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An S Corporation is not a type of business entity. It is a federal tax classification available to qualifying corporations and LLCs that elect to have their business income pass through to shareholders for tax purposes.
The S Corp designation is governed by Subchapter S of the Internal Revenue Code. When you elect S Corp status, the business itself generally does not pay federal income tax. Instead, income, losses, deductions, and credits flow through to shareholders, who report them on their personal returns.[13]
In Colorado, an S Corporation files Form DR 0106, the Colorado Partnership and S Corporation and Composite Nonresident Income Tax Return. Colorado does not impose a separate entity-level income tax on S Corps unless they elect the SALT Parity Act tax. Shareholders pay the flat 4.4% Colorado individual income tax on their pro rata share of pass-through income.[1] [9]
Colorado also offers an elective Pass-Through Entity tax under the SALT Parity Act, enacted by HB 21-1327. The election lets the entity pay Colorado income tax at the entity level at the same flat 4.4% rate, preserving the federal SALT deduction for shareholders.[7] [12]
For business owners earning $60,000 or more in net business income, the S Corp election can provide meaningful self-employment tax savings. Only the salary you pay yourself as a W-2 employee is subject to Social Security and Medicare taxes; distributions beyond reasonable compensation are not.
| Action | Deadline | Notes |
|---|---|---|
| File IRS Form 2553 | Within 2 months and 15 days after the start of the tax year | For a January 1 tax year, the deadline is March 15. Late election relief may be available under IRS Rev. Proc. 2013-30.[3] |
| File Form DR 0106 (Colorado) | April 15 (calendar-year filers) | Due the 15th day of the 4th month after the close of the tax year. Colorado grants an automatic 6-month extension to file.[1] |
| File Form 1120-S (Federal) | March 15 (calendar-year filers) | Distribute Schedule K-1s to shareholders.[3] |
| Make the SALT Parity Act election | On the timely filed Form DR 0106, including extensions | Made by checking the SALT Parity Act box on Form DR 0106, or during the year on Form DR 1705 or Form DR 0106EP. The election is annual and binding.[7] |
| Pay estimated tax (Form DR 0106EP) | April 15, June 15, September 15, December 15 | Required for electing pass-through entities that expect to owe Colorado SALT Parity Act tax. Use Form DR 0106EP to remit payments.[7] |
| File the Colorado Periodic Report | During the anniversary month | Filed online with the Colorado Secretary of State. The $25 report can be filed up to 2 months before and 2 months after the anniversary month.[5] |
| Set up payroll | Before paying yourself a salary | Register with the Colorado Department of Labor and Employment (CDLE) for unemployment insurance and with the Colorado Department of Revenue for wage withholding before issuing W-2 wages.[11] |
An S Corp is a tax classification, not a standalone entity. You must have an active Colorado corporation or LLC on file with the Secretary of State before you can elect S Corp tax treatment with the IRS.
If you want to form an LLC first, check this guide.
If you want to incorporate as a C Corp first, check this guide.
Already have an existing LLC or corporation? Move to Step 1.
Form 2553, Election by a Small Business Corporation, is the IRS form that officially elects S Corp tax treatment at the federal level. It must be filed no later than 2 months, and 15 days after the beginning of the tax year, for the election to take effect. For a calendar-year corporation electing S Corp status for 2026, the deadline is March 15, 2026.[3]
Form 2553 collects the following information:
All shareholders must sign the consent portion of the form before submission. An unsigned form will be rejected by the IRS.
You can submit Form 2553 by mail or fax. There is no filing fee.
If your principal business office is located in Colorado, mail Form 2553 to: Department of the Treasury, Internal Revenue Service, Ogden, UT 84201.[8]
Fax number for Colorado businesses: 855-214-7520.[8]
Faxing is typically faster than mailing. Keep your fax confirmation receipt. The IRS will issue a CP261 acceptance notice to confirm your S Corporation election.
Colorado follows the federal S Corp classification automatically. Once your federal Form 2553 is accepted, Colorado will treat your business as an S Corp for tax purposes when you file Form DR 0106. There is no separate Colorado election form to submit.[1]
After your federal acceptance, keep a copy of your IRS CP261 acceptance letter with your records to support your first Form DR 0106 filing.
As an S Corp shareholder-employee, you are required to pay yourself a reasonable salary through W-2 payroll. The IRS scrutinizes S Corps that pay unreasonably low salaries to avoid payroll taxes.
The IRS expects your salary to reflect what someone performing similar work, in the same industry and the same region, would typically earn. There is no fixed formula, but the IRS flags S Corps where compensation is well below market and most of the owner’s pay comes through distributions.
Setting your salary too low risks the IRS reclassifying distributions as wages, making them subject to payroll taxes plus penalties and interest.
If you do not already have an EIN, apply at no charge on the IRS website (irs.gov). An EIN is a nine-digit federal ID used for tax filings, hiring employees, and opening business accounts.
Note: After obtaining your EIN, open a dedicated business bank account to keep your personal and business finances separate. This is essential to maintain your limited liability protection.
Every Colorado corporation and LLC must file a Periodic Report with the Secretary of State each year. The fee is $25, and the report can be filed online up to 2 months before and 2 months after the entity’s anniversary month. A business that fails to file on time becomes noncompliant and may eventually be declared delinquent.[5]
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). File Colorado Form DR 0106 by April 15, the 15th day of the 4th month after the close of the tax year.[1] [3]
Colorado grants an automatic 6-month extension to file Form DR 0106. No separate Colorado extension form is required. The extension is an extension of time to file, not to pay; any balance due is still owed by April 15.[1]
S Corps that elect the SALT Parity Act tax should pay quarterly estimated tax using Form DR 0106EP. Estimated payments help the electing entity avoid underpayment interest on its entity-level Colorado tax.[7]
Colorado imposes interest and penalties on late-filed or late-paid business income tax. A Periodic Report filed after the anniversary-month window carries a $50 late fee, and continued failure to file can lead to delinquent status with the Secretary of State.[1] [5]
If you fail to file Form 2553 with the IRS on time, your S Corp election will not take effect for the current tax year. Your business will be taxed as a C Corporation (or as a sole proprietorship or partnership if the underlying entity is an LLC) for that year, costing you the self-employment tax savings until the next tax year.
The IRS offers late election relief under Revenue Procedure 2013-30. To qualify, you must file within 3 years and 75 days of the intended effective date, demonstrate reasonable cause for the late filing, and confirm that the entity has consistently filed as if the S election were in effect.[3]
Because Colorado follows the federal S election automatically, there is no separate state late-election process. Once the IRS grants late election relief, Colorado will treat the entity as an S Corporation for the same tax year.[1]
At the federal level, the S Corp election can be revoked by filing a statement of revocation with the IRS, signed by shareholders holding more than 50% of the outstanding shares. The revocation is effective the first day of the tax year if filed by the 15th day of the third month; later filings take effect the following tax year.[3]
Because Colorado follows the federal classification, a federal revocation automatically terminates the Colorado S Corp status. The entity then files as a C Corp on Form DR 0112 for tax years beginning after the federal revocation. Once revoked, you generally cannot re-elect S Corp status for five years without IRS consent.[1]
Colorado does not impose a separate entity-level income tax on S Corps unless they elect the SALT Parity Act tax. The S Corp files an informational return on Form DR 0106, and income flows through to shareholders, who pay the flat 4.4% Colorado individual income tax on their pro rata share.[1] [9]
| Entity Type | Colorado Entity-Level Tax |
|---|---|
| S Corporation | No entity-level tax unless the SALT Parity Act tax is elected[1] |
| Partnership / LLC (partnership) | No entity-level tax unless the SALT Parity Act tax is elected[7] |
| C Corporation | Flat 4.4% Colorado corporate income tax[6] |
| Sole prop / disregarded LLC | No entity-level tax; owner pays the flat 4.4% individual rate[9] |
Colorado’s SALT Parity Act, enacted by HB 21‑1327, lets S Corps and partnerships elect to pay Colorado income tax at the entity level at a flat 4.4% rate. Retroactive elections for prior tax years may be possible under specific deadlines and forms. Before filing, verify the latest retroactive‑election rules and deadlines with current Colorado Department of Revenue guidance.
The entity-level tax equals the entity’s Colorado taxable income multiplied by the flat 4.4% income tax rate.[7] [12]
The election is made by checking the SALT Parity Act box on a timely filed Form DR 0106, including extensions. It can also be made during the year on Form DR 1705 or by marking the election box on Form DR 0106EP when remitting an estimated payment. The election is annual and binding on all owners.[7]
Colorado imposes a flat 4.4% individual income tax on shareholders’ pro rata share of S Corp pass-through income when the SALT Parity Act tax is not elected. Nonresident shareholders pay tax only on the share derived from Colorado sources, which the S Corp can report through the composite filing on Form DR 0106.[9] [1]
The 4.4% rate is the statutory flat rate under C.R.S. Section 39-22-104. In some years, TABOR surplus refunds have temporarily reduced the rate; the 2024 tax year rate was lowered to 4.25%, while the 2025 rate returned to 4.4%.[9]
Colorado’s state sales tax rate is 2.9%, one of the lowest state base rates in the country. Local cities, counties, and special districts add their own rates, so the combined rate in many areas is substantially higher. Register for a sales tax license through the Colorado Department of Revenue.[10]
| Item | Cost |
|---|---|
| Articles of Incorporation (corporation, online only) | $50[14] |
| Articles of Organization (LLC, online only) | $50[14] |
| IRS Form 2553 filing | No fee[3] |
| Federal EIN (Form SS-4) | No fee |
| Colorado Periodic Report (annual) | $25[5] |
| Registered Agent service (typical commercial) | $100 to $300 per year |
| Optional: name reservation (120 days) | $25[14] |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation ($50) | Articles of Organization ($50) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| Colorado Tax Treatment | Form DR 0106; no entity tax unless SALT Parity elected | Form DR 0106 or no return (disregarded) |
| Annual Filing | Periodic Report ($25) | Periodic Report ($25) |
| Self-Employment Tax | Only on W-2 salary | 15.3% on all net earnings |
| Ownership Limits | Max 100 U.S.-person shareholders, one class of stock | Unlimited members, any type |
| Management | Directors and officers required | Flexible; member or manager managed |
| Reasonable Salary Required | Yes | No |
| SALT Parity Act Election | Yes (4.4%) | Yes if taxed as S Corp or partnership |
| Annual Reporting Deadline | Anniversary month | Anniversary month |
| Best For | Owners earning $60K+ wanting SE-tax savings | Small businesses prioritizing simplicity |
The S Corp election makes the most financial sense when your net business income is high enough that the self-employment tax savings outweigh the cost of running payroll and the additional compliance burden. Use this guide:
| Net Business Income | Recommendation |
|---|---|
| Under $40,000 | An S Corp likely does not make sense. Payroll and compliance costs typically erase the savings. |
| $40,000 to $60,000 | Borderline. Run the numbers with a CPA. Savings may be modest after payroll-service fees. |
| $60,000 to $100,000 | S Corp election usually saves $2,000 to $5,000 per year in self-employment taxes. |
| $100,000 to $200,000 | Strong candidate. Savings often $5,000 to $10,000 or more per year. |
| Over $200,000 | Almost always advantageous unless you have specific reasons (foreign investors, IPO plans) to remain a C Corp or LLC. |
Keep in mind that Colorado’s $25 annual Periodic Report fee, payroll setup costs, and ongoing CPA fees together add roughly $800 to $2,500 in annual costs. S Corps also have ownership restrictions that may not suit every business model.
| Requirement | Details |
|---|---|
| Form 1120-S (Federal) | Due March 15. Reports S Corp income. Distribute K-1s to shareholders. |
| Form DR 0106 (Colorado) | Due April 15. Reports Colorado income and issues Colorado K-1s (DR 0106K) to shareholders.[1] |
| Colorado Periodic Report | Filed online with the Colorado Secretary of State during the anniversary month. The fee is $25.[5] |
| Form 941 (Federal Payroll Tax) | Filed quarterly. Reports federal income tax, Social Security, and Medicare withheld. |
| Colorado Wage Withholding | Periodic wage withholding returns filed with the Colorado Department of Revenue.[9] |
| CDLE Unemployment Insurance Reports | Quarterly UI premium and wage reports filed with the Colorado Department of Labor and Employment.[11] |
| W-2s and 1099s | Distributed by January 31. Filed with the IRS, Social Security Administration, and Colorado Department of Revenue. |
| Estimated Tax Payments | Quarterly federal estimated tax, plus Colorado SALT Parity Act estimated tax on Form DR 0106EP if elected. |
| SALT Parity Act Election (if applicable) | Made annually on the timely filed Form DR 0106.[7] |
| Registered Agent Maintenance | Keep your registered agent and Colorado street address current with the Secretary of State. |
Bibliography
[1] Colorado Department of Revenue. Partnership and S Corporation Filing Information. Accessed May 20, 2026.
[2] Colorado Secretary of State. Business Organizations. Accessed May 20, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 20, 2026.
[4] Colorado General Assembly. C.R.S. Title 7 (Corporations and Associations, Registered Agent Provisions). Accessed May 20, 2026.
[5] Colorado Secretary of State. Business FAQs: Periodic Reports. Accessed May 20, 2026.
[6] Colorado Department of Revenue. Corporate Income Tax Guide. Accessed May 20, 2026.
[7] Colorado Department of Revenue. Income Tax Topics: SALT Parity Act. Accessed May 20, 2026.
[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 20, 2026.
[9] Colorado Department of Revenue. Individual Income Tax Guide. Accessed May 20, 2026.
[10] Colorado Department of Revenue. Sales Tax Information. Accessed May 20, 2026.
[11] Colorado Department of Labor and Employment. Registration and Employer Services. Accessed May 20, 2026.
[12] Colorado General Assembly. HB 21-1327, State and Local Tax Parity Act for Businesses. Accessed May 20, 2026.
[13] IRS. S Corporations. Accessed May 20, 2026.
[14] Colorado Secretary of State. Business Organizations Fee Schedule. Accessed May 20, 2026.
Official Resources
