S-corp Tax Savings for Consultant in CO

Running an S corporation can lower self-employment taxes by splitting pay into W-2 salary and distributions, but the IRS expects that salary to be reasonable for the work performed. This guide gives a practical, planning-first framework for a Consultant in Colorado, plus the official sources your CPA will want to see.

Last reviewed: January 15, 2026.

Key takeaways

• The IRS expects shareholder-employees to take reasonable wages before distributions.
• Reasonable compensation is fact-specific: role, hours, revenue drivers, and comparable market pay matter.
• Use a documented range (not a single number) that your CPA can defend.

State tax snapshot

• Colorado S corporations file a Partnership and S Corporation Income Tax Return (DR 0106) for any year they do business in Colorado. (https://tax.colorado.gov/business-organizational-structure)
• If a corporation is an S corporation for federal income tax purposes, it is an S corporation for Colorado income tax purposes, and Colorado does not tax S-corp income at the entity level. (https://tax.colorado.gov/business-organizational-structure)
• For tax years 2022 and later, the Colorado individual income tax rate is 4.4%. (https://tax.colorado.gov/individual-income-tax-guide)

Role & revenue drivers

Consultants often blend billable delivery with sales, scoping, and account management. Utilization, project scope, and retained accounts drive revenue.

State + profession context

Consulting income is often lumpy: a few large projects can dominate the year, and the owner splits time between delivery, sales, and account management. Your role changes with the pipeline—some quarters are execution-heavy, others are all business development and scope definition. If you own client relationships, you’re also carrying pricing, retention, and renewal risk. Use the OEWS wage range as an anchor, then adjust for your actual mix of billable hours, revenue ownership, and non‑billable leadership. The goal isn’t a perfect number; it’s a defensible range your CPA can validate from your records. Time allocation and a written role description do the heavy lifting.

Compensation benchmark (SOC)

• SOC code: 13-1111 (Management Analysts).
• BLS OEWS (May 2024 release) annual median wage in Colorado: $104,990; 25th–75th percentile range: $79,220–$140,180. (https://data.bls.gov/oes/)

Note: OEWS May 2024 was released on April 2, 2025. (https://www.bls.gov/oes/update.htm)

What "reasonable compensation" means

Reasonable compensation is the wage you would pay someone else to do your job under similar conditions. The IRS looks at duties, experience, time spent, and what comparable roles earn, not a fixed percentage of profit. Use multiple data points to defend a range, not a single number.

A clean framework

1. Define the role. Capture what you actually do: billable delivery, scoping/sales, account ownership, and team oversight.

2. Benchmark a range. Use BLS occupational wage data plus any industry surveys or local comps your CPA trusts. Focus on state-level data where possible.

3. Model the split. Pay the reasonable wage as W-2 salary; treat the remaining profit as distributions only after the wage is defensible.

4. Document the rationale. Keep your notes, sources, and calculations with the tax file so your CPA can defend the position.

Example scenario

Example: A Colorado consultant who is 60% billable, 25% sales, and 15% ops should base salary on a blended role, not a pure delivery role. Keep a simple time log or calendar snapshot to defend the mix.

Decision checklist

• Did income or services change materially this year?
• Do you have a defensible compensation range for a Consultant in Colorado?
• Is the documentation clear enough to share with your CPA?
• Have you documented how time is split across delivery, management, and growth?

Questions to ask your CPA

• What compensation range is defensible for my role and hours?
• How do Colorado-specific filing requirements affect the split?
• What documentation would you want if the IRS asked for support?

FAQ

Do I need a separate state S election in Colorado? Colorado recognizes the federal S‑corporation election for state income tax purposes, but you still need to meet Colorado registration and DR 0106 filing requirements. Confirm details with your CPA. (https://tax.colorado.gov/business-organizational-structure)

Should I use national or Colorado wage data? Colorado or local wage data is more defensible when available; the OEWS database provides state‑level benchmarks you can cite. (https://data.bls.gov/oes/)

What documents should I keep? Keep a role description, time allocation notes, and compensation benchmarks; the IRS focuses on duties and comparable wages when evaluating reasonableness. (https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues)

Related resources

• S-corp Reasonable Compensation Guide
• Year-End Tax Projection
• Estimated Tax Catch-Up
• Tax Optimization

Next step

Use the S-corp Reasonable Compensation Guide to draft your range, then bring it to your CPA for validation.

Compliance note

This guide is for planning and coordination only. It does not provide tax or legal advice. Confirm details with a qualified professional.

Sources

• https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues
• https://data.bls.gov/oes/
• https://www.bls.gov/oes/update.htm
• https://tax.colorado.gov/business-organizational-structure
• https://tax.colorado.gov/individual-income-tax-guide