Congratulations on incorporating your business in Delaware! You’ve chosen a business-friendly state known for its streamlined processes and attractive tax benefits. However, with tax season approaching, there’s one crucial deadline to remember: the Delaware Franchise Tax, due on March 1st annually. This article will break down everything you need to know about this tax, ensuring your company maintains its “good standing” within Delaware.
Understanding the Delaware Franchise Tax
The Delaware Corporation Franchise Tax isn’t a tax on your profits. Instead, it’s a fee paid to the state for the privilege of incorporating your business in Delaware. It ensures your company remains compliant and allows you to enjoy the benefits of being a Delaware corporation.
Here’s a key point to remember: This tax doesn’t turn your business into a franchise!
In addition to the tax payment, you’ll also need to file a Delaware Annual Report. This report provides essential information about your business, such as:
- Physical Business Address: Where your company operates.
- Officer Information: Name, address, and contact details of at least one company officer.
- Board of Directors (if applicable): Names, addresses, and contact details of your directors.
Important Note: Even if your business information remains unchanged, you must submit the annual report every year alongside the tax payment. Both are due by March 1st to avoid penalties.
Calculating Your Delaware Franchise Tax
The Delaware Franchise Tax has a minimum threshold of $175 and a maximum of $200,000. The actual amount you pay depends on one of two calculation methods:
1. Authorized Shares Method
This method applies if your company has no par value stock. The tax amount is based on the number of authorized shares you have:
- 5,000 shares or less: Minimum tax of $175.
- 5,001 to 10,000 shares: $250 tax.
- For every additional 10,000 shares: Add $85 to the total tax.
- Maximum Tax: $200,000 (reached at a certain number of authorized shares).
2. Assumed Par Value Capital Method
This method considers both the total value of your issued shares and your gross assets. To use this method, you’ll need to include these details in your annual report. The tax calculation here is $400 for every $1 million (or portion thereof) of combined issued share value and gross assets.
Choosing the Right Method
In most cases, the Assumed Par Value Capital Method is likely to result in a lower tax payment compared to the Authorized Shares Method. However, it’s always best to consult with a financial professional to determine the most suitable method for your specific situation.
Filing Your Delaware Franchise Tax: A Simple Process
Thankfully, filing the Delaware Franchise Tax is a streamlined process:
- Visit the Delaware Division of Corporations official website.
- Click on “Pay Taxes/File Annual Report.”
- Enter your Business Entity File Number and click “Continue.”
- Select “File Annual Report” and choose your preferred tax calculation method (usually the Assumed Par Value Capital Method).
- Provide all requested information, including issued shares, gross assets, and other relevant details.
- Review your entries for accuracy and proceed to pay the Delaware Franchise Tax using your preferred payment method.
Need More Help?
For further information on the Delaware Franchise Tax or assistance with the filing process, consider consulting a qualified financial professional. They can guide you through the specifics and ensure your business remains compliant with Delaware regulations.
By understanding the Delaware Franchise Tax and following the simple filing process, you can ensure your Delaware corporation maintains its good standing and continues to enjoy the benefits of incorporating in this business-friendly state.
