Delaware franchise tax: an overview

If you don’t want to pay your Delaware franchise tax yourself, you can hire a registered agent to do it for you. The registered agent will charge a small fee to complete the filing of your Delaware franchise tax. The state will send out an annual tax notification to your corporation’s Registered Agent, informing them that your annual taxes are coming due. Once you’ve received your paperwork — which will include a filing number — and the calculations (if necessary) are complete, the next step is to pay the bill. As noted earlier in this blog, the process of making a tax payment is fairly simple. ABC Corp has 3,200 authorized shares and pays a franchise tax of $175, while XYZ Corp has 32,000 shares and pays $505.

In addition to paying the franchise tax, businesses incorporated in Delaware must also file an annual report and pay a small filing fee. S-Corporations and other flow-through entities aren’t subject to the double taxation of revenue imposed on a C-Corp, because they aren’t required to pay corporate taxes on their revenue. However, the owners or members of the corporation must report their share of the corporation’s income on their personal tax returns and pay Delaware and federal income tax. The California franchise tax, for example, is equal to the larger of your California net income multiplied by the 8.84 percent tax rate or the $800 minimum tax.

Delaware Nonprofit Tax Exemptions

Your corporation will owe an estimated $85 for each 10,000 shares authorized. The minimum tax when using this method is $175, and the maximum tax is $200,000. In addition to the corporate income tax, How Do I Compute the Delaware Franchise Tax? Delaware has a gross receipts tax which also applies to most purchases and transactions made by businesses and corporations. Only New Hampshire and Virginia have similar stacked gross receipts taxes.

If a corporation has more than 1,500 shares, it has to pay $175 for every 1,000 shares. If a corporation has less than 1,500 shares, it has to pay $350 for every 1,000 shares. When filing a franchise tax in Delaware, all the must be submitted is the physical address of the business and the name of the registered agent.

I am not a Franchise. Why do I owe a franchise tax?

Authorizing excessive shares of stock can result in a higher annual franchise tax liability. A large widely held public company might have difficulty reducing their authorized and/or issued shares but a start-up technology or life sciences company may have more flexibility. Ideally, Delaware Franchise Tax liability should be quantified prior to incorporating in the state and prior to any new shares being authorized or issued. Let’s imagine a Delaware-incorporated company reported total gross assets of $1,000,000 on their federal taxes this year. The Delaware LLC tax rate is typically lower than the rate paid by corporations. Delaware requires most LLCs formed in the state to pay an annual tax of $300 but beyond that, profits are taxed differently.

How Do I Compute the Delaware Franchise Tax?

To claim S corporation tax status for your LLC, you first have to file a special form with the IRS. An S corporation is not subject to federal taxes, the way a traditional C corporation would be. Corporate rates are often flat, meaning the rate remains the same no matter how much income the business generates.

Delaware Annual Report

The annual Registered Agent Fee is a fixed amount paid to Harvard Business Services, Inc. to act as an agent for your entity in the state. If your company has authorized 5,000 shares or fewer, your total Delaware franchise tax amount is $175. The Delaware Franchise Tax is a tax that is imposed on businesses that are incorporated in the state of Delaware.

  • Title 8 Chapter 5 § 503 (i) states such total assets and total gross assets shall be those “total assets” reported to the United States on U.S.
  • Keep in mind, this number could be different from the number of shares your company has actually issued.
  • The annual Registered Agent Fee is a fixed amount paid to Harvard Business Services, Inc. to act as an agent for your entity in the state.
  • If you’re not working with an accounting firm, you’ll need to total up your asset base and enter that number.
  • While the typical franchise tax is based on a corporation’s net worth or capital, the tax can also be based on other criteria such as income or gross receipts.

The authorized share method is generally Delaware’s tax team’s default method of calculating the franchise tax, and it can result in a much higher tax bill vs. the assumed par value method. Ask your accountant if you can use the assumed par value method to reduce your tax bill. A corporation with 5,000 authorized shares or less is considered a minimum stock corporation. The Delaware annual report fee is $50 and the tax is $175 for a total of $225 due per year. Assumed Par Value Capital Method
With this method your Delaware Franchise Tax bill is calculated based on issued shares, authorized shares and total gross assets.

How much do I owe in Delaware franchise taxes?

If the tax is not paid on or before June 1, the state imposes a $200 late penalty, plus a monthly interest fee of 1.5%. If you’re ready to file and pay your Delaware Franchise Tax now, please visit our online Franchise Tax payment form. [2] Remember that “authorized” refers to the number of shares you may issue, as opposed to outstanding shares, which is the number you have already issued. Let’s also imagine it has authorized and issued 100,000 shares at a par value of $2.00 each, and 100,000 shares at par value of $10.00 each. Let’s also assume the number of shares issued and authorized is the same for simplicity’s sake. He has written extensively on subjects such as contract law, company law, and intellectual property.

Businesses pay a fee that varies depending on the amount of assumed no-par capital. The Delaware Division of Corporations explains how to calculate taxes using this method. Don’t panic – your Delaware Franchise Tax is likely so high because your accountant has used the wrong calculation method. Use the calculation method in our estimator above to estimate how much you likely owe. Your company will likely need to use the assumed par value calculation method instead of the authorized share method of calculation. Most of our startups pay between $400 – $10,000 in DE Franchise taxes.

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