Common Tax Questions — Answered
These are the questions we get most often from Denver-area clients. Simple, direct answers — no unnecessary complexity.
Generally, yes — if you're a Colorado resident and you're required to file a federal return, you'll also need to file a Colorado state return. You'll also file if you're a non-resident with Colorado-source income (such as working in Colorado while living in another state).
For federal returns, the failure-to-file penalty is 5% of unpaid taxes per month, up to 25%. Colorado charges 5% of the unpaid tax. Failure to pay on time adds another 0.5% per month federally. These add up fast — filing on time, even if you can't pay immediately, is almost always the right move.
Don't ignore it. The IRS and Colorado Department of Revenue both offer installment agreements that let you pay over time. There are also options for currently-not-collectible status or, in some cases, an offer in compromise. The worst thing you can do is not respond — that's when collection actions escalate.
If you're facing a tax bill you can't pay, reach out to a CPA or tax professional before the deadline. There are more options than most people realize.
This is a really common misconception: a tax extension gives you more time to file your return — it does not give you more time to pay any taxes you owe. If you owe taxes, they're still due by the original deadline. Interest and penalties begin accruing after that date even if you've filed for an extension.
For most people, the standard deduction (which increased significantly after the Tax Cuts and Jobs Act) is the right choice. You only benefit from itemizing when your deductible expenses exceed the standard deduction amount for your filing status. Your CPA can run both scenarios and tell you which saves you more.
First: don't panic. Most IRS letters are not audits — they're often routine notices about a discrepancy, a balance due, or a request for more information. Do not ignore the letter, and pay attention to any response deadlines.
If the letter is confusing or concerns you, bring it to your CPA before responding. Responding incorrectly or to the wrong party is a surprisingly easy mistake.