Regardless of where you live, filing income taxes can be tricky. In addition to the federal return that virtually every American worker must file, you'll probably be responsible for filing a tax return in your home state as well. There are only seven states that don't currently impose income taxes on their citizens. These are Wyoming, Texas, Washington State, Florida, Alaska, South Dakota and Nevada. As a Colorado resident, you'll need to make sure that you file a tax return with the authorities in Denver.
Fortunately, Colorado's tax system makes this process fairly easy for most of the state's residents. Like six other states, Colorado imposes a so-called "flat tax" on its citizens. Unlike the federal government's system of "progressive" taxation, Colorado's flat tax system levies an even tax rate on every one of the state's taxpayers. This rate is currently set at 4.63 percent and may vary from year to year.
At its current level, this means that Coloradans who earn $100,000 per year must pay $4,630 in taxes to the authorities in Denver. Coloradans who earn $50,000 per year must pay $2,315 in taxes. Fortunate Coloradans who earn $1 million per year must pay $43,630 in taxes. Crucially, this rate is identical for all forms of income. Streams of income that come from interest and investments are treated no differently than salary or wage earnings.
This relatively straightforward system of taxation makes it easy for Coloradans to calculate their annual state income tax refunds. If you're filing your taxes in the Centennial State, you'll need to keep just a few things in mind.
First, you may qualify for certain income tax deductions. Colorado's tax code allows for individual taxpayers to take "personal" deductions for themselves as well as itemized deductions for things like mortgage payments, student loan debts, child tax credits and other items. You can't claim the personal deduction in addition to multiple itemized deductions. If you believe that you qualify for multiple itemized deductions, it may be in your interest to claim these and eschew the personal deduction. You should talk to your tax professional for advice on this matter.
Depending upon your income level, you might not need to pay state income taxes at all. If the value of your personal deduction exceeds your total annual income, your tax refund will be equal to your year-to-date withholding amount. You'll receive this refund as a check or direct-deposit payment within several weeks of filing your taxes.