The amount of the tax is based on the gross receipts of the business, and it is typically paid annually. The tax is imposed on both for-profit and non-profit organizations. The purpose of the tax is to raise revenue for the state, and it helps to pay for things like roads, schools, and public safety. If https://quickbooks-payroll.org/ you are a startup that has chosen Delaware as its state of incorporation, you are likely aware that you are subject to Delaware franchise tax. 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 method is any that recovers more than $1 in tax for ever $1 spent within a four-year period. A tax shelter can be created by an individual or a corporation. To reduce the taxes paid by a startup, use the Assumed Par Value method. When paying the annual report fee, corporations are sorted into two categories. For instance, a corporation with 5,000 shares or less will pay the minimum tax of $175.

Who is authorized to the file the Annual Report?

In addition to the franchise tax, there is also a $100 filing fee for the annual report. You must file your annual report if your business is a corporation and pay your franchise tax and filing fee by March 1. All LLCs, Limited Partnerships, and General Partnerships formed in Delaware are required to pay the annual franchise tax by June 1. Form 1120, Schedule L tax form for the same year that the Company is filing its annual report. If the Company has not filed its taxes for that year yet, then a number from a recent balance sheet will suffice and can be amended later if necessary. The par value used to compute the tax is the greater of the “assumed par value” or the actual par value listed in the certificate of incorporation.

You will pay tax to the state on that income on your individual state tax return. The tax rate will depend on your overall taxable income that year. Corporations using the authorized shares method will pay a minimum of $175 and a maximum of $200,000. The Assumed Par Value Capital Method in the above example results in a much lower tax ($26,800 vs. $170,165). Delaware would automatically show the higher tax due on their website using the authorized shares method.

Reasons to consider using Delaware Franchise Tax

If so, that document can be sent directly from the Delaware Secretary of State. This document certifies the date the company was formed, that the company is current, and that the company is in good standing. If your Delaware franchise tax is submitted late, How Do I Compute the Delaware Franchise Tax? a $125 late fee and interest fee of 1.5 percent will be charged. Thankfully, it’ll get much easier from here due to the flat fee tax obligations that Limited Liability Companies and other business entities pay as part of their annual tax obligations.

• The Delaware annual report fee is $50 and the tax is $175 for a total of $225 due per year.
• If you’ve received a bill for $75K, it is because Delaware has calculated the tax using the Authorized Shares Method.
• The answer depends on the reason why you are no longer doing business in Delaware.
• 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.
• Also at Kruze, another option is working with a PEO; that is how you “Incorporate in a state.” Hope that helps, thanks.

It is up to the taxpayer to select the Assumed Par Value Capital Method if it results in a lower tax. 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. All corporations using either method will have a maximum tax of $200,000.00 unless it has been identified as a Large Corporate Filer, then the tax will be $250,000.00. When clients are thinking about forming Delaware Corporations, one of the most important decisions to make is how many total Authorized Shares of Stock the Corporation will have along with the Par Value of the Shares.