Delaware for Your Business: A Friendly Guide to Corporation Tax

Delaware Franchise Tax for 2024 | C-Corporations | Inkle

Hello there! 

If you're on the verge of making a big decision about where to incorporate your business, you've probably heard a lot about Delaware. It's like the popular kid in the class when it comes to business incorporation. 

But why do so many businesses flock to this tiny state? Let's chat about what makes Delaware the go-to choice for savvy business owners and dive into the nitty-gritty of corporation tax without the jargon.

Why Delaware? Let's Break It Down

Imagine a place where the laws feel like they're crafted just for businesses, with a court system that understands corporate squabbles like no other. That's Delaware for you! It's not just about the prestige or the credibility boost it gives you in the eyes of investors and stakeholders; it's about being part of a community that gets business.

And guess what? Delaware doesn't have state-level sales tax, which is a big win if you're steering an online venture. But, a little heads-up – check on those local taxes, as they might sneak up on you.

The Delaware Magnet

So, why do companies love Delaware? Think of it as the corporate world's sanctuary. The state rolls out the red carpet with laws that pamper businesses, offering sweet tax perks and a legal system that's all ears when it comes to corporate issues. It's like having a guardian angel for your business!

Let's Talk Taxes (Because We Have To)

Navigating taxes is as fun as a root canal, but it's less painful if you know what's up. Delaware's got its own way of doing things, with a franchise tax that looks at how your company is structured. Don't worry; it's not as scary as it sounds. Plus, there's no corporate income tax for businesses waving their business flags outside Delaware.

Delaware Sales Tax: Does It Exist?

Yes, Delaware does not have a state-level sales tax, which makes it appealing for online businesses. However, there may be local sales taxes imposed by certain areas in Delaware. To ensure compliance with tax obligations, it is recommended to consult with Inkle for accurate information regarding your business in Delaware.

Franchise Tax: The Annual Check-In

Paying the Delaware Franchise Tax is like renewing your business's membership card. It's based on your company's size and structure, ensuring you're contributing your fair share to the state's coffers. And yes, filling out that Annual Report is part of the deal – it's how you tell the state and the world your business is still kicking and thriving.

Exploring the Annual Delaware Report Fee

There is no fee on the Delaware Annual Report. It has to be filed along with the Delaware Franchise Tax, the price for which is a minimum of $400 + $50 filing fee.

Delaware or Nevada? 

If you're torn between Delaware and Nevada, you're not alone. Both have their perks, like no state corporate income tax in Nevada and Delaware's gold-star legal system. Think about what matters most for your business and where you see it growing.

Corporate Annual Report Information and Franchise Tax Fees

Filing a Delaware Annual Report is essential for businesses operating in Delaware to maintain transparency, accountability, and good standing. This report provides crucial information regarding a company's operations, financial status, and ownership structure. 

In addition to the annual report filing, businesses must pay franchise tax fees, contributing to the state's revenue. The amount of tax due can be calculated based on either the authorised shares method or the assumed par value capital method. Compliance with the annual reporting requirements and timely franchise tax payments are necessary to sustain your Delaware business. 

Foreign Corporations

Foreign corporations operating in Delaware must file an annual report to comply with the state's reporting requirements. This report is crucial for maintaining compliance and ensuring the corporation's sustainability. The annual report must include details such as the registered agent, principal executive office address, and other information required by the Delaware Division of Corporations. Foreign corporations must meet the filing deadlines to avoid penalties and maintain good standing. By filing the annual report on time, foreign corporations can ensure their continued operations in Delaware.

Who has to file and pay?

All business entities registered in Delaware, including corporations and LLCs, must file an annual report. The filing fee is due by March 1st, and failure to file can lead to penalties and loss of good standing. It's crucial to accurately report any changes in ownership, officers, or business address.

How much does my corporation have to pay?

For Delaware corporations, the annual report fee is $50. Filing the report on time is crucial to avoid extra fees or penalties. The payment should be made through the Delaware Division of Corporations website. Nonprofit corporations and LLCs have separate annual report fees.

What about the annual franchise tax report?

The annual franchise tax report is mandatory for Delaware corporations and LLCs. It is a separate filing from the annual report and must be submitted by March 1st annually. The tax amount is determined based on the company's authorised shares or assumed par value.

What are the penalties for non-compliance?

Please comply with the Delaware Annual Report to avoid late fees and penalties. The company may be declared void or forfeited if the report isn't filed on time. Non-compliance can also impact a company's good standing and ability to do business in Delaware. Filing the annual report promptly is crucial to avoid these penalties and stay compliant.

Keeping It Legal and Lively

Annual reports might sound dull, but they're your business's yearly physical – a health check that keeps it running smoothly. Stay on top of them to show you're serious about your business's well-being and reputation.

How to calculate the Franchise Tax amount due for your company?  

There are two methods for structuring the annual franchise tax for Delaware C-Corporations. We offer these options to allow you to organize or reduce your Franchise Tax.

Method 1 – Default Method – Authorized Share Method:

  • What are Authorized shares? - The maximum number of shares legally allowed to be issued to shareholders, as defined in the company's articles of incorporation.
  • What are Issued shares? - The actual number of shares given or allotted to shareholders.

Note: A company cannot exceed the authorized number of shares when issuing shares, and the number of issued shares cannot surpass the authorized shares.

How to Calculate the Franchise Tax using the Authorized Share Method Calculation?

  • If your business issues up to 5,000 shares, you'll be subject to a minimum tax of $175.
  • For a Delaware company with 5,001 to 10,000 shares, the tax calculation amounts to $260 ($175 + $75).
  • Add $75 to the tax total for each additional 10,000 shares or part thereof, with a maximum franchise tax capped at $200,000.
  • A corporation with 5,000 authorized shares or less falls into the category of a minimum stock corporation. The annual report fee in Delaware is $50, and the tax is $175, resulting in a total of $225 due each year.
  • On the other hand, a corporation with 5,001 authorized shares or more is classified as a maximum stock corporation. The annual report fee is $50, and the tax could range from $200 to $200,000 per year, depending on the number of authorized shares.

Method 2 - Assumed Par Value Capital Method (also used by Inkle):

The Assumed Par Value Capital Method involves figuring out the value of your company's shares based on its assets and the number of shares issued. The franchise tax is then determined by this calculated value, with a set rate of $400 for every $1,000,000 in assumed par value capital. This method ensures a fair and consistent way of assessing franchise taxes, considering the financial size and structure of the company. 

In this approach, your Delaware Franchise Tax is determined by considering three factors: authorized shares, issued shares, and total gross assets. You can calculate your total Franchise Tax amount by following these steps:

What is Par Value?

The Par Value per share is the designated value for the smallest unit of shares determined by the company issuing them. According to Delaware law, the par value can be as low as $0.000001, providing a straightforward way to set the initial valuation of your company's shares.

You also have the flexibility to select any par value per share according to your preference.

How to file DFT on Inkle?

Filing your Annual Delaware Franchise Tax report is super easy with Inkle. 

Here’s how:

  • Request the Inkle team to file your DFT for your company, OR if you are already a subscriber, Inkle will launch the Filing for you and notify you way ahead of the deadline.
  • You give us your company’s information and Bank Statements for the tax year you wish to file for, and our team will calculate the company’s Gross Assets for the year. We will then use the Assumed Par Value Capital Method to calculate the final Franchise Tax amount.
  • Once you have reviewed the information, our team files the return and pays the Franchise tax using your ACH details.
  • We will e-file your return and share the final filed copy and acknowledgment.

Who Must Pay the Franchise Tax in Delaware?

  1. C Corporations
  2. S Corporations
  3. Limited Liability Companies (LLCs)
  4. Limited Partnerships (LPs)
  5. General Partnerships

Note: Certain exempt domestic corporations, such as charities, civic organizations, and religious organizations, are exempt from the franchise tax.

Obligations for Exempt Entities

  1. Exempt entities are not required to pay the franchise tax.
  2. However, they must submit an annual report.
  3. An associated filing fee is applicable.

How Inkle Can Assist?

  1. Comprehensive tax filing and bookkeeping solution.
  2. Monthly bookkeeping services.
  3. Submission of financials to trusted tax professionals.
  4. Stress-free State and Federal business tax filings.
  5. Expert CPAs to optimise your filing situation.

Wrapping It Up

Choosing Delaware means joining a powerhouse of business innovation and stability. It's about making a smart choice that supports your company's growth and aligns with your strategic goals. So, dive into the Delaware experience with eyes wide open, ready to make the most of what this business-friendly state offers.

Remember, incorporating in Delaware is more than just a strategic move; it's a commitment to your business's future. So, take a deep breath, get those papers in order, and get ready to be part of something big. Here's to your business thriving in Delaware.

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