How to Form an LLC in Colorado

  1. Choose a Name for Your LLC

 

Under Colorado law, an LLC must contain the words or abbreviation “limited liability company,” “ltd. liability company,” “limited liability co.,” “ltd. liability co.,” “limited,” “l.l.c.,” “llc” or “ltd.,”Limited Liability Company,” “Limited Company,” or the abbreviation “L.L.C.,” “L.C.,” “LLC,” or “LC.” The word “Limited” may be abbreviated as “Ltd.,” and “Company” may be abbreviated as “Co.”

 

Your LLC’s name must be distinguishable from the names of other business entities already on file with the Colorado Secretary of State. Names may be checked for availability by searching the Colorado Secretary of State business name database.

 

An available name may be reserved for 120 days by filing a Statement of Reservation of Name with the Colorado Secretary of State. The form must be filed online at the Secretary of State website with the applicable fee.

 

  1. File Articles of Organization

 

A Colorado LLC is created by filing articles of organization online with the Colorado Secretary of State. You can view and download a sample articles of organization form on the Secretary of State’s website.

 

The articles must include the LLC’s name and address; the name and address of LLC’s registered agent, the name and address of the person forming the LLC whether the LLC will be run by a manager or members, and a few other details.

 

The articles of organization must be filed online with the applicable filing fee.

 

  1. Appoint a Registered Agent

 

Every Colorado LLC must have an agent for service of process in the state. This is an individual or business entity that agrees to accept legal papers on the LLC’s behalf if it is sued. The agent should agree to accept service of process on behalf of the limited liability company prior to designation. The registered agent may be (1) an individual who is a full-time resident of Colorado, (2) a Colorado business entity with its principal place of business in Colorado, or (3) a foreign entity authorized to do business in Colorado and that has a usual place of business in the state.

 

  1. Prepare an Operating Agreement

 

An LLC operating agreement is not required in Colorado, but is highly advisable. For help creating an LLC operating agreement, you can contact us, a lawyer, or find examples online. If an operating agreement is created, it need not be filed with the Articles of Organization.

 

  1. Obtain an EIN

 

EIN: If your LLC has more than one member, it must obtain its own IRS Employer Identification Number (EIN), even if it has no employees. If you form a one-member LLC, you must obtain an EIN for it only if it will have employees or you elect to have it taxed as a corporation instead of a sole proprietorship (disregarded entity). You may obtain an EIN by completing an online application on the IRS website. There is no filing fee.

 

  1. Register with Colorado Department of Revenue.

 

Business Licenses: Depending on its type of business and where it is located, your LLC may need to obtain other local and state business licenses.

 

  1. File Periodic (Annual) Reports

 

Colorado LLCs must file a Periodic Report with the Colorado Secretary of State each year. The report must be filed online at the Secretary of State website. The filing fee is $10. The periodic reports are due during the three month period beginning on the first day of the anniversary month of the month when the LLC was formed. For example, if you formed your SMLLC on June 15, the report would be due each subsequent year between June 1 and August 31. You can also file the report up two months early. You may sign-up for email notification from the Secretary of State to alert you when the Periodic Report is due.

Posted in Colorado

Receipts on Form 1099-K

Business owners may have received IRS Form 1099-Ks from most of the Payment Processors used during 2018. The Form 1099-K reports the gross proceeds received from Payment Processors, over the course of the year, which includes credit card companies, PayPal, Square, and similar organizations.

The Form 1099-K was created as a tool for the IRS to find taxpayers who are earning but not reporting income.  However, there would likely be few circumstances where the amounts reported on 1099-K for any business exactly matches the gross receipts reported on its tax return.

Therefore, the receipt of Form 1099-K likely raises the question of how best to report this information to the IRS on the business tax return. Because gross amounts are reported on this form, they will include all items related to a sale transaction, including sales tax and gratuity, which may not constitute income to the business.

An additional complication to this process involves the reporting requirements themselves: Not every Payment Processor will be required to provide a Form 1099-K. Compliance is only required when the Payment Processor has, for a specific retailer, more than $20,000 in sales and more than 200 transactions. A single transaction of more than $20,000, or more than 200 transactions totaling less than $20,000, may result in the restaurant owner not receiving a Form 1099-K from the Payment Processor in question.

Owners should report gross receipts on their tax return as they have in the past – resisting the urge to match what the Form 1099-K lists as gross receipts.  Credit card gross receipts reported on the Form 1099-K, less taxes and tips and other non-income payments, should equal the credit card gross receipts reported on the tax return.  This, plus any cash sales, should equal the total gross receipts reported on the return.

Owners should also keep accurate records to support the gross receipts included on their annual return.   While the amounts and transaction dates may not tie exactly to the 1099-K, the total should be within reasonable proximity to the total included in the restaurant owner’s books.

Finally, the IRS has indicated they are aware of the special circumstances for businesses, where the amounts reported on the Form 1099-K will include items that do not constitute income to the business. They understand that discrepancies between the tax return and Forms 1099-K are often explainable. However, if there are large discrepancies, the IRS may ask for more information from the taxpayer to support these differences. Therefore, having the information readily on hand to support claimed income will minimize the burden of response, should the business owner receive such a request.

Posted in IRS, Taxes

Auto Expenses

For taxes, you can either use the standard mileage deduction or the actual expenses, but not both methods.  The standard mileage deduction includes depreciation so you can’t claim depreciation as an additional deduction under this method, but you can claim depreciation separately if you decide to track actual expenses (instead of the standard mileage deduction).

Standard Mileage Rate

With the standard mileage rate, you take a mileage deduction for a specified number of cents (determined by the IRS) for every business mile you drive. To figure out the deduction, multiply your business miles by the applicable standard mileage rate.

The standard mileage rate requires you keep track of how many miles you drive for business and the total miles you drive. You also need the date of the trip, your business destination and business purpose.

However, if you use the vehicle solely for business and can prove it, then you’ll just need to keep track of the beginning mileage and ending mileage for the year (since all the miles in between will be business related.)

If you choose the standard mileage rate, you cannot deduct actual car operating expenses. That means you can’t deduct maintenance and repairs, gasoline and its taxes, oil, insurance, vehicle registration fees nor depreciation.

Generally, you’ll be better off using the standard mileage rate if you drive a smaller, old or an inexpensive car, particularly if you drive many business miles.   This is because you get the same fixed deduction rate no matter how much the car is worth. Because the standard mileage rate factors in depreciation, an inexpensive car might benefit more from it than an expensive vehicle

Actual Expenses

Instead of using the standard mileage rate, you can deduct the actual cost of using your car for business, plus depreciation. This requires much more record keeping , but you can potentially get a larger deduction with the actual expense method.  This method requires you keep detailed records of every single expense.  You’ll want to keep careful track of all the costs you incur for your car during the year, including:

  • gas and oil
  • repairs and maintenance
  • depreciation of your original vehicle and improvements
  • car repair tools
  • license fees
  • parking fees for business trips
  • registration fees
  • tires
  • insurance
  • car washing
  • lease payments
  • towing charges
  • auto club dues

The actual expense method will likely provide a larger deduction if you drive a larger more expensive car or an SUV or Minivan. This is especially true if you have a more expensive vehicle or don’t have a lot of business miles per year.

Which Method To Choose

The only way to know for sure which method is best for you is to keep careful track of your costs the first year you use your car for business. This means tracking your mileage and your actual expenses.  If you do this, then at tax time you can compare which method gives you the higher deduction

You can only make this comparison and choose the method to use the first year you use your car for business. After that, you’re ability to choose which method is subject to restrictions.

If you use the standard mileage rate the first year, you can switch to the actual expense method in a later year.  Then, you can switch back and forth between the two methods after that, subject to certain restrictions.

Conversely, if you don’t use the standard mileage rate in the first year, you have to stay with the actual expense method in future years.

Therefore, if you’re not sure about standard mileage rate vs actual vehicle expenses, it’s a good idea to use the standard mileage rate the first year you use the car for business. This leaves all your options open for later years.

 

Posted in Deductions

Trade Names & DBAs

A trade name is a name, other than the true name, of an entity or individual under which the entity or individual is authorized to transact business or conduct activities.  Sometimes a trade name is referred to as a “doing business as” or “DBA” name

A business (other than a nonprofit entity) or an individual transacting business in the state of Colorado under a name other than the person’s true name is required to file a trade name with the Secretary of State’s Office.

A nonprofit entity may, but is not required to, file a statement of trade name for any name other than its true name under which it does business.

A trade name provides notice that you are using that trade name, but does not prevent anyone else from using the same name. It is not required to be distinguishable from any other trade name or any other name that is on record with the Secretary of State. Any trade name may be registered, even if it is similar to or exactly the same as another name that is in the records.  However, name protection exists under common law and federal trademark law.

A trade name for a reporting entity is effective as long as the entity remains in Good Standing.  A trade name for an individual or a non-reporting entity is effective for approximately one year.

Posted in Colorado

2019 Standard Mileage

The Internal Revenue Service has issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

 

Beginning on January 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

 

  • 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018
  • 14 cents per mile driven in service of charitable organizations

 

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

 

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses.

 

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

Posted in Deductions

2019 Colorado Minimum Wage

On January 1, 2019, the Colorado minimum wage increased to $11.10 per hour. For tipped employees, the minimum wage will be $8.08. These rates represent increases from the current levels of $10.20 and $7.18 respectively.

 

The new minimum wage is the result of the passage of Amendment 70 by Colorado voters in the November 2016 election. Amendment 70 requires the minimum wage to increase by 90 cents each January 1st until the rate reaches $12.00 on January 1, 2020.

Posted in Colorado

New Tax Law & Family Tax Credits

The Tax Cuts and Jobs Act (TCJA) doubled the maximum Child Tax Credit, boosted income limits to be able to claim the credit, and created a second smaller credit of up to $500 per dependent aimed at taxpayers supporting older children and other relatives who do not qualify for the Child Tax Credit.

 Child Tax Credit

Higher income limits mean more families are now eligible for the Child Tax Credit. The credit begins to phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly and increased from $1,000 to $2,000 per qualifying child.  The credit applies if the child is younger than 17 at the end of the tax year, the taxpayer claims the child as a dependent, and the child lives with the taxpayer for more than six months of the year.   Up to $1,400 of the credit can be refundable for each qualifying child. This means an eligible taxpayer may get a refund even if they don’t owe any tax.

 New Credit for Other Dependents

A new tax credit – Credit for Other Dependents — is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer

 

Posted in IRS

Collecting Sales Tax

On June 21, 2018 in South Dakota v. Wayfair, Inc. the U.S. Supreme struck down the physical presence standard to create state sales tax nexus and instead, established economic nexus as the new standard.  Physical presence is no longer the nexus standard when evaluating whether or not a company should collect and remit sales tax to a specific state.

Currently, more than 20 states have enacted similar legislation and more states are expected to follow. Under these laws, remote sellers are required to collect sales tax (or comply with use tax notification requirements) in a state if their business, measured by either sales volume and/or the number of sales transactions, exceeds certain minimum thresholds. The precise thresholds and effective dates of these laws vary from state to state. Further adding to the compliance complexity, many states have enacted and other states are likely to enact economic nexus standards for state income tax, not just sales/use tax.

The Wayfair decision may require you to register, collect and remit sales tax in additional states, or to modify your notifications to online purchasers regarding use tax reporting obligations. Your computer software applications might be updated to comply with these obligations, but you may need to use third parties to modify their online sales platform.

We recommend that you engage a qualified professional or tax attorney to further investigate the relevant issues.

Posted in IRS

Meals and Entertainment Deductions after Tax Reform Examples

The Tax Cuts and Jobs Act does not specifically address the deductibility of expenses for business meals.

The Department of the Treasury and the Internal Revenue Service intend to publish proposed regulations which will include guidance on the deductibility of them, but until then, here are some examples provided by IRS Notice 2018-76:

Example 1:

Taxpayer A invites B, a business contact, to a baseball game. A purchases tickets for A and B to attend the game. While at the game, A buys hot dogs and drinks for A and B.

The baseball game is entertainment as defined and, thus, the cost of the game tickets is an Entertainment expense and is not deductible by A. The cost of the hot dogs and drinks, which are purchased separately from the game tickets, is not an entertainment expense. Therefore, A may deduct 50 percent of the expenses associated with the hot dogs and drinks purchased at the game.

 

Example 2:

Taxpayer C invites D, a business contact, to a basketball game. C purchases tickets for C and D to attend the game in a suite, where they have access to food and beverages. The cost of the basketball game tickets, as stated on the invoice, includes the food and beverages.

The basketball game is entertainment as and, thus, the cost of the game tickets is an entertainment expense and is not deductible by C. The cost of the food and beverages, which are not purchased separately from the game tickets, is not stated separately on the invoice. Thus, the cost of the food and beverages also is an entertainment expense. Therefore, C may not deduct any of the expenses associated with the basketball game.

 

Example 3:

Assume the same facts as in Example 2, except that the invoice for the basketball game tickets separately states the cost of the food and beverages.

As in Example 2, the basketball game is entertainment and, thus, the cost of the game tickets, other than the cost of the food and beverages, is an entertainment expense and is not deductible by C. However, the cost of the food and beverages, which is stated separately on the invoice for the game tickets, is not an entertainment expense, C may deduct 50 percent of the expenses associated with the food and beverages provided at the game.

Posted in IRS

Meals and Entertainment Deductions after Tax Reform

The Tax Cuts and Jobs Act generally disallows a deduction for expenses with respect to entertainment, amusement, or recreation. However, the Act does not specifically address the deductibility of expenses for business meals.

The Department of the Treasury and the Internal Revenue Service intend to publish proposed regulations which will include guidance on the deductibility of:

-expenses for certain business meals

-expenses for food and beverages furnished primarily to employees on the employer’s business premises

-when business meal expenses are nondeductible entertainment expenses and when they are 50 percent deductible expenses

 

The Act generally disallows a deduction for any item of an activity that is of a type generally considered to constitute entertainment, amusement, or recreation.  It generally provides that no deduction is allowed for the expense of any food or beverages unless:

(A) such expense is not lavish or extravagant under the circumstances, and

(B) the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages

 

“Entertainment” means any activity which is of a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation, and similar trips, including such activity relating solely to the taxpayer or the taxpayer’s family.

 

“Entertainment” may include:

-a hotel suite, or an automobile to a business customer or the customer’s family

-providing of a hotel room or an automobile by an employer to an employee who is on vacation

 

“Entertainment” does not include:

-supper money provided by an employer to an employee working overtime

-hotel room maintained by an employer for lodging of employees while in business travel status

-automobile used in the active conduct of trade or business even though also used for routine personal purposes such as commuting to and from work

 

The Act clarifies that taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business. Taxpayers may still deduct 50 percent of an allowable business meal expense if:

  1. The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.
Posted in IRS