If your business is a corporation located or “doing business” in Colorado, it is subject to state and federal corporate income taxes. In general, a corporation will be considered to be “doing business” when it has employees or business property in Colorado. If you will be filing as an S Corporation, your business income will be taxed as a partnership and will be exempt from corporate income taxes, although a corporate income tax return must still be filed. Working corporate officers are still treated as employees, even in an S Corporation, and must be paid a reasonable wage which is subject to all payroll taxes. At the end of your corporation’s fiscal year, you must figure its net taxable income or net loss. To do this, you subtract the operating expenses and “allowable deductions” from the gross income.
The laws governing federal tax rates, allowable deductions and losses change frequently. Annually, you should obtain a summary of the current applicable federal tax laws from the IRS. The IRS Publication #542, “Corporations,” is a useful guide in determining your federal tax liability. Every corporation, including S Corporations, “doing business” in Colorado or deriving income from Colorado sources must file a corporate income tax return with Colorado. Colorado taxable income is determined by adding and/or subtracting various adjustments to your federal taxable income. If your corporation is “doing business” in Colorado as well as other states, you must apportion to Colorado the share of your income derived from sources within Colorado. Contact the Colorado Department of Revenue for more information.
If you expect your federal tax liability to be $500 or more and/or your state tax liability to be $5,000 or more, you are required to file and pay estimated taxes during the year. Use Form 1120W, “Estimated Tax for Corporations,” to figure federal estimated taxes due. The state form for making estimated tax returns is the 112 EP. Report your federal corporate income annually on Form 1120, “U.S. Corporation Income Tax Return,” or Form 1120S,” U.S. Income Tax Return for an S Corporation.” At the end of the year, you will file your corporate state tax on Form112 or for S Corporations on Form 106. A corporation that owes more than $500 (and no estimated tax payments equal to the smaller of current year’s or prior year’s taxes) in federal income tax or $5,000 in state income tax may be subject to penalties and interest. If you receive dividends from your corporation you must report them as income on your personal income tax return and pay the appropriate income taxes.