How to Start an S Corp in Colorado
Starting an S corporation (S corp) in Colorado is easy, and electing an S corp tax designation could potentially save your business money in taxes. Our guide will walk you through the process of starting your Colorado S corporation and provide you with tips on maintaining your S corp.
Want to form an S corp elsewhere? Check out our other How to Start an S corp guides to learn more.
We recommend using a professional formation service like Tailor Brands to get your S corp up and running in no time.
Factors to Consider Before Starting an S Corp
Before forming an S corp, you have to consider the following factors:
- Is an S corporation the best strategy for your business?
- S corporation restrictions
- Are S corp tax advantages right for you?
Is an S Corporation the Best Strategy for Your Business?
For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.
S Corporation Restrictions
S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read our What Is an S Corporation guide for full details.
Are S Corp Tax Advantages Right for You?
An S corporation is a tax designation that can be elected by an LLC or corporation. With an S corp, business owners are considered employees of the company and must receive a reasonable salary. Since all S corps technically have employees, the s corp must run payroll.
In order to benefit from a Colorado S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take large distributions in addition to their salary.
To learn more about the tax advantages of an S corp, read our LLC vs. S corp guide and take a look at our S Corp tax calculator.
Businesses that elect S corp status will need to hire payroll and accounting services.
How to Form a Colorado S Corp
There are two main ways to start an S corp:
- By forming an LLC and electing S corp tax status from the IRS when you request your employee identification number (EIN)
- By forming a corporation and electing S corp status from the IRS
We recommend not starting a corporation with the S corp tax status because the S corp negates all of the benefits of a corporation.
Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.
Steps for Forming an LLC and Electing S Corp Status in Colorado
Starting a Colorado LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Tailor Brands to guide you through this process.
There are five basic steps to start an LLC and elect S corp status:
Step 1: Name Your LLC
Step 2: Choose a Registered Agent
Step 3: File the Articles of Organization
Step 4: Create an Operating Agreement
Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status
Step 1: Name Your LLC
Choosing a company name is the first and most important step in starting your LLC in Colorado.
Be sure to choose a name that complies with Colorado naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a Colorado LLC:
- Your name must include one of the following terms or abbreviations: limited liability company, ltd. liability company, limited liability co., ltd. liability co., limited, l.l.c., LLC, or ltd.
- Your name must be distinguishable from any existing business in the state.
- Your name cannot contain any term that would violate any Colorado law. For example, your business name cannot include obscenities or references to illegal activities.
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Certain restricted words (e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual to be part of your LLC.
You can also read the Colorado state statute about LLC naming guidelines for more information.
2. Is the name available in Colorado? You can use the name availability search on the Colorado Secretary of State website to see if your desired LLC name is available.
3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.
Step 2: Choose Your Colorado Registered Agent
You must elect a registered agent for your Colorado LLC.
An LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Articles of Organization.
Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.
Colorado Registered Agent Consent to Appointment
The person filing the Colorado Articles of Organization must check a box during the online filing process indicating that their registered agent has consented to their appointment.
Step 3: File the Colorado LLC Articles of Organization
The California Articles of Organization is used to officially register an LLC.
Note: Colorado has reduced formation filing fees to $1 from July 1, 2022, to June 30, 2023.
File Your Colorado Articles of Organization
Step 4: Create an LLC Operating Agreement
An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.
For more information, read our Colorado LLC Operating Agreement guide.
Our operating agreement tool is a free resource for business owners.
Step 5: Get an EIN and Complete Form 2553 on the IRS Website
An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS.
Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.
Visit our Form 2553 Instructions guide for detailed help with completing the form.
This is the form to elect S corp tax status for your LLC:
Ready to start saving on your taxes?
We recommend using a formation service to start your Colorado S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your Colorado S Corp Compliant
Formally filing the paperwork to start a business is an important step in growing your business, but once your business is up and running, you will want to make sure you keep your S corporation in good standing by following state and federal laws. Colorado S corporation owners will need to file an Periodic Report each year along with Form 106 to cover quarterly estimated income taxes.
Colorado S Corp Periodic Report
Every year your Colorado S corp must file a Periodic Report with the Colorado Secretary of State. This ensures your business information is up to date with the state, and even if nothing changes, your business will still need to file this annual report.
To find when your Periodic Report is due, you will need to go to Colorado’s business database page and search for your business. There is a $10 fee to file this report, and you can file your Periodic Report online through the Secretary of State’s website.
Colorado S Corp Taxes
S corporations benefit from pass-through taxation, meaning the business’s profits pass-through to S corp owners’ individual tax returns. S corp owners make money from their reasonable salary and distributions, and Colorado S corp owners can expect to pay the following taxes:
Federal Self-Employment Taxes
Self-employment taxes cover social security and medicare. The self-employment tax rate is 15.3%, and money you take as salary will be subjected to the self-employment tax. However, distributions are not subjected to this tax.
Federal Income Taxes
Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets as well as the percent owed will change each year. Both your salary and distributions are subjected to federal income tax.
Colorado Income Taxes
The Colorado income tax rate is 4.40%. You will want to file your federal income taxes before filing Colorado’s state income taxes. Some states have income tax rates of 0% and other states have income tax rates over 10%. Colorado’s 4.40% income tax rate is fairly standard when compared to neighboring states.
Form 106
Most Colorado S corps must file Form 106 to pay their quarterly estimated income taxes. Estimated payments to cover business income taxes must be made if your income is greater than certain thresholds.
Colorado Sales and Use Tax
Colorado’s Statewide Sales & Use Tax System (SUTS) allows Colorado businesses to file and pay their taxes no matter where they are located in the state. Colorado's SUTS allows business owners to easily calculate their sales tax and the site’s Geographical Information System (GIS) allows you to look up a specific tax rate and jurisdiction by using an address.
The current state sales tax rate is 2.9%, but we recommend using Colorado’s SUTS to get a better sense of any local tax rates that may apply in addition to the state tax rate. Whether you are in Denver, Boulder, or Grand Junction, each Colorado area may have its own local tax laws.
Start a Colorado S Corp FAQ
What is an S corp?
An S corporation (S corp) is a tax designation for which an LLC or a corporation can apply.
Are taxes for LLCs and S corps the same?
No. The default taxes for an LLC and taxes for an S corp are not the same.
With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.
With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.
What is a reasonable salary for an S corp?
S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.
What is a distribution?
A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.
Can I still use my DBA name if I elect to be an S corp?
LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.