You’ve built something great. Your business is thriving, and now you’re thinking about where to plant roots or maybe where to relocate so you can keep more of your hard-earned money. Texas and Colorado both have plenty to offer, but when it comes to taxes, they play by very different rules.
So, where should you set up shop? Let’s break it down.
1. No State Income Tax vs. 4.4%—Texas Wins This One
If you’re looking to hold onto more of your income, Texas has a clear advantage: no state income tax.
Colorado, on the other hand, takes 4.4% of your earnings whether you’re a business owner paying yourself a salary or earning pass-through income from an LLC or S-corp.
Run the numbers: If you’re making $500,000 a year, you’d pay $22,000 in state income tax in Colorado. In Texas? Zero. That’s a serious chunk of change you could reinvest into your business, investments, or lifestyle.
Insogna CPA’s Take: If keeping more of your earnings is the goal, Texas takes the lead. But that’s not the whole story. Let’s keep going.
2. Texas Has Higher Property Taxes, But That’s Not the Full Picture
Texas loves to remind people about its lack of state income tax, but it does make up for it in property taxes.
- Texas: Average property tax rate of 6% among the highest in the country.
- Colorado: A much lower 5% average property tax rate.
If you own a lot of real estate—whether commercial or residential—Colorado’s lower property tax rate might start looking attractive. But before you jump to conclusions, consider this: in Colorado, you’re still paying that 4.4% state income tax every year.
Insogna CPA’s Take: Own high-value property? Colorado’s lower rates might be appealing. But overall, Texas still gives business owners more room to breathe financially. A strategic plan with an Austin tax accountant can help you assess the real cost difference.
3. Business Taxes: It Depends on Your Structure
Business taxes can make or break profitability, so let’s talk structure.
- Texas: No corporate income tax, but if your business brings in over $2.47 million, you’ll owe a franchise tax. Typically 375% for most businesses.
- Colorado: A flat 4% corporate income tax on all corporations.
For LLCs, sole proprietors, and S-corps, Texas is often more favorable since franchise taxes only apply above a certain revenue threshold. But if you’re running a C-corp, the tax difference might not be as drastic.
Insogna CPA’s Take: If you’re running an LLC, Texas is the better bet. But if you’re a C-corp with moderate profits, the difference might be minimal. A small business CPA in Austin can break it down based on your numbers.
4. Sales Tax: Texas Is Higher, But Business-Friendly
Sales tax affects more than just your shopping bill. It matters for businesses, too.
- Texas: State sales tax is 25%, and local rates can push it to 8.25%.
- Colorado: State sales tax is 9%, but local taxes can drive it to 8% or higher.
At first glance, Colorado seems to have the edge, but Texas offers big exemptions for businesses in manufacturing, tech, and software. If you’re in those industries, Texas may still be the better deal.
Insogna CPA’s Take: If you’re in retail, Colorado’s lower base rate might save you money. But for manufacturers or software businesses, Texas’ exemptions can make a big difference. A CPA in Austin, Texas can help you navigate sales tax rules if you’re doing business in both states.
5. What If You’re Operating in Both States?
For business owners with operations in multiple states, the tax game gets more complex.
- Residency rules matter. Just because you live in Texas doesn’t mean you can avoid Colorado taxes altogether if you’re still doing business there.
- Where your business is registered affects taxes. You might register in Texas for lower taxes, but if you have employees or locations in Colorado, you’ll still have obligations there.
- Sales tax applies based on where your customers are. Selling in both states? You’ll need to navigate different tax collection rules.
Insogna CPA’s Take: If you’re operating in multiple states, smart tax planning is non-negotiable. A tax advisor in Austin can help structure your business to minimize tax liabilities and keep more of your profits.
So, Texas or Colorado? Here’s the Bottom Line.
If your goal is to pay less in taxes overall, Texas wins. No state income tax, lower business taxes for most entities, and pro-business incentives.
But if you’re big on real estate ownership and want lower property taxes, or if sales tax is a major factor for your business, Colorado might have some appeal.
Thinking About Where to Establish Residency? Let’s Talk.
Choosing the right state for your business isn’t just about what sounds good on paper;T it’s about what makes the most financial sense for your specific situation. That’s where Insogna CPA comes in.
We help business owners optimize their tax strategy, whether you’re based in Texas, Colorado, or splitting time between both.
Let’s talk strategy. Book a consultation with Insogna CPA, one of the top Austin CPA firms, today.