6 Business Tax Law Tips for Colorado Entrepreneurs

6 Business Tax Law Tips for Colorado Entrepreneurs

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Companies of all sizes prefer to hang on to as much of their revenue as possible. For Colorado entrepreneurs running small businesses, doing so can be critical to the financial health of their company. And, while the government certainly isn’t trying to hurt your business by assessing taxes, it’s not going to go out of its way to help your business either. That’s why you need to have a good understanding of business tax law and a process for ensuring you abide by it.

What are Business Taxes?

The Internal Revenue Service (IRS) oversees the collection of five general types of taxes:

  • Income Tax – All businesses except partnerships must file an annual income tax return.
  • Estimated Taxes – You must pay taxes on income, including self-employment tax, by making regular payments of estimated tax during the year.
  • Self-Employment Tax – Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves.
  • Employment Taxes – If you have employees there are taxes you must pay and forms you must file.
  • Excise Tax – Excise taxes only apply to certain types of businesses based on the products they produce, services they offer, or the equipment, facilities, or products they use.

The Colorado Department of Revenue also collects taxes from certain types of companies. Ultimately, even for the smallest of Denver small businesses, business tax law can be very complex and confusing. Consequently, it is well worth the time and effort to seek advice from a business attorney in Colorado.

How to Stay on the Right Side of Business Tax Law

Follow these tips to ensure that your taxes are easy to complete, accurate, and as low as possible:

Stay organized all year
For most small businesses, one of the worst things about tax time is getting prepared to file a return. Where are the receipts you need? Did you remember to record all your expenses? Did you log your mileage correctly? Rather than scrambling to answer all those questions at the last minute, set aside some time every month to keep your finances in order. And, start the fiscal year by setting up a filing system to make it easy to store and retrieve documents, charge slips, etc.

Keep personal and business finances separate
As a Colorado entrepreneur and small business owner, it may be tempting to let your personal and business finances commingle. However, doing so increases the odds that you will violate some aspect of business tax law and find yourself in trouble with the IRS.

Consider using independent contractors
If you are a Colorado entrepreneur who is just getting a business off the ground, it can be expensive to hire employees. In many cases, it makes more sense to work with independent contractors since you don’t have to pay payroll taxes or provide benefits. Just be sure you know how to correctly classify the people who perform work for you. There are big fines for misclassifying people so while you think you may save money by hiring someone as a contractor, you may have to pay for it in the end!

Use accounting software and a payroll tax system
Manually tracking expenses and handling payroll using spreadsheets is a recipe for disaster. Every year, many business are fined for making mistakes in these areas. Invest in the appropriate software packages and let them do the mental heavy lifting for you to ensure you aren’t breaking any business tax laws. Yes, you should double-check the numbers these systems generate, but generally speaking, if the information you put in was accurate, the information coming out will be accurate.

Take the home office deduction if applicable
If you run your Denver small business out of your home, you may be able to use the home office deduction to claim a portion of expenses, such as your mortgage interest, insurance, and utilities. Both homeowners and renters can claim of this deduction.

File on time
Be sure to file your tax return and pay any taxes due on time. If you fail to do so, not only will you have to pay the taxes owed, you will have to pay a penalty as well. To feel confident that your return has been received, consider filing electronically.

Cross Business Tax Law Off Your List

As a Colorado entrepreneur, you have plenty of things you would rather be focused on than business tax law. By following the tips above, you can ensure that you are in compliance and paying the minimum taxes required of you. Then you can turn your attention to more pressing business-building matters.

If you have questions about the interpretation of business tax law as it affects your company, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Small Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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Preparing for Business Taxes from Day One

Preparing for Business Taxes from Day One

Whether your business is big or small, you have 20 employees or none, you are required to pay the right taxes at the right time. Understanding your tax obligations are an important part of your business formation. How you are structured and whom you employ will impact your taxes, and any mistakes or omissions will not go unnoticed by the Internal Revenue Service (IRS) or the Colorado Department of Revenue (CDOR). A small business attorney can help you prevent liability issues, maximize your deductions, and represent you in the event of an audit or penalty. This post will cover five things every small business owner should know about business tax.

1. Your Business Structure Determines Your Tax Responsibility
“Small business” is not your only category. There are numerous structures your small business may fall under, and each has its own set of tax liabilities. Sole proprietorship, partnership, s corporation, and c corporation are just a few of these structures, and they all have their own advantages and limitations. The two most common state and local tax requirements for your small business are income taxes and employment taxes. Your business structure determines your state income tax responsibility.
Colorado has specific laws regarding employment taxes and insurance, including workers’ compensation, unemployment, and temporary disability. Visit the CDOR Taxation Division to learn more about state income and employment tax obligations. In addition to these, the IRS requires that you pay self-employment tax, estimated tax, and excise tax, also depending on your business structure. With each types of business tax comes its own set of rules, eligibility, and forms to file. Your small business attorney will keep you compliant with all state and federal tax laws.

2. You Can Choose Your Tax Year
You may assume a calendar year equals a tax year; however, you have the ability to choose a fiscal tax year instead if you need your annual accounting period to end in a month other than December. Or, if you are a new business, you can choose a short tax year since you were not in existence for the entire tax year. You also have the option of changing your tax period with permission from the IRS.

3. There are More Deductions Than You Think
Your goal is to maximize your profits, which can be challenging amid rent, utilities, employee salaries, materials, and many other operational costs. As a small business owner, you may be able to deduct many more expenses than you realize. Some common business deductions include supplies, furniture, and equipment. Some lesser known deductions include startup expenses (e.g. research, training, advertising), mileage, meals, software, subscriptions, insurance premiums, child labor, phone bill, retirement contributions, and more. Just be sure to have solid documentation and record keeping.

4. You Have to Make Estimated Payments
As a small business owner, you are responsible for making quarterly estimated tax payments throughout the year. Planning for the coming year by estimating what you owe and having the funds designated for payment will ensure you are ready for tax time every time. If you fail to submit the taxes you owe, you are subject to penalties. Even after conducting the necessary research and consulting a tax expert, new small business owners are prone to unintentional tax mistakes. A small business attorney will assist you if you find yourself in tax trouble.

5. You are Required to Pay Self-Employment Tax
As a small business owner, you are responsible for your portion of self-employment tax – social security and Medicare taxes – and the half that would otherwise be paid by an employer. You can lessen the blow at tax time by making advance deductions. Furthermore, half of your self-employment tax can be claimed as an income tax deduction.

Consulting the right business professionals will ensure that your tax return is accurate and your deductions are maximized. There are many resources for small businesses offered by the Colorado Department of Revenue, including its Revenue Online website. With an account, you have access to your tax records and a variety of services, including filing or amending a return, changing your address, filing a protest, and viewing account balances and payments.

If you need business tax advice, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Business Lawyer. Phone: 720-258-6647. Email: elizabeth.lewis@eclewis.com

Contact Us Today

Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80264
720-258-6647
Elizabeth.Lewis@eclewis.com

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What are Occupational Privilege Taxes?

Occupational Privilege Taxes in Colorado are essentially a “head tax” that is levied on most workers within jurisdictions that have the tax. Simply put, this means that every employee that falls under the requirements in the jurisdiction has to pay it, and there is typically an employer match of this tax. The tax is levied on a city and/or county basis of where you work, even if the business is located outside of the jurisdiction. This can get complicated if a business is located in Glendale but the employee works in a satellite office or from their home located in Denver. In a situation like this, the employee should not have to pay the Glendale tax, but likely would have to pay the Denver tax.

Here is a breakdown of where the tax is levied, the amount of the tax (per month) for employees and employers, and the minimum amount you must earn in a month for the tax to be levied on you.

City Tax  for Employees Tax for Employers Income Threshold
Denver $5.75 $4.00 $500
Glendale $5.00 $5.00 $750
Aurora $2.00 $3.00 $250

Keep in mind that this is just the basic applicability of the tax and there can be more unique circumstances that can have an impact on your business and employees’ tax liability.

For example, if you have one job but work in more than one jurisdiction that has an Occupational Privilege Tax, generally, you would only pay the tax for the jurisdiction that you spend the majority of your time working in. Employees with multiple jobs in the same jurisdiction usually only have to pay the tax once and can fill out a form to be sure it is not withheld by their second job. Those who are self-employed may only have to pay the employer side of the tax, but it depends on the situation and jurisdiction.

In many cases, businesses without any employees are still required to pay the employer portion of the tax. Owners of a business may also be required for at least the employer portion of the tax, even if they are not paid. As you can see, there are a variety of circumstances that can complicate how the Occupational privilege applies to your business, so be sure that you seek out good advice about it.

If you have questions about legal matters for your business, don’t hesitate to   reach out to the Law Office of E.C. Lewis, PC, home of your Denver Business Attorney, Elizabeth Lewis, at 720-258-6647 or email her at elizabeth.lewis@eclewis.com.