Annualized income installment method

The annualized income installment method allows taxpayers who do not receive income evenly throughout the year to calculate the amount of each quarterly estimated payment separately, based upon the income actually received in the months preceding the payment due date. Taxpayers may use the annualized income installment method only if they also use the annualized income installment method to compute their federal estimated tax payments.

Taxpayers can use the Annualized Installment Method Schedule in Part 4 of Colorado form DR 0204 to calculate their required quarterly estimated payments using the annualized income installment method. In determining each required quarterly payment amount, the taxpayer must calculate their Colorado taxable income for the annualization period, which, for calendar year filers, runs from January 1st through the end of the month preceding the due date of the payment. Generally, a taxpayer must first complete the federal annualized installment schedule (Schedule AI of IRS Form 2210 or the Annualized Estimated Tax Worksheet from IRS Publication 505 ) to calculate their Colorado taxable income for each annualization period. Taxpayers with business activity both inside and outside Colorado must calculate apportionment fractions for each annualization period and may not use estimated apportionment fractions or apportionment fractions from a prior year. Part-year residents and non-residents will also need to apportion their income to determine their Colorado taxable income (please see Department publication Income Tax Topics: Part-Year Residents & Nonresidents ).

Taxpayers must retain records detailing the calculation of their quarterly estimated payments and provide those records to the Department upon request.