Colorado Owners Under $500,000 Get a Tax Cut Jan. 1 — Here's Where the Line Flips

For 39 years, every Colorado business owner paid the same state income tax rate. That ends with the 2027 tax year. Voters approved Amendment 87 on November 3, and opponents conceded on November 6. The measure swaps the 4.4% flat tax for six brackets, cutting taxes slightly for most owners and raising them sharply for those with taxable income above roughly $500,000.

If you run an LLC, S corp, sole proprietorship or C corporation in Colorado, here is exactly where you land, what the numbers look like, and what to do before January 1.

What Amendment 87 Actually Changes

Colorado has used a single flat income tax rate since 1987, and the Taxpayer's Bill of Rights (TABOR) in the state constitution required it. Amendment 87 removes that requirement and creates a graduated tax for individuals and businesses starting in 2027, according to the state's official ballot analysis (the "Blue Book") prepared by Legislative Council Staff.

The new brackets, which apply only to the slice of income that falls inside each range:

• $25,000 or less: 3.7% (down from 4.4%)
• $25,001 to $100,000: 4.2% (down from 4.4%)
• $100,001 to $500,000: 4.4% (unchanged)
• $500,001 to $750,000: 7.4% (up 3 points)
• $750,001 to $1,000,000: 7.9% (up 3.5 points)
• More than $1,000,000: 8.4% (up 4 points)

One detail matters a lot for long-term planning: unlike federal brackets, these thresholds are not adjusted for inflation. As revenue and owner pay rise over the years, more income will drift into the higher brackets automatically.

What Owners Will Pay: Real Numbers

The Blue Book walks through examples using Colorado taxable income. Here is how they compare with today's 4.4% flat rate:

• $25,000 taxable income: $925 instead of $1,100 — saves $175
• $62,500: $2,500 instead of $2,750 — saves $250
• $125,000: $5,175 instead of $5,500 — saves $325
• $300,000: $12,875 instead of $13,200 — saves $325
• $550,000: $25,375 instead of $24,200 — pays $1,175 more
• $625,000: $30,925 instead of $27,500 — pays $3,425 more
• $875,000: $50,050 instead of $38,500 — pays $11,550 more
• $2,000,000: $143,925 instead of $88,000 — pays $55,925 more

The maximum savings for anyone below the line is $325 a year. According to the fiscal analysis, taxpayers with Colorado taxable income under $510,834 pay less, and those at or above that figure pay more. Supporters say about 95% of businesses come out ahead; the savings range from small amounts up to that $325 cap.

How It Hits Your Business Depends on How You're Taxed

LLCs, S corps and sole proprietors (pass-through owners)

If your business is a pass-through, its profit flows onto your personal return. That means what matters is your total Colorado taxable income — wages, your share of business profit, and any other income, minus allowable deductions. A shop that clears $400,000 in profit could still push a household over $500,000 once a spouse's salary or investment income is added.

This is also where your entity choice starts to matter more. Owners near the line should revisit how they pay themselves and whether their structure still fits. Our guide to LLC vs. S corp covers the trade-offs, and if you're just starting out, see our LLC formation guide.

C corporations

A C corporation is taxed on its own net income. The same brackets apply to that taxable income, so a corporation earning under $500,000 in Colorado taxable income gets a small cut, while one earning more pays the higher rates on the portion above the thresholds. Supporters point out that Colorado taxes multistate corporations based on sales made in the state, and argue that most of the new corporate revenue will come from companies headquartered elsewhere.

Why Business Groups Are Pushing Back

The Colorado Chamber of Commerce, which fought the measure, said it was deeply disappointed and warned that higher rates will force owners into hard choices on wages, hiring and investment. The Denver Metro Chamber of Commerce noted that Colorado's top rate will now be higher than in eight of its ten main competitor states, including Texas and Arizona.

Gov. Jared Polis also opposed the measure. He said he was comfortable with the individual tax changes but objected to what it does to small and mid-sized businesses, which he argued could see rates nearly double on their higher income.

Supporters counter that the brackets only bite above $500,000 of net taxable income — not revenue — and that the money is locked into K-12 education, health care and child care. The state expects the change to raise about $958 million in the 2026-27 budget year (a half-year effect) and roughly $2 billion in the first full year. That added revenue is exempt from TABOR's limit, and the analysis says existing TABOR refunds are not affected.

Is It Final?

Opponents conceded on November 6, and supporters declared victory. As of this week, local reporting noted the result had not yet been officially certified, though the remaining count was expected to favor passage. Plan as if the new brackets apply to income you earn starting January 1, 2027.

What Colorado Owners Should Do Before January 1

1. Know your real number

Pull your 2025 return and your 2026 year-to-date figures. What matters is Colorado taxable income, not gross sales. A clean, current profit and loss statement is the fastest way to see where you'll land in 2027.

2. If you're well under $500,000, relax — mostly

You'll likely save somewhere between a few dollars and $325 a year. No action needed beyond making sure your tax preparer applies the new brackets on your 2027 return.

3. If you're near or above $500,000, talk timing with your CPA now

Because 2026 is the last year at the flat 4.4% rate, owners close to or above the line should ask an advisor whether it makes sense to recognize certain income in 2026 rather than 2027, or to accelerate or defer deductible spending. Every situation is different, and federal rules still apply, so get specific advice before moving money around.

4. Revisit how you pay yourself

For pass-through owners, the split between salary, distributions and retained earnings can change your taxable income. If you're an S corp owner, make sure your compensation is still reasonable and documented.

5. Update your 2027 estimated payments

If you'll owe more under the new brackets, your quarterly estimates should reflect that from the first payment of 2027. Underpaying early in the year is how a tax change turns into an avoidable penalty.

6. Watch for follow-up rules

The legislature will decide how the new money is spent and may pass clean-up legislation. The Colorado Chamber has also said it hopes lawmakers will ease up on business fees now that new revenue is coming in. Keep an eye on Colorado Department of Revenue guidance as 2027 forms are released.

The Bottom Line

For the large majority of Colorado small business owners, Amendment 87 is a small tax cut — up to $325 a year. For owners whose household or corporate taxable income tops roughly $500,000, it's a meaningful increase that grows with every dollar above the line, and the brackets won't rise with inflation. Spend an hour with your numbers this month so January doesn't bring surprises.

Photo by Nils Huenerfuerst on Unsplash