Common Tax Questions, Answered

These are the questions we hear most often from individuals and business owners around Denver and the Front Range. The short version of almost every answer is the same: deal with the issue early, in writing, and before a deadline passes. The details below explain why.

Do I need to file a Colorado tax return?

Usually, yes. Colorado’s rule is simple: if you are required to file a federal income tax return, you are generally required to file a Colorado return too, according to the Colorado Individual Income Tax Guide. You also have to file if you owe Colorado tax for any other reason.

How Colorado taxes you depends on residency. Full-year residents are taxed on all their income. Part-year residents are taxed on what they earned while living here plus any Colorado-source income. Nonresidents pay only on Colorado-source income, such as wages for work performed in the state or rent from a Colorado property. If you moved to or from Colorado during the year, expect a part-year return in each state.

What happens if I file or pay late?

The IRS charges two separate penalties, and the difference between them is the most useful thing on this page.

The failure-to-file penalty is 5% of the unpaid tax for each month or part of a month the return is late, up to 25%. For returns due after December 31, 2025, a return more than 60 days late also carries a minimum penalty of $525 or 100% of the tax owed, whichever is less.

The failure-to-pay penalty is 0.5% of the unpaid tax per month, also capped at 25%. In months when both apply, the filing penalty is reduced by the payment penalty.

Here is what that means in practice. Suppose, for illustration, you owe $8,000 and do nothing for three months. The combined penalties come to about 5% a month, or roughly $1,200, before interest. If you had filed on time and simply paid three months late, the penalty would have been about $120. File on time, even when you cannot pay.

Colorado works differently. Its delinquent payment penalty is the greater of $5 or 5% of the net tax due for the first month, plus 0.5% for each additional month, up to 12%, as described in the 2025 Colorado individual income tax booklet. Interest is charged on top.

What if I can’t pay my tax bill?

Do not ignore it. The cost of a balance grows every month, and the options narrow once a bill moves into collection.

The IRS offers payment plans that individuals can usually set up online. If you can pay within 180 days and owe less than $100,000 in combined tax, penalties and interest, a short-term plan has no setup fee. If you need longer, you can apply online for a monthly plan when you owe $50,000 or less and have filed all required returns. The setup fee is $29 with automatic bank debits and $69 for other payment methods, and it is lower for low-income taxpayers. Businesses apply by phone rather than online.

Colorado offers its own payment plans through Revenue Online. With either agency, interest and penalties keep running until the balance is paid, so a plan reduces the pain but does not stop it.

When a balance is larger, older or tangled up with unfiled years, the right answer may involve more than a payment plan. That is the work our tax resolution team does.

Is an extension more time to pay?

No. An extension is more time to file the paperwork. The IRS says it plainly on its when to file page: an extension of time to file is not an extension of time to pay.

Federal Form 4868 gives individuals an automatic six-month extension, which moves the 2026 return deadline from April 15, 2027 to October 15, 2027. Colorado grants an automatic extension to October 15 without a separate form, but there is no extension to pay. In both cases, estimate what you will owe and pay it by April 15. Interest runs from the original due date on anything you underpay.

Should I take the standard deduction or itemize?

Take whichever is larger. For 2026, the federal standard deduction is $16,100 for single filers, $32,200 for married couples filing jointly and $24,150 for heads of household, according to the IRS 2026 inflation adjustments.

Itemizing became more attractive for some households in 2026 because the cap on state and local tax deductions rose. For 2026, you can deduct up to $40,400 of state and local income, sales and property taxes combined ($20,200 if married filing separately). The cap shrinks once modified adjusted gross income passes $505,000, but never below $10,000, per the IRS correction to the 2026 Form 1040-ES.

A quick way to test it: add your mortgage interest, your state income and property taxes (up to the cap) and your charitable gifts. For example, a married Denver couple with $14,000 of mortgage interest, $13,000 of state income and property taxes and $6,000 of donations would have $33,000 of itemized deductions. That beats the $32,200 standard deduction by $800. Without the donations, the standard deduction would win.

Colorado starts its calculation from federal taxable income, so the choice you make federally carries through to your Colorado return. If you itemize and deduct Colorado income tax, Colorado generally makes you add that tax back.

I got a letter from the IRS. What should I do?

Open it, read it and note the response date. A letter is not necessarily an audit. Many ask for a missing form, propose a correction or request payment. The IRS guidance on understanding your notice or letter is direct: if the letter asks you to respond, act by the due date, and reply on time to protect your appeal rights.

Before you respond or pay, have someone compare the notice to your return. IRS adjustments are sometimes wrong, and the response window is the cheapest time to fix them. If a letter looks suspicious, search its number on irs.gov or call the IRS directly.

Still have a question?

If your question is not here, or the answer depends on details only you know, an introductory call with our client services team is the place to start. We will talk through what you need and how we can help, and advice begins once an engagement is in place.