the most relevant state-level taxes for LLCs in Colorado. 

Income Taxes

This group of taxes refers to the charges imposed by the state on the earnings of individuals and entities operating within Colorado. There are two main types for you to be aware of:

• Personal Income Tax: A tax levied on the incomes of individuals and LLCs with the default tax election (i.e., a disregarded entity).
• Corporate Income Tax: A tax levied on the income generated by corporations and LLCs that have elected to be taxed as C Corps.

Since 2022, these two income taxes have been levied at the same flat rate of 4.4% despite being imposed on different sources. Understanding how Colorado income tax works is crucial for your businesses as they will form a central part of your statewide tax responsibilities.

Sales-Related Taxes

In Colorado, a statewide sales tax is applied at a flat rate of 2.9% to the price of tangible goods sold within the state and paid by consumers. While this may seem low, remember that cities, counties, and other tax districts within Colorado may impose their own additional local rates, which combine with the state rate and lead to the total sales tax varying widely depending on the location.

While most physical goods (e.g., personal property such as clothes, electronics, and furniture) sold within Colorado are taxable, this tax is not levied on services. As an example to illustrate this, a business selling printed photos would be required to collect and remit sales tax on those prints but would not need to do the same for a service like photo sessions (i.e., those in which no tangible goods are involved).

Certain businesses are exempt from the requirement to pay sales tax in Colorado, including:

• Nonprofits
• Charitable organizations
• Schools
• Religious organizations

If you feel it’s applicable, you can apply for a Certificate of Exemption from the Colorado Department of Revenue using the Application for Sales Tax Exemption for Colorado Organization (DR 0715). Please note that your business will first need to obtain income tax-exempt status from the IRS.

Note: If your business plans to sell any taxable goods, you’ll need to apply for the sales tax license type that corresponds to the goods you sell at MyBizColorado.

Excise & Fuel Taxes

In Colorado, there are a number of statewide taxes and charges levied on LLCs for the privilege of engaging in certain specific sectors and business activities. The state has authorized a number of these excise taxes, with some of the most common ones being:

• Commercial Motor Vehicle Tax
• Cigarette Nicotine Products & Tobacco Products Taxes
• Liquor Tax
• Marijuana Taxes
• Fuel Tax

To find out more about the specifics of each of these excise and fuel taxes – including rates, filing requirements, and exemptions – be sure to refer to the Excise & Fuel Tax page on the Colorado Department of Revenue’s website.

Employer Taxes

If your Colorado LLC employs staff, there are certain state level employer taxes you’ll be required to pay. Two of the main taxes that you’ll need to pay in addition to your federal employer taxes include:

Withholding Tax

Withholding taxes in Colorado are a portion of an employee's income that your business will need to deduct from their paycheck in order to pay employee income taxes to the Colorado Department of Revenue.

You’ll need to register with the Colorado Department of Revenue in order to be able to pay these income taxes on behalf of your employees, which will need to be filed on a periodic basis, either:

• Quarterly: If less than $7,000 in wages are collected for withholding tax.
• Monthly: If between $7,000 and $50,000 are collected for withholding tax.
• Weekly: If more than $50,000 are collected for withholding tax.

The specific percentage or amount you’ll need to reconcile your LLC’s tax withholding is not a fixed rate for all employees, as it varies depending on several factors, including the employee's income, tax filing status, and the number of allowances claimed on their withholding certificate. 

Note: When filing withholding taxes, you’ll use the Colorado Withholding Worksheet for Employers (DR 1098) to determine the exact amount you’ll be required to withhold for each employee. 

Unemployment Insurance (UI) Tax

Your business will need to pay unemployment insurance tax if it pays an employee at least $1,500 in wages in a calendar quarter or employs someone for any part of a day in 20 different weeks within the current or previous year.

Your business’s UI tax is calculated on each employee's wages up to a maximum annual limit, known as the taxable wage base, which changes each year – for the current tax year, this is $20,400.

When paying UI premiums, your business will be charged one of the two following rates depending on how long it has been paying its employees wages:

• Beginning Rate: New employers will pay UI premiums at a rate that varies between 0.0020% and 0.0682%, depending on their business classification.
• Computed Rate: After an employer has paid wages for a “rating period,” which is typically all the quarters in a three-year period, it will be subject to a computed rate. This rate will vary between 0.0064 and 0.0868 depending on your business’s “reverse ratio.”

Your "reserve ratio" is a measure of your business's financial stability used in setting the computed rate. Typically, a higher reserve ratio leads to a lower unemployment tax rate, indicating your business's strong financial health and a reduced likelihood of employee layoffs.

Note: To pay UI tax, you’ll first need to set up an account with the CDLE, either online via the MyUI Employer website or by paper using Form UITL-100. 

Federal Taxes

Regardless of where your business is located, if you run an LLC in the US, there are a number of federal taxes you’ll need to pay. Below are some of the main types your LLC may be required to pay for federal tax purposes:

Income Tax

By default, the IRS will not treat single and multi-member LLCs as a separate entity from you for tax purposes. What this means is that you’ll need to report your share of your LLC’s profits on your individual tax returns and pay federal income tax on them at the personal rate of your tax bracket.

Having said that, keep in mind that LLCs can also elect to be taxed as C corps or S corps, which changes how these taxes are levied in different ways.

Self-Employment Tax

In addition to income tax, members of single- and multi-member LLCs will need to pay self-employment tax on the share of the business’s profits that they report on their personal tax return at the end of the year.

This tax is levied at a flat rate of 15.3% against businesses with net earnings that exceed $400, though it is applied slightly differently to LLCs that have elected to be taxed as S corps or C corps.

Employment Tax

If your LLC hires any employees, it will need to withhold a portion of their salaries to cover various types of taxes on your employees’ behalf – including Social Security, Medicare (FICA), and payroll taxes.

Furthermore, the members of any LLCs that have elected to be taxed as an S corp will be required to pay employment taxes on their salaries. However, in return for this, the remainder of the business’s profit after these salaries have been distributed will be safe from both self-employment and FICA taxes.

Excise Tax

If your LLC engages in certain types of business (such as the sale of alcohol and tobacco or operating a heavy highway vehicle, among others), it may need to pay federal excise taxes in order to do so legally. Each excise tax comes with its own set of rules, rates, and filing obligations you’ll need to be aware of.

Understanding and fulfilling these federal tax obligations is crucial for keeping your LLC compliant and avoiding unnecessary financial penalties and/or fines.

How to File LLC Taxes in Colorado

Below, we’ve outlined the general process an LLC in Colorado will need to follow in order to file their tax return correctly. Note that the specificities of each step will vary slightly depending on how your LLC is organized and the specific locality it’s based in. 

Step 1: Gather Your Documentation

To ensure accurate tax filing, thorough record-keeping is essential. Begin by collecting your personal information, including:

• You and your partner’s Social Security number, date of birth, and residential address
• The previous year’s tax returns
• Your LLC’s Employer Identification Number (EIN)

Then, you’ll need to gather all documentation related to your business’s income, such as:

• Invoices you’ve issued
• Sales transaction logs
• Electronic payment reports from services like PayPal or Stripe

Lastly, assemble all records pertaining to your business expenses, which should cover:

• Lease receipts for your business premises
• Bills for utilities
• Records of office supplies purchases
• Documentation of business-related travel
• Payroll records for employees

Note: Depending on how your LLC is organized and its tax election, you may need different information for your tax return. 

Step 2: Find The Right Tax Forms

Once you've gathered all necessary documents, the next step is to select the correct tax forms for your LLC based on its organization:

• Single-Member LLCs: The business’s total income and expenses are reported on a Schedule C form, which is attached to the owner’s personal tax return and due by April 15 or the following business day if it lands on a weekend or holiday.
• Multi-Member LLCs: File an information return using Form 1065. Members must fill out a Schedule K-1 showing their individual earnings or losses by March 15 or the next business day.
• C Corporations: File a corporate tax return using Form 1120 by the April 15 deadline or on the next business day if it's a weekend or holiday.
• S Corporations: Use Form 1120-S for the corporate tax return and distribute Schedule K-1 forms to shareholders for reporting their shares of profits or losses. The deadline for filing taxes using 1120-S is March 15 or the following business day.

Since state and local taxes will have their own individual forms and requirements, we recommend contacting your municipality or hiring an accountant for guidance.

With the appropriate documentation gathered and the correct tax forms for your business entity on hand, you’ll be ready to fill them out and submit them.

Step 3: File Your Taxes

The majority of businesses choose electronic filing for its speed, enhanced security, and reliability compared to paper filing, which can be slower and more prone to errors. Here’s how it works:

• Federal Tax Returns: The IRS provides two electronic services for tax submission: Free File for businesses with an AGI below $72,000 and Free Fillable Forms for those above the threshold.
• State and Local Tax Returns: Depending on the specific tax, the filing requirements can vary. In Colorado, you can file your tax return electronically through Revenue Online.

Note: These electronic filing tools are best suited for those who are already confident in handling their LLC taxes as if filling out a paper form. 

For new business owners, we recommend opting for the expertise of a tax professional in order to ensure both accuracy and compliance in your tax filings. 

Recommended: Schedule a free consultation with 1-800Accountant to stay on top of your taxes. 

Keep Your Colorado LLC Compliant

While LLCs are generally easier to maintain than corporations, there are certain state and local formalities your LLC must satisfy in order to remain compliant. 

Colorado Periodic Report

As an LLC owner in Colorado, filing a periodic report with the Secretary of State every year is a critical part of maintaining your LLC's good standing. It's essentially a check-in to help the state maintain accurate records of your LLC’s current information, such as its address, registered agent, and the names of key members or managers.

The filing period for your LLC is based on your company's formation date. You must file within a three-month window that starts on the first day of your anniversary month and ends on the last day of the third month.

For instance, if your LLC was formed on June 14, your annual filing period would be the entire month of June the following year. If you're unsure about your formation date, you can easily check it in the Colorado Business Database.

To be able to fill out the Periodic Report, be sure to have the following information on-hand: 

• Business ID number, name, and state of formation.
• Principal street and mailing addresses.
• Registered agent's full name and street address.
• Business's email address.
• Full name and address of the individual filing the report.

Once you’ve done this, you can file your report quickly and easily online through the Secretary of State’s website after paying the $10 filing fee.

It’s important not to miss your LLC’s deadline, as this results in your business being marked as “non-compliant” and incurring a $50 late fee. If your status remains non-compliant for 90 days, it changes to “delinquent,” and the late fee increases again to $90 – after which you’ll also need to file a Statement Curing Delinquency.

Licensure and Tax Requirements

In Colorado, almost all businesses are required to obtain various licenses and permits at the local, state, and federal levels. Below, we’ve broken down three of the most common types your LLC may need:

• Sales Tax Licenses: If your LLC plans to sell or lease physical goods that would typically need to pay sales tax, you’ll need to obtain a specific license online from the Colorado Department of Treasury.
• Professional Licenses: If your LLC plans to operate in a specialized sector such as healthcare, law, or accounting, it will be required to secure a professional license pertinent to that field. For example, to start an accountancy firm, you’d first need to obtain the relevant license from the Colorado State Board of Public Accountancy.
• Environmental Permits: If your business engages in operations that might affect the environment, it will probably require certain permits to legally operate, such as the Colorado Pollutant Discharge Elimination System (TPDES) permit, in order to legally release pollutants.

Note: For a full list of the statewide licenses and permits your LLC may need, refer to the Colorado Business Licenses & Permits Guide provided by the state’s Business Permit Office.

Colorado LLC Taxes FAQs