Business Taxes Payable by Your Colorado LLC
Business taxes are a fact of life, and your CO LLC will need to pay a variety of taxes to both the federal and Colorado governments. We’ll cover all the main taxes in Colorado including self-employment, payroll, federal, Colorado state tax and Colorado sales tax.
If you want help with your taxes, Incfile provides a complete Business Tax Filing service.
How Your Colorado LLC Will Be Taxed
The profits of a Colorado LLC are not taxed at the business level like those of C Corporations. Instead, taxes for a Colorado LLC work as follows:
Colorado LLC owners pay self-employment tax on business profits
Colorado LLC owners pay CO state tax on any profits, less state allowances or deductions
All LLC owners pay federal income tax on any profits less federal allowances or deductions
Some CO LLCs pay Colorado sales tax on products
Employers pay payroll tax on any salaries they pay to employees
Employees pay federal, state and payroll tax on their earnings
Items 1, 2 and 3 are taxed as “pass-through” income for any LLC owners, managers or members who receive profits from the business. Any profits are reported on federal and Colorado personal tax returns, and that’s where you will pay those taxes.
Colorado Tax Withholding ID Number
You can get a Colorado tax withholding ID number from the CO Department of Revenue.
Colorado Taxes Payable to the CO Department of Revenue
There are two main types of tax that you will pay to the Colorado Department of Revenue: Colorado state income tax and Colorado state sales tax.
Colorado State Tax on Your LLC Earnings
As a Colorado business owner, you will need to pay CO state tax on any money you pay to yourself. These earnings flow through to your personal tax return, which is where you will pay Colorado income tax. You will be taxed at the standard rates for Colorado state taxes, and you will also get to apply regular allowances and deductions.
Any salaried employees will also need to pay personal Colorado state taxes.
The Colorado state tax rate is 4.63 percent.
Get details on the Colorado state tax online here.
Colorado Sales Taxes on LLC Sales
If you sell physical products or certain types of services, you may need to collect sales tax (also known as sales and use tax) and then pay it to the CO Department of Revenue. Colorado sales tax is collected at the point of purchase. Colorado sales tax rates do vary depending on the region, county or city where you are located.
You will typically need to collect Colorado sales tax on:
Tangible, personal property and goods that you sell like furniture, cars, electronics, appliances, books, raw materials, etc.
Certain services that your Colorado business might provide
Most states do not levy sales tax on goods that are considered necessities, like food, medications, clothing or gas.
Get details on the Colorado sales tax online here.
Colorado Sales Tax Rates
Sales tax rates do vary between states, counties and cities. Typically, the state will set a base sales tax rate, then specific counties and cities may levy small additional sales tax amounts on top of that.
Federal Self-Employment and Income Taxes for Your Colorado LLC
There are a couple different federal taxes that every LLC will need to pay, including Colorado LLCs. These are self-employment tax and federal income tax, which are taxed as “pass-through” income via your tax return forms.
Colorado LLC Federal Self-Employment Tax
All Colorado LLC business members or managers who take profits out of the LLC will need to pay self-employment tax. This tax is also known as FICA, Social Security or Medicare tax. It applies to all the earnings you withdraw from your Colorado business. The current self-employment tax rate is 15.3 percent.
You will be able to deduct your business expenses from your income when working out how much self-employment tax you owe. Here are some examples of how much self-employment tax you may need to pay, depending on your earnings:
On profits of $30,000, you would pay self-employment tax of $4,590
On profits of $50,000, you would pay self-employment tax of $7,650
On profits of $90,000, you would pay self-employment tax of $13,770
On profits of $120,000, you would pay self-employment tax of $18,360
Pay Less Self-Employment Tax by Treating Your Colorado LLC as an S Corporation
The Internal Revenue Service allows LLCs to ask to be treated as an S Corporation for tax purposes. This can help you reduce the amount of self-employment tax that you pay by declaring some of your income as salary and other income as distributions or withdrawals.
You can do this by making an “S Corporation Tax Election” with the IRS using a form known as Form 2553. We can file your Form 2553 with the IRS on your behalf.
Incfile Form 2553 S Corporation Tax Election for an LLC service
Speak to your accountant for more information on reducing your Colorado LLC self-employment tax through an S Corporation tax election.
Colorado LLC Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your Colorado LLC. The amount of income tax you pay depends on your earnings, current income tax brackets, deductions and how you file.
You only pay federal income tax on your Colorado LLC profits that you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus LLC business expenses and other deductions for areas such as healthcare and some retirement plans. Speak to your accountant for more information.
Employer and Employee Taxes for Your Colorado LLC
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your own unique situation.
Colorado LLC Employer Payroll Tax Withholding
All employers must collect and withhold payroll tax from their employees when they receive their salaries. You would normally withhold 7.65 percent of the taxable salary that you pay to your employees.
Colorado LLC Federal and State Tax Withholding
You may also choose to withhold federal and Colorado state income tax on the wages you pay to employees. Speak to your accountant for more information.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and Colorado state income tax, your employees may need to file their own tax returns.
Colorado LLC Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, like employee compensation insurance or unemployment tax. There will also be other requirements you have for employees.
Get more requirements from the Colorado Department of Labor and Employment website.
Other Taxes and Duties for Your Colorado LLC
Depending on the industry you are in, your Colorado LLC may be liable for certain other taxes and duties. For example, if you sell gasoline you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties. Speak to your accountant about any other taxes you may need to withhold or pay.
Estimated Taxes for Your Colorado LLC
Most Colorado LLCs will need to pay estimated taxes throughout the year, depending on the amount of income and profit you expect to make. The most common types of estimated taxes are:
Most Colorado LLCs will pay estimated taxes four times a year. Speak to your accountant for more information.
FAQs on Colorado LLC Business Taxes
Does Colorado Have Sales Tax?
Yes. Colorado does have a sales tax, which may vary among cities and counties. You can find more information above.
Does Colorado Have a State Tax?
Yes. Colorado does have a general state income tax. You can find more information above.
What Is the Sales Tax Rate in Colorado?
We have listed common sales tax rates in Colorado cities above.
Do I Need to Pay Estimated Taxes?
Yes. In most cases you must pay estimated taxes on your Colorado tax, federal income tax and self-employment tax. Speak to your accountant for more information.