Like many states, Colorado enacted an elective pass-through entity (PTE) tax regime, effective for tax years beginning January 1, 2022.
On October 21, 2022, the Colorado Department of Revenue (DOR) released form DR 1705 for making a Colorado PTE tax election prior to the end of the 2022 tax year.
Taking the Deduction
Current Year
Qualifying PTEs planning to make the election and take the state tax deduction on their federal return in the current tax year should consider making the election and payment prior to the end of the current tax period. Form DR 1705 is the election form for tax year 2022 providing taxpayers the ability to formally make the election by year end.
Future Years
The DOR noted that for years after 2022, PTEs will be able to make the election on their estimated payment forms. Note that Form DR 1705 appears to only apply to the 2022 tax year.
Election on Return
PTEs also have the option to make their election when they file the return in the following tax year.
Retroactive Election Forms
Readers may note Colorado’s unique retroactive election. The Colorado legislature adopted a retroactive election covering the 2018–2021 tax years, although they can’t be made until September 2023. Further departmental guidance and related forms are expected in fall of 2023. Form DR 1705 shouldn’t be used for retroactive elections.
We’re Here to Help
Given the complexities of PTE elections, consider modeling the potential impact before making the election.
To learn more about elective PTE taxes and how they could impact your business, contact your Moss Adams professional.