tax planning Colorado

Tax Planning Strategies for Colorado Residents

At Breakwater Capital Group, we specialize in comprehensive financial planning for individuals and families, including tailored tax strategies. Given Colorado’s unique tax landscape, tax planning is critical. Let’s examine key strategies to help you reduce your tax in Colorado. Our purpose is to educate Colorado residents to make knowledgeable decisions that merge tax efficiency with long-term wealth management.

Taxes in Colorado

Colorado has a straightforward tax environment with a single state income tax rate of 4.0% in 2025, much simpler than states with graduated brackets. Colorado does not have a state-level sales tax. However, local governments may enact their own sales taxes, creating variability that requires strategic financial planning in Denver and beyond.

Property taxes in Colorado should not be ignored. Further exemptions may be available for homeowners, like the Senior Property Tax Exemption, which provides a 50% reduction on the first $200,000 of a home’s value for eligible seniors. 

Colorado has one of the nation’s lowest average effective property tax rates at approximately 0.6%. Legislative measures, such as 2024’s House Bill 1001, further reduce property taxes statewide. This bill adjusted residential assessment rates to 6.15% for local governments and 6.95% for school districts while mandating state reimbursements to offset revenue losses and ensure essential services remain unaffected.

Additionally, you can appeal your property tax assessments in the state if you think they are too high. If you are a veteran and own a home, explore the tax breaks available under the Disabled Veterans Property Tax Exemption. 

Strategic Tax Planning in Colorado

Effective tax planning means using strategies to your advantage. Here are some actionable approaches in Colorado:

Tax-Advantaged Retirement Savings Accounts

Reducing taxable income while building a nest egg is possible by funding tax-advantaged accounts like IRAs, Roth IRAs, or employer-sponsored plans such as 401(k) and 403(b). For 2025, this equates to $7,000 for IRAs and $23,500 for 401(k) plans, with additional catch-up contributions of $1,000 and $7,500, respectively, if you’re 50 or older. These align with retirement planning in Denver and the rest of Colorado, addressing the broader scope of wealth management. Reviewing contributions annually helps you maximize tax benefits while staying on track with long-term goals. These strategies also apply to financial planning in Massachusetts and Denver financial planning.

Additionally, for self-employed individuals or small business owners, setting up a Simplified Employee Pension (SEP) IRA or a Solo 401(k) can provide higher contribution limits and substantial tax advantages. For 2025, SEP IRA contributions can reach 25% of compensation or $66,000, whichever is less. These options make retirement planning even more flexible for entrepreneurs in Colorado.

Tax-Efficient Investment Strategies

Tax-efficient investing minimizes capital gains taxes through strategic asset allocation. Municipal bonds, which produce federal and state tax-free income, or ETFs, which minimize taxable events, can enhance Colorado wealth management for long-term financial growth. Balancing risk and maximizing after-tax returns through diversification are also key. For high-income earners, utilizing tax-deferred accounts to shelter income from immediate taxation can further enhance portfolio performance.

Expenses You Can Deduct

Maximizing deductions like mortgage interest, charitable contributions, and SALT (state and local income taxes) can save taxable income. The state sets the annual SALT deductions cap at $10,000. Exploring deductions for medical or educational expenses may provide additional savings. 

Taking Advantage of Colorado-Specific Tax Credits

Colorado offers tax credits, such as those for renewable energy installations like solar panels. These credits reduce tax liability and promote sustainable living. Visit the Colorado Department of Revenue for details. Including these credits in your financial planning as a fee-only financial planner Denver client can optimize tax efficiency. Colorado provides a state sales tax exemption for solar equipment, with a tax rate of 2.9%, a 100% property tax exemption for added value to the home when there is solar installation, and net metering for additional energy while at the same federal 30% investment tax credit.

Strategic Tax-Loss Harvesting

Tax-loss harvesting involves selling investments at a loss to offset capital gains, reducing taxable income. This is particularly helpful in volatile markets. Consulting with a professional helps align your investments with your financial situation. This is central to comprehensive financial planning in Colorado. Strategic timing creates long-term tax advantages while maintaining portfolio balance. For investors managing multiple accounts, coordinated tax-loss harvesting across taxable and tax-advantaged accounts can yield even greater savings.

Now Is the Time to Act

Tax planning is vital for financial health. For Colorado residents, it requires special considerations. From retirement planning in Denver to leveraging Colorado-specific tax credits, these strategies reduce your tax burden. At Breakwater Capital Group, our Denver-based fee-only financial planners help you achieve clarity and confidence in your finances. Contact us today to take the next step toward your financial goals. 

We understand that financial stability alone is not enough — it is one building block of wealth management. We review your present needs and your long-term aspirations, from optimizing particular state benefits to taming the complex federal income tax regulations. Let Breakwater Capital Group be your trusted guide every step of the way.

Choosing the right advisor

The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.

Breakwater Team

At Breakwater Capital, we work with families across the United States, providing each client with a personalized experience tailored to their current circumstances, future goals, and timelines.