Colorado has a relatively simple tax structure for S-Corps compared to other states. Denver business owners don't face some of the complexities that S-Corp owners deal with in states like California or New York. But there are still important Colorado-specific rules and benefits you need to understand.
Here's what every Denver S-Corp owner should know about Colorado state taxes.
Colorado has a flat income tax rate of 4.40% for 2026 (the rate dropped from 4.55% in 2020). This applies to all income types, including S-Corp pass-through income, W-2 wages, investment income, and other sources. There are no tax brackets in Colorado. Everyone pays the same 4.40% rate regardless of income level.
For S-Corp owners, this means your business income flows through to your personal Colorado return and gets taxed at 4.40%. The state doesn't distinguish between your S-Corp salary and distributions. Both get taxed at the same rate.
This is different from the federal system where distributions avoid employment taxes but still face income taxes. At the Colorado level, there's no tax advantage to distributions over salary.
Colorado follows federal S-Corp treatment. If you've elected S-Corp status with the IRS using Form 2553, Colorado automatically recognizes that election. You don't need to file a separate state-level S-Corp election.
Your S-Corp files a Colorado corporate income tax return (Form 106) annually. This return reports your S-Corp's income, deductions, and how income is allocated among shareholders. The S-Corp itself doesn't pay Colorado income tax. The income flows through to shareholders' personal returns.
Each shareholder receives a K-1 showing their share of S-Corp income. They report this on their Colorado individual income tax return (Form 104). This is the same process as federal S-Corp taxation.
If your Denver S-Corp has shareholders who don't live in Colorado, the S-Corp can file a composite return to pay Colorado taxes on behalf of those nonresident shareholders. This saves nonresident shareholders from having to file individual Colorado returns.
Composite returns are optional but helpful for S-Corps with out-of-state owners. The S-Corp pays Colorado tax at the highest individual rate (4.40%) on the nonresident shareholders' share of Colorado-source income.
Our Denver business CPA services help multi-state S-Corps determine whether composite filing makes sense for their situation.
Denver has a local occupational privilege tax of $5.75 per month for anyone who works in Denver, whether as an employee or business owner. If your S-Corp is based in Denver and you work in the business, you owe this monthly tax.
Other Colorado cities have their own local taxes. Aurora, Boulder, and Colorado Springs all have different local tax structures. Check with your city's finance department to understand local business tax obligations.
These local taxes are separate from state income taxes and are usually minimal. But don't overlook them. Cities do enforce their local business taxes.
If your Denver S-Corp sells taxable goods or services, you need to collect and remit Colorado sales tax. The state base rate is 2.9%, and local jurisdictions add their own rates. Denver's combined rate is typically around 8.81% (state, city, county, and district taxes combined).
Sales tax obligations are separate from income tax. You must register for a Colorado sales tax license and file returns monthly, quarterly, or annually depending on your sales volume. Sales tax is not affected by your S-Corp status. The requirements are the same whether you're an LLC, S-Corp, or sole proprietor.
S-Corp owners who receive W-2 wages must pay Colorado unemployment insurance taxes. The Colorado Department of Labor and Employment sets your UI rate based on your industry and experience.
New employers typically pay a standard rate (around 1.7% for most industries in 2026) on the first $20,000 of each employee's wages. After a few years, your rate adjusts based on your unemployment claims history.
Even if you're the only employee, you must register and pay UI taxes. This is different from LLC owners who often don't pay unemployment taxes on their own earnings.
Some states charge separate franchise taxes or high annual LLC fees. Colorado charges an annual periodic report fee of $10 for LLCs and corporations. This is due each year based on your entity's registration month.
Compared to states like California (minimum $800 franchise tax) or Delaware (franchise tax based on shares authorized), Colorado is extremely business-friendly. The $10 annual fee is nominal.
In 2022, Colorado enacted a pass-through entity tax that allows S-Corps and partnerships to pay state income tax at the entity level. This was in response to the $10,000 federal SALT (state and local tax) deduction cap.
Under the federal SALT cap, individuals can only deduct $10,000 in state and local taxes on their federal return. But entity-level taxes paid by pass-through entities are not subject to this cap. They're deducted as business expenses.
Colorado's PTE tax is optional. If your S-Corp opts in, it pays Colorado income tax at 4.40% on entity income. Shareholders then receive a credit on their Colorado individual returns to avoid double taxation. The benefit is a larger federal deduction for state taxes paid.
This strategy primarily benefits high-income S-Corp owners who are already maxing out the $10,000 SALT deduction. Our tax strategy services help Denver S-Corp owners determine if PTE election makes sense for their situation.
Colorado offers several tax credits that S-Corp owners can claim. The Enterprise Zone credit provides credits for businesses operating in designated economically distressed areas. Several Denver neighborhoods qualify. The Child Care Contribution credit is available for contributions to child care facilities. The Colorado Job Growth Incentive Tax Credit supports businesses creating new jobs. The Rural Jump-Start Zone credit provides credits for new businesses in rural Colorado counties.
These credits pass through to shareholders on their K-1 and reduce Colorado individual income tax liability. They don't reduce the S-Corp's tax because the S-Corp doesn't pay entity-level tax.
Colorado S-Corp income flows through to your personal return, but there's no withholding on distributions. You're responsible for making quarterly estimated tax payments to cover Colorado income tax on your S-Corp profit.
Colorado estimated taxes are due April 15, June 15, September 15, and January 15 (same as federal). You must pay at least 70% of your current year tax or 110% of prior year tax to avoid underpayment penalties.
Many Denver S-Corp owners forget about Colorado estimated taxes while focusing on federal payments. Don't make this mistake. Colorado assesses penalties for underpayment just like the federal government does.
The self-employed health insurance deduction that S-Corp owners claim on their federal return also reduces Colorado taxable income. If you properly deducted $15,000 in health insurance premiums on your federal return, you also reduce your Colorado income by $15,000.
This saves you 4.40% of the deduction amount in Colorado taxes. On $15,000 in premiums, that's $660 in Colorado tax savings annually. Make sure you're following the proper procedure for S-Corp health insurance deductions to get this benefit at both federal and state levels.
One of the nice things about Colorado is the simplicity. You don't need to file special forms notifying the state of your S-Corp election. You don't need annual S-Corp certifications. You don't face additional reporting requirements beyond the standard corporate income tax return.
This is refreshing compared to states like California where S-Corps face extra paperwork, fees, and compliance requirements. Colorado recognizes your federal S-Corp election and follows federal treatment with minimal additional state-level complexity.
If you're relocating your business to Denver from another state, your federal S-Corp election remains valid. You don't need to re-elect S-Corp status. Simply register your business with the Colorado Secretary of State, obtain a Colorado tax account number, and start filing Colorado returns.
You may need to dissolve or withdraw your business in your prior state. Consult with a CPA familiar with both states to ensure a clean transition.
If your Denver S-Corp does business in multiple states, you'll face multi-state income allocation issues. Colorado will tax your Colorado-source income. Other states will tax income sourced to their jurisdictions. Your S-Corp needs to file returns in each state where it does business and allocate income appropriately.
This gets complex quickly. Income allocation formulas vary by state. Some states use three-factor formulas (sales, property, payroll). Others use single-factor formulas based on sales. Navigating multi-state S-Corp taxation requires professional help.
Colorado's 4.40% flat tax rate is competitive with neighboring states. Wyoming has no income tax (but requires a different business structure). New Mexico has progressive rates up to 5.9%. Utah has a flat 4.65% rate. Kansas has progressive rates up to 5.7%.
For S-Corp owners, Colorado's simplicity and low flat rate make it attractive. You get predictable taxation without complex brackets or phase-outs. Combined with Denver's strong business environment and quality of life, it's a good place for S-Corp owners to build businesses.
Colorado S-Corp taxation is relatively straightforward, but mistakes still happen. Common errors include forgetting to file the Colorado corporate return, not making quarterly estimated payments, missing local city taxes, and not claiming available Colorado tax credits.
At Succentrix, we help Denver S-Corp owners with complete Colorado tax compliance. We file your Colorado corporate return, prepare shareholder K-1s with proper Colorado allocations, handle estimated tax calculations, claim all available Colorado credits, and ensure compliance with Denver and other local tax requirements.
Our tax return preparation services include both federal and Colorado returns. We make sure you're taking advantage of all available deductions and credits while staying completely compliant with Colorado tax laws.
If you're operating an S-Corp in Denver or considering converting to S-Corp status, schedule a consultation with our team. We'll explain how Colorado taxation affects your specific situation and ensure you're structured optimally for both federal and state tax purposes. Colorado's tax system is S-Corp-friendly, but you still need to handle the details correctly to avoid problems.
