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Colorado Corporation
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Advantages of a Corporation
- Shareholders have limited liability for the corporation's debts or judgments against the corporations.
- Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)
- Corporations can raise additional funds through the sale of stock.
- A corporation may deduct the cost of benefits it provides to officers and employees.
- Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.
- A corporation pays 15% federal income tax on taxable income up to $50,000; 25% tax on income from $50,001 - $75,000; 34% tax on income from $75,001 - $100,000; 39% tax on income from $100,001 - $335,000; and 34% tax on income over $335,000.
- A sole proprietor who filed a federal income tax return under the status of married, filing jointly, would pay 15% federal income tax on taxable income up to $35,800; 28% tax on income from $35,801 to 86,500; and 31% tax on income over $86,501.
Disadvantages of a Corporation
- The process of incorporation requires more time and money than other forms of organization.
- Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
- Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible form business income, thus this income can be taxed twice.
Federal Tax Forms for Regular or "C" Corporations
- Form 1120 or 1120-A: Corporation Income Tax Return
- Form 1120-W Estimated Tax for Corporation
- Form 8109-B Deposit Coupon
- Form 4625 Depreciation
Colorado’s 2011 Business Tax Climate Ranks 15th
Colorado ranks 15th in the Tax State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. The ranks of neighboring states were as follows: Arizona (34th), Utah (9th), Wyoming (3rd), Nebraska (29th), Kansas (35th), Oklahoma (30th) and New Mexico (33rd).Colorado's Individual Income Tax System
Colorado's personal income tax system consists of a flat tax of 4.63% on the entirety of an individual's taxable federal income. That top rate ranks 38th highest among states levying an individual income tax. In 2006 Colorado's state-level individual income tax collections were $1,037 per person, which ranked 16th highest nationally. Since most small businesses are either S Corporations or partnerships or sole proprietorships, they pay their business taxes at the rates for individuals. The state's low income tax rate makes the tax environment for small businesses in Colorado competitive compared to other states.Colorado's Corporate Income Tax System
Colorado's corporate tax structure consists of a flat rate of 4.63% on all corporate income. Among states levying corporate income taxes, Colorado's rate ranks 44th highest nationally. In 2008, state-level corporate tax collections (excluding local taxes) were $104 per capita, which ranked 38th highest nationally among states that tax corporate income.Colorado Sales and Excise Taxes
Colorado levies a 2.9% general sales or use tax on consumers, one of the lowest rates among states levying a sales tax. In 2007 combined state and local general and selective sales tax collections were $1,374 per person, which ranked 25th highest nationally. Colorado's gasoline tax stands at 22 cents per gallon (31st highest), while its cigarette tax stands at $0.84 per pack of twenty (32nd highest). The sales tax was adopted in 1935, the gasoline tax in 1919 and the cigarette tax in 1964.
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