Get DR 0112EP (060215) - Colorado

Read more from our Colorado state tax experts. On May 16, 2022, Governor Jared Polis signed SB 22-124 (the SALT Parity Act) into law, making changes to Colorado's pass-through entity (PTE) tax. Our Colorado state tax experts summarize the changes and discuss the unique complications this bill and PTE taxes present.

Filing Requirements Any corporation, partnership, joint venture, common trust fund, limited association, pool or working agreement, limited liability company or any other combination of persons or interests, that is required to file a federal income tax return, must file a Colorado Income Tax Return.

The limited liability company does not file its own tax return. As LLCs are pass-through entities, the owners of the LLC will pay the flat Colorado income tax rate of 4.63% on the profits.

Subtraction Amounts Taxpayers who are 65 years of age or older as of the last day of the tax year can subtract the smaller of $24,000 or the taxable pension/annuity income included in federal taxable income. Note: For taxpayers aged 65 or older, there is an exception to this limitation for tax years 2022 and later.

Like many states, Colorado enacted an elective pass-through entity (PTE) tax regime, effective for tax years beginning January 1, 2022. On October 21, 2022, the Colorado Department of Revenue (DOR) released form DR 1705 for making a Colorado PTE tax election prior to the end of the 2022 tax year.

The "SALT Parity Act" was enacted in 2021 and, for income tax years commencing on or after January 1, 2022, it allowed pass-through entities to elect to pay state income tax at the entity level, which allows the entity to claim an unlimited deduction at the federal level for state and local taxes paid.

The state and local tax (SALT) deduction permits taxpayers who itemize when filing federal taxes to deduct certain taxes paid to state and local governments.

Effective January 1, 2023, single filers are limited to $12,000 and joint filers are limited to $16,000 of deductions. The current standard deduction in Colorado is $12,950 for singles and $25,950 for joint filers.