Tax Law in Colorado
Tax law refers to the regulations governing the calculating, filing, and paying of taxes. When handling tax law cases, attorneys may manage taxes at various levels, such as local, state, and federal. The practice of this type of law involves understanding, defending, and resolving issues related to payment or non-payment.
If you hire a qualified Colorado professional to handle your business or personal taxes, you may feel protected from disputes. However, even a misplaced comma or added zero can cause the IRS to believe you owe more than you do. In some instances, accountants might also take deliberate actions that result in legal and financial repercussions.
If you live or earn money in Colorado, you must pay state income taxes under the Colorado Income Tax Act of 1987. Unlike the federal government, Colorado employs a flat tax rate, rather than basing it on your income. Currently, as of 2021 this tax rate is 4.55% of your in-state income. According to Colorado’s Individual Income Tax Guide, your state tax return will use similar, but not identical, formulas to your federal taxes. In addition, Colorado has some very state-specific tax rules, such as those relating to marijuana sales.
Tax Law Topics to Understand
If you find yourself facing Colorado taxation issues, understanding tax law and how it works can help. Most Americans have only basic knowledge of how the tax systems work, and with good reason. They are complex. Small business owners need to understand tax law and how it impacts their business. Here are some essential tax law topics to get you started.
IRS Audits
An IRS audit is a review of an experienced , Colorado individual’s or an organization’s finances and accounts to ensure accuracy. The audit may also uncover discrepancies business owners were not aware existed.
These are just a few of the things the IRS looks for when conducting an audit:
- Does your lifestyle match your income?
- Are you passing off personal expenses as business expenses?
- Are you overstating any of your business expenses?
- Did you fail to report any business income or did you inflate that income?
- Do your payroll taxes match that of your employees?
- If your business handles a lot of cash, are you diverting any of this into your own pocket?
If you are about to have your business audited, consider hiring a qualified Colorado tax law attorney. They can help you to navigate the complex process ahead and offer advice as issues arise.
Tax Evasion
Tax evasion refers to any activity an individual or business in Colorado engages in to reduce or avoid their tax liabilities. There are two types of tax evasion: evasion of assessment and evasion of payment.
Evasion of assessment means the taxpayer performed an action with the goal of defeating the assessment of a tax. The under-reporting of taxes is a common example of this. Evasion of payment means that you avoid paying the IRS by hiding money or assets that should become taxed.
Here are some examples of tax evasion:
- Keeping a double set of books
- Overstating deductions
- Destroying financial records
- Concealing sources of income
- Filing a false return
- Making false invoices
- Holding property in another person’s name to avoid taxation
If you are found guilty of tax evasion in Colorado, you can face hefty fines, prison time, or both.
Income Tax Fraud
Income tax fraud is the willful attempt to evade or defraud the IRS and Colorado tax laws. Tax fraud occurs when an individual or business does any of the following:
- Prepares and files a false tax return
- Willfully fails to pay taxes
- Intentionally fails to file an income tax return
- Intentionally fails to report income received
- Makes fraudulent or false claims on the tax return
Willful non-payment or underpayment of your Colorado taxes can result in serious criminal penalties. Under Colorado statute, tax evasion is a class 5 felony. This can carry a sentence of up to 3 years in prison. In addition, you could face fines up to $100,000 for individuals and $500,000 for corporations.
When Would You Need an Experienced Colorado Tax Law Attorney?
Facing Legal Issues Regarding Taxes
If you’re under investigation from the IRS or planning a lawsuit against, you will need a Colorado attorney who practices tax law. To illustrate, counsel can help collect the information you need and create a viable defense.
When Starting a Business
There’s more to starting a business in Colorado than selling products or services. You also need to determine the business type and structure. This status, in turn, determines how the business and your earnings get taxed. Choosing the wrong business structure can cost you.
Under the Colorado C Corporation Income Tax Act, many Colorado businesses must pay a state income tax at the same rate as individuals. However, the organizational structure of your business determines your tax liability. In Colorado, partnerships and S Corporations do not have to pay the state tax. However, according to the Colorado Department of Revenue, they must still file a state return. Colorado also permits Limited Liability Companies (LLC), and uses federal guidelines to determine their tax liability.
If You Have a Taxable Estate
If your estate is worth more than $11.58 million, or $23.16 million if you’re married, your estate might get taxed up to 40% for surpassing that threshold. No one wants a huge portion of their estate going to the IRS instead of their heirs. This is why wealthy people involve tax lawyers in their estate planning process.
The Colorado General Assembly abolished the state’s estate tax in 2005. However, large Colorado estates are still subject to the federal tax.
Work with an Experienced Tax Law Lawyer in Colorado
Facing issues related to tax law can feel overwhelming. No one wants to go head-to-head with the IRS. Experienced Colorado tax law lawyers have the expertise you need, from conducting audits to defending you in court. We can even help you connect with an attorney across Colorado state lines.
Submit a request online or call us today at (866) 345-6784 to get in touch with an experienced lawyer in your area!
