Thinking about starting or growing your business in Colorado? 

Not only do you get to enjoy the stunning mountain views and vibrant community, but you also have access to some valuable tax benefits that can give your business a real boost.

In 2024, Colorado offers a range of tax benefits and incentives designed to support and reward local businesses. 

From reducing your tax burden to enhancing your bottom line, these benefits could be just what you need to take your business to the next level.

In this blog, we’ll explore what makes the state a great place for business, highlight the latest Colorado tax benefits you might be missing out on, and show you how these advantages can work for you. 

Colorado Tax Benefits for Businesses

Colorado’s State Income Tax Rate

Colorado keeps things simple with a flat state income tax rate of 4.4% for 2024. This means you pay the same percentage regardless of how much you earn, making your tax expenses predictable.

How It Compares: Unlike states with progressive tax rates where your rate increases with higher income, Colorado’s flat rate can make budgeting and tax planning easier. For example, California has a top marginal rate of 13.3% for high earners, which means higher income earners face significantly higher tax rates compared to Colorado. This flat rate approach in Colorado helps businesses maintain a consistent tax expense and simplifies financial forecasting.

Colorado Enterprise Zone Tax Credits

In Colorado, certain areas are designated as Enterprise Zones. These are regions where the state wants to encourage development in economically distressed areas of the state. The 16 designated enterprise zones have high unemployment rates, low per capita income, or slow population growth.

If your business is located in one of these zones, you might be eligible for some helpful tax credits.

Here’s a quick breakdown of what you could get:

• Investment Tax Credit: This credit reduces your taxes if you invest in new business equipment or facilities. Specifically, businesses can receive a 3% credit on investments in business personal property.
• Hiring Credit: If you hire employees, you may qualify for a tax credit. Companies can get up to $1,100 for each net new employee they hire, with additional credits available for agricultural processors and businesses in enhanced rural zones.
• Training Credit: If you offer job training to your employees, you could receive a credit worth 12% of the eligible training costs.
• Employer-Sponsored Health Insurance Tax Credit: Businesses can claim a $1,000 credit for each net new employee covered by a qualified health plan. This incentive encourages employers to provide health insurance to their employees.

You can view a full list of tax credits and incentives and learn more about the Enterprise Zone Program here.

Colorado Small Business Investment Credit

One great thing about having a business in Colorado is the state’s commitment to supporting its small businesses, and the Small Business Investment Credit is a great example. 

This credit rewards you for investing in local small businesses by reducing your taxes based on the amount you invest. It’s a straightforward way for the state to encourage growth and investment in its local economy.

What is it?

The Colorado Small Business Investment Credit is a tax break designed to encourage people to invest in local small businesses in Colorado. If you put money into a small business based in Colorado, you might get a tax credit based on your investment. It’s Colorado’s way of helping local businesses grow by making it easier for investors to get involved.

How It Works:

• Eligibility: To get this credit, your investment needs to go to a small business in Colorado. The business has to meet certain size limits, like having a specific number of employees or revenue, to make sure the credit supports truly small businesses.
• Credit Amount: How much credit you can get depends on how much you invest. The exact amount or percentage of the credit can vary, so it’s a good idea to check the latest rules or talk to a Colorado-based accountant to see what you might receive.
• Application Process: To claim the credit, you usually need to fill out certain forms and show proof of your investment when you file your state tax return. The Colorado Department of Revenue or other state agencies can provide detailed instructions.

How Does it Compare to Other States?

While many states offer similar credits to support local businesses, Colorado’s is designed to be simple and accessible. Unlike states with more complicated and strict requirements, Colorado’s Small Business Investment Credit is easier to understand and use, making it a straightforward option for investors looking to support small businesses.

Property Tax Incentives in Colorado

One of the standout opportunities in Colorado is the state’s property tax incentives, particularly for businesses involved in manufacturing or research and development (R&D). If you invest in certain types of equipment or infrastructure, you might be able to lower your property taxes.

What are the details?

Colorado offers tax breaks on property taxes to businesses that put money into important equipment or facilities. This means if you buy new machinery or build something new for your business, you could pay less in property taxes. It’s a way to help you save money and support your business’s growth.

• Who Can Benefit: To get these tax breaks, your investment needs to be in equipment or facilities used for making things or doing research.
• How Much You Save: The amount you save depends on how much you invest. The details can change, so it’s a good idea to check with a local Colorado-based accountant to see exactly how much you might save.
• How to Apply: You usually need to follow some steps to get these tax breaks. This might include filling out forms and showing proof of your investment when you file your property tax return.

The good news? Compared to some other states, the property tax incentives are pretty straightforward and generous in Colorado. For example, in Illinois, property taxes can be higher, and getting similar tax breaks might be more complicated. 

The way the state makes it easy for you to claim and save, is a win-win for business owners in Colorado. 

Research and Development (R&D) Tax Credit

Another way Colorado helps businesses is with the Research and Development (R&D) Tax Credit. Businesses engaged in research and experimental expenditures may earn a 3% tax credit on the increase in such expenditures, as compared to that of the prior 2 years (the Base Amount). 

Basically, if you’re spending money on research and development, you could get a tax break that helps cover some of those costs. This is a great incentive if your company is working on new ideas, products, or technologies. 

How It Works:

• Eligibility: To qualify, your business needs to engage in research and development activities that aim to improve or create new products, processes, or technologies. This credit is open to a wide range of businesses, from startups to established companies.
• Credit Amount: The credit you receive is based on a percentage of your eligible R&D expenses. This can significantly reduce the financial burden of innovation. The exact percentage varies, so it’s important to review current guidelines or consult with a tax advisor.
• Application Process: Claiming the R&D tax credit involves documenting your research activities and expenditures, then filing the appropriate forms with your state tax return. Detailed records and a clear explanation of your R&D activities are necessary to qualify for this credit.

You can learn more about this tax credit here: https://oedit.colorado.gov/enterprise-zone-research-and-development-tax-credit

​​Job Growth Incentive Tax Credit

The Job Growth Incentive Tax Credit is a Colorado program aimed at encouraging businesses to expand and create new jobs in the state. 

If your company grows and adds new positions, you can earn a tax credit that reduces the amount of state income tax you owe. 

This incentive is designed to attract businesses that are considering relocating or expanding their operations to Colorado, making it an appealing option for companies looking to invest in the state.

How It Works:

Eligibility Criteria:

• New Jobs: To qualify, your business must create a minimum number of new jobs in Colorado. Typically, this means at least 20 new jobs, but if your project is in a designated Enhanced Rural Enterprise Zone, you may need to create at least 5 new jobs.
• Wages: The new positions must pay an average annual wage that meets or exceeds the average wage for the area where the project is located.
• Project Consideration: Your project should have considered other states or countries as potential locations. You must show that the Colorado incentive is a major factor in your decision to expand or relocate here.
• Job Duration: The new jobs must be maintained for at least one year to be eligible for the credit.

Credit Amount:

• The credit is based on 50% of the FICA (Federal Insurance Contributions Act) tax paid by your business for each new job created. FICA taxes include Social Security and Medicare taxes, so the credit directly offsets some of these costs.

Application Process:

• Initial Contact: Start by reaching out to Colorado’s Global Business Development staff to discuss your project and determine eligibility.
• Documentation: You’ll need to provide a detailed employment plan, a cost differential analysis, and three years of financial statements.
• Application Submission: Submit your full application through the Colorado Office of Economic Development and International Trade (OEDIT) portal, and prepare for a review by the Colorado Economic Development Commission.

Performance-Based Credit:

• It’s important to note that the credit is not guaranteed. If your company does not meet the job creation or wage targets, you might not receive the full credit amount. This performance-based aspect ensures that the credit is awarded only if the intended economic benefits are realized.

Note: If the credit exceeds your state income tax liability for a given year, you can carry forward the unused portion and apply it to future tax years for up to ten years.

Extra Note: If your project involves hiring remote workers in rural Colorado counties, you may qualify for an additional cash incentive through the LONE program. This program supports rural employment by offering cash incentives for net new remote jobs created in rural areas, enhancing the benefits of the Job Growth Incentive Tax Credit.

New Regulations for 2024: What You Need to Know

As we’re already halfway through 2024, it’s a good time to update yourself on the new regulations Colorado has rolled out for businesses this year. Here’s what you need to keep in mind:

Updated Compliance Requirements

This year, Colorado has made some changes to how businesses need to report their taxes. The new rules include updated formats for submitting your reports and new deadlines to keep in mind. It’s important to follow these changes carefully to avoid any fines and ensure your reports are accurate. Think of it like getting a new set of rules for a game—you need to know them to play well.

You can learn more about these requirements on the Colorado Department of Revenue (CDOR) website.

Changes to Tax Credit Application Processes

The way you apply for tax credits has been simplified, but don’t get too comfortable just yet. You’ll need to be extra careful to meet all the new requirements and provide the correct paperwork. Even though the process is now easier, missing a detail could mean missing out on valuable credits. It’s a bit like filling out a form—make sure everything is correct to get the benefits you’re eligible for.

You can learn more about these requirements on the Colorado Office of Economic Development and International Trade (OEDIT) website.

Need Extra Help with Your Colorado-Based Business?

As you can see, owning a business in Colorado has its perks, especially with the state’s support for local entrepreneurs. 

From tax credits to property tax breaks, Colorado offers a range of benefits that can make a big difference for your business.

But staying updated on new rules and making the most of these opportunities? That’s another story. 

If you want to ensure you’re taking full advantage of what Colorado has to offer and keeping your business on track, we can help!

Head over to our Get in Touch page to book your introductory call and discover how we can help you in reaching your goals.

Until next time!