State & Local Tax Services

Each year when tax time rolls around, Coloradans are expected to pay Federal, State and, occasionally, local taxes.  While most Coloradans don’t mind paying the amount due, no one wants to pay more than necessary.

Unfortunately, the federal tax code is more than 70,000 pages long, and the Colorado and Denver tax codes add quite a bit more to the page count. That’s a lot of reading! And every year both federal and Colorado legislatures pass new laws which add or modify tax codes.

In fact, in 2021, the Colorado legislature made significant changes to the State tax codes, and some of these changes might affect you or your business. Here’s your guide to some of the most important Colorado and Denver tax changes and how they can affect you.

Changes for Itemized Deductions for High Earners

If you have a household income of more than $400,000, there are certain deductions that are no longer available to you in 2022 at the State level in Colorado. This law includes a $60,000 cap on itemized deductions, so you can only lower your taxable income by that amount through itemized deductions.

The law also affects business owners who make more than $500,000 in income or a million as a couple. For these taxpayers, they won’t be able to use the “pass-through” deduction for their state taxes. The “pass-through” deduction was created for federal taxes in 2017.

Changes for Business Owners

There are many insurance companies and other types of businesses with offices in Colorado and elsewhere, and the tax law will change the amount they pay in taxes if they do business in multiple states. The Colorado legislature plans to use the Finnigan Method which treats unitary groups as one entity.

The state legislature is still hammering out the details of these new tax laws, but they expect to increase tax revenue by $150 million. If you own a retail organization or a company in the oil and gas industry, you can expect to pay more in Colorado taxes.

Changes for Small Business Owners

The new Colorado tax laws make it easier for small business owners to save money by exempting them from paying business personal property taxes. As a business owner, you have tangible property, such as computers, office furniture, and other equipment, in the past, small businesses have been required to pay taxes if they have more than $7,900 in personal property.

The new law raises that amount to $50,000 in personal property before you’re required to pay the business personal property taxes. This can help small business owners save money on their tax bills.

 

Changes for Deductions to a 529 Plan

If you’re saving money for your children’s future college plans, you might have a 529 plan. In the past, you could deduct the full amount that you invested in this plan from your taxable income for state tax purposes. However, the new tax laws cap the amount you can deduct at $30,000 per household per year. This new cap of deductions begins in 2022.

Changes for Capital Gain Taxes

When you sell items, such as land, homes, and stocks, you might make money off the sale of the item, and this is considered a capital gain. In the past, Colorado has been very generous about exempting some instances of capital gain for the purposes of state taxes.

However, in 2022, this is changing, and you may need to pay taxes on profits that you realize from the sale of a home or some other large ticket item. The potential capital gain tax exclusion will remain in effect for certain agricultural properties.

 

Changes for Families with Children

While families with children have enjoyed a child tax credit on their federal taxes for many years, beginning in 2022, they can tax advantage of this credit on their Colorado states taxes as well. The Colorado child tax credit is also refundable, which can deliver much-needed funds at tax time.

If you’re the head of the household and filing individually, you can make up to $75,000 or households under $85,000 in income. The benefits of the tax credit are based on the federal equivalents. The credit can range between a couple of hundred dollars and $2,000 per child.

 

Changes for the Earned Income Tax Credit

Currently, the Colorado tax codes match 10 percent of the earned income tax credit (EITC) that individuals making less than $24,000 per year or households with two children with an income of $54,000. You can expect that match to increase to 20 percent in 2022, and then increase to 25 percent the following year.

This credit can help reduce taxable income by a few hundred dollars or as much as $1,000 per child. This tax credit is also refundable, so if you don’t need it to reduce your taxable income, you’ll get the funds back as a refund.

Changes for Individuals Who Collect Social Security

In the past, Colorado has allowed the first $20,000 – $24,000 in Social Security benefits to remain untaxed by the state. The new law, which takes effect in 2022, will make that cap unlimited for certain individuals so that people who collect Social Security may be able to reduce or eliminate their Colorado income tax.

Changes for Real Estate Taxes

When you own a home or some other type of real estate, you need to pay property taxes on them. In the 2022 and 2023 tax years, you’ll be able to enjoy a reduction in those property taxes.

For a homeowner of a single-family property, the reduction is three percent while owners of an apartment complex see a five percent reduction. Owners of agricultural and renewable energy properties will have a nine percent reduction in Colorado property taxes.

This new law also expands a tax-deferment program that helps homeowners delay their property tax payments when the increase grows too quickly for the homeowner to afford the payment.

With so many state and local tax laws and their constant changes, you need an expert to help you navigate your taxes each year, so you can take advantage of deductions available to you. McNurlin, Hitchcock & Associates has a team of CPAs ready to partner with you and your business to update your accounting, plan for tax time, and prepare your tax returns, and they have the experience and education necessary to help. Contact us to learn more.