Income taxes are a significant source of revenue for states. Most states impose an income tax on residents and non-residents alike. Individual taxation is usually progressive, meaning that the amount of tax owed increases with each additional dollar earned. States also levy other taxes, including sales, property, excise, and corporate taxes.

The Internal Revenue Code and Treasury Regulations are long and complex. Many laws apply to and impact your 1040 income tax return and must be considered when planning for future individual decisions. In addition to assisting clients with their IRS matters, a tax attorney at The McGuire Law Firm can help you with your personal tax questions and issues that impact your individual income tax returns.

Filing Taxes

Individuals may also choose to file an annual tax return themselves. Individuals filing returns must complete Form W-4, Employee’s Withholding Allowance Certificate. Employers must withhold federal income tax at the rate specified on the W-4. State income tax is calculated based on the total wages earned during the year.

Income taxes are paid quarterly or annually, depending on your income level and source of income. If you earn more than $150,000 annually, you will need to pay the regular income tax. You will not owe any additional tax if you earn less than $150,000. Self-employed individuals must file estimated tax returns every quarter or year.

Individuals must file Colorado individual income tax returns (form 104) and pay all taxes owed to the State of Colorado by April 15th each year. If you owe taxes, you can get them back if you file your return within three years after the end of the tax year. You may also request an extension until April 15th.

Tax Liability

Taxpayers’ total Colorado income tax liability is determined using a flat tax rate of 4.6% of adjusted gross income. Additions and subtractions are made to federal taxable income before applying the flat tax rate. Credits are subtracted from the resulting figure to determine the net Colorado income tax. The Department of Revenue publishes an annual report detailing income tax expenditures, including additions, deductions, and credits.

Income Tax Credits

Credits are available for individuals and corporations. Some are available for both. For example, the Earned Income Tax Credit (EITC) is available for individuals and corporations.

Tax credits are usually nonrefundable, so you get what you pay for. Refundable tax credits are those that are refunded to taxpayers. Any money left over after paying all taxes is returned to you. You can carry over unused credits to the following year, but you won’t receive anything back if you owe less than your credit.

Tax Distributions

In 2017, the State Education Fund received $1.4 billion in total revenues, including $845 million from personal income tax and $566 million from corporate income tax. Of those funds, $735 million went towards K-12 public schools, while $636 million went towards higher education institutions. The remainder went toward other purposes, including the Department of Corrections and Rehabilitation ($65 million), the Office of Public Defender ($31 million), the Department of Natural Resources ($30 million), and the Department of Revenue ($27 million).

Federal Income Taxes

Taxpayers must file federal income tax returns yearly, even if they did not earn any taxable income during the previous calendar year. Taxpayers whose adjusted gross income exceeds certain thresholds must also pay estimated taxes at regular intervals throughout the year. These payments are called “payments underestimated tax” or “PUETs.”

Federal taxable income is calculated as Gross Income minus any Tax Deductions and Exemptions a taxpayer might Qualify for. Net Federal Income Tax is then calculated using Marginal Income Tax Rates, and Tax Credits are subtracted from this amount to arrive at the final Net Federal Income Tax.

Taxable income is determined by your total gross income minus certain deductions. For example, you may deduct expenses like mortgage interest, property taxes, and charitable contributions. You also get an exemption for dependents under age 17. Taxpayers must file Form 1040EZ if their adjusted gross income is less than $100,000 ($200,000 for joint filers) and they don’t owe any federal income tax. If you earn more than those amounts, you need to file Form 1040.

The tax year 2021 tax rates by income and filing status. Tax rate For single individuals, taxable income over. For married individuals filing joint returns, taxable income over.

 A tax attorney at The McGuire Law Firm can analyze your situation and provide guidance and counsel regarding your specific situation and circumstances.