Understanding Delaware Corporate Taxes and Filing Requirements

Delaware corporate taxes can be a complex topic, but don't worry, I'm here to break it down for you.

Delaware has no sales tax, which means you won't have to worry about paying taxes on business transactions.

One of the main reasons companies incorporate in Delaware is to take advantage of the state's business-friendly tax environment.

Delaware corporate taxes are imposed on a franchise tax basis, which means you'll pay a tax on the value of your company's outstanding shares.

The franchise tax rate in Delaware is a flat $350 plus $0.00035 per share, making it a relatively low-cost option for businesses.

Most businesses in Delaware are required to file a franchise tax report annually, which is usually due on March 1st.

On a similar theme: Franchise Tax Board Payments Credit Card

Delaware does not impose a state-level tax on S corporations. This means that the income, losses, deductions, and credits of an S corp pass through to shareholders, who report these on their personal income tax returns.

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S corporations are created through an IRS tax election, which allows eligible domestic corporations to avoid double taxation. This election is made by filing a federal S corporation tax return, known as Form 1120-S.

The corporate income tax rate in Delaware is a flat 8.7% levied on taxable income. This rate is applied to income generated from business activities within the state.

To file an annual report and pay a franchise tax, Delaware requires all domestic or foreign corporations to file by March 1 of each year. This is a requirement for all corporations authorized to transact business in Delaware.

Here are the key Delaware filing requirements for S corporations:

The Delaware franchise tax is a crucial aspect of maintaining your corporation's status as a Delaware-registered business. The tax is calculated based on the number of authorized shares, and the minimum tax due is $175.

To calculate the tax, you can use the Authorized Shares method, which is the default method used by the state. This method calculates the tax based on the number of authorized shares, with a minimum tax of $175 for 5,000 shares or less, and a maximum tax of $200,000.

A different take: Global Minimum Corporate Tax Rate

Here's a breakdown of the Authorized Shares method:

For example, a corporation with 20,000 shares authorized pays $335 ($250 plus $85). If you have a large number of shares, the tax can add up quickly.

Alternatively, you can use the Assumed Par Value Capital method, which calculates the tax based on the corporation's gross assets and issued shares. This method is more complex and requires a three-step process to calculate the tax.

If you owe $5,000 or more in franchise taxes, you'll need to make quarterly payments instead of a lump sum payment. The due dates for these payments are June 1, September 1, December 1, and March 1 of the following year.

It's worth noting that Delaware lets you use whichever method amounts to the least tax owed, so it's a good idea to do some research and consult with a tax professional to determine which method is best for your corporation.

Delaware corporate taxes have some special cases and exemptions that can benefit certain businesses. S corporations, for instance, are exempt from Delaware's corporate income tax.

If a company is a qualified subchapter S subsidiary, it's not subject to Delaware's corporate tax. This can be a significant advantage for businesses that qualify.

S corporations must meet certain requirements to qualify for this exemption, including having only one class of stock and being a US citizen or resident.

On a similar theme: Delaware Business Taxes

If you're forming a business in Delaware, you should know that some types of businesses are subject to franchise taxes, which can add up quickly.

Delaware LLCs, general partnerships, limited partnerships, and limited liability partnerships all have to pay franchise taxes, with a flat rate of $300 per year for most of them.

The calculation for franchise taxes is relatively straightforward, but it's worth noting that limited liability partnerships have a different rate, with $200 per partner.

Here's a breakdown of the franchise tax rates for these business types:

Non-residents can form a Delaware business, even without a local tax ID, and we can help you with that.

Delaware's corporate income tax applies to corporations that conduct business within the state, but not to income generated outside of the state.

If you're a non-resident, you'll be happy to know that Delaware doesn't require LLCs to pay income tax, as they're considered "pass-through" entities.

For Delaware-incorporated companies that don't conduct business in the state, they're typically not required to pay Delaware's corporate income tax.

A Delaware-incorporated company that operates or has incorporated outside of Delaware will only be taxed on income derived from sources within the state.

Delaware's tax framework does include a franchise tax on corporations, calculated based on the value of the corporation's authorized shares, but it's not based on income.

Additional reading: Do Capital Gains Taxes Change My Income Tax Rate

Delaware does not accept consolidated returns. Each corporation in a group of affiliated corporations must file its own separate Delaware corporation income tax return.

This means that in Delaware, each corporation that conducts business and earns income in the state is viewed as a separate entity for tax purposes.

Additional reading: Are High Corporate Income Taxes Bad

The Delaware Annual Report is due by March 1 each year, and you can file it online at https://corp.delaware.gov/paytaxes/.

To be on time, mark your calendar for March 1st, as it's the deadline for filing the Annual Report.

Non-profit corporations, however, are exempt from paying the franchise tax, but they still need to file an annual report by March 1, with a filing fee of $25.

Delaware corporate income tax returns are due on or before the 15th day of the fourth month following the close of the taxable year, which is typically April 15 for calendar-year corporations.

If you're using the Authorized Shares Method, the minimum franchise tax is $175.00, while the Assumed Par Value Capital Method has a minimum tax of $400.00.

Here's a breakdown of the Delaware franchise tax due dates:

If you owe $5,000 or more in franchise taxes, you'll need to make quarterly payments instead of a lump sum payment, following the schedule above.

If you don't pay your Delaware corporate income tax on time, you'll incur a penalty of 1.5% per month, applied against any unpaid tax and penalty.

You'll also face a $200 penalty if you don't file an annual report on or before March 1.

Late filing can lead to significant costs, with a penalty of 5% per month of the tax due, up to a maximum of 50% of the tax due.

Delaware corporations need to comply with tax filing requirements and adhere to deadlines to avoid these penalties.

If you don't pay your tax liability by the due date, you'll incur a penalty of 1% per month of the tax due, up to a maximum of 25% of the tax due.

In addition to penalties, interest is charged on any unpaid tax from the due date until the date of payment, at a rate of 0.5% per month.

Failing to file a complete report by the due date will result in a $200 penalty.

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The Secretary of State will not issue a Certificate of Good Standing for a corporation that owes franchise taxes or a completed report.

If you neglect or fail to pay the franchise tax, or to file a complete franchise tax report, for more than one year, your charter will be voided.

Here is a summary of the penalties for non-compliance:

You must pay your franchise tax and file your annual report electronically. To do this, go to https://corp.delaware.gov/paytaxes/ and enter your 7-digit Business Entity File Number.

The annual report and franchise tax are due by March 1 of each year. This applies to both domestic and foreign corporations that are authorized to transact business in Delaware.

You'll need to provide information such as your Federal Employer Identification Number, company physical address, and names and addresses for all company officers and directors.

Here are the key Delaware filing requirements for S corporations:

The minimum franchise tax is $175.00 for corporations using the Authorized Shares Method and $400.00 for corporations using the Assumed Par Value Capital Method.

To file your annual report in Delaware, you must do so online at https://corp.delaware.gov/paytaxes/ by March 1 each year. This is a requirement for all for-profit corporations incorporated in Delaware, regardless of whether they're doing business in the state or earning income there.

The filing fee is $50 for non-exempt domestic corporations, but it's only $25 for non-profit corporations. You'll also need to pay any taxes that are due, which can be calculated using the Authorized Shares Method or the Assumed Par Value Capital Method.

You'll need to provide some information when filing your annual report, including your Federal Employer Identification Number (EIN), your company's physical address, names and addresses for all company officers and at least one director, and the name, title, and address of the person filing the report.

Here are the details you'll need to provide for the annual franchise tax report:

Remember, the minimum franchise tax is $175 for corporations using the Authorized Shares Method and $400 for corporations using the Assumed Par Value Capital Method, with a maximum tax of $200,000 unless you're a Large Corporate Filer, in which case the tax will be $250,000.

Delaware accepts federal extensions on taxes, but there's a catch: the state still expects you to estimate your tax liability and make a payment by the original due date.

If you're granted a federal extension, your Delaware return is due 15 days after the federal extension deadline.

You'll need to file IRS Form 7004 to get a federal extension.

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The Delaware corporate tax system can be a bit complex, but understanding the different tax methods and considerations can help you navigate it. The two main tax methods are the Authorized Shares method and the Assumed Par Value Capital method.

The Authorized Shares method is based on the number of shares your corporation has authorized, which is the maximum number of shares your corporation could sell based on your corporate bylaws or charter. If your company has authorized 5,000 shares or fewer, your total Delaware franchise tax amount is $175.

The Assumed Par Value Capital method, on the other hand, is a bit more complicated and involves calculating your business's assumed par value, which is the actual value of your business as estimated by the State of Delaware. This method results in a much lower tax in some cases, as illustrated in Example 4, where the Assumed Par Value Capital Method results in a much lower tax ($26,800 vs. $170,165).

Authorizing excessive shares of stock can result in a higher annual franchise tax liability, so it's essential to consider this when deciding how many shares to authorize. Delaware Franchise Tax liability should be quantified prior to incorporating in the state and prior to any new shares being authorized or issued.

Here's a breakdown of the franchise tax amounts for the Authorized Shares method:

Delaware Franchise Tax calculations are prorated if a corporation's authorized and/or issued shares change during the year, so it's essential to keep track of these changes. A corporation generally has one year from the date of filing to amend a Delaware Franchise Tax return and claim a refund, so it's worth considering the Assumed Par Value Capital Method if it results in a lower tax.

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