Delaware Franchise Tax: Essential Guide for Business Owners

2020. 11. 23.
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The Annual Franchise Tax Report and payment for the prior year must be submitted by March 1st annually. Failure to file the report and pay the required franchise taxes by the due date will incur a penalty of $200.00, in addition to a 1.5% interest per month on both the tax and penalty. This emphasizes the importance of adhering to the given deadline to avoid accumulating penalties and additional financial burdens. To pay your Delaware franchise tax online, visit the Delaware Department of State’s Division of Corporations website. Follow the prompts for filing your annual report and submitting the franchise tax payment. Payment methods generally include credit cards and ACH transactions.

Interestingly, corporations incorporated in Delaware but not conducting business within the state are not subject to the Corporate Income Tax1. However, they are still required to pay the Franchise Tax, which is administered by the Delaware Division of Corporations2. All incorporated entities in Delaware must file an annual report and pay the corresponding franchise tax. Exempt domestic corporations are not subjected to the tax but still need to file an annual report with a filing fee of $253.

Various tools and resources, including the Franchise Tax Calculator, have been designed to assist companies in estimating their franchise tax due accurately. If your company has authorized 5,000 shares or fewer, your total Delaware franchise tax amount is $175. Under this method, your franchise tax is based on how many shares your corporation has authorized.

For these reasons, more than a million businesses are incorporated in Delaware, including more than half of all publicly traded and Fortune 500 companies. The maximum number of shares that can lawfully be distributed to shareholders is known as authorized shares. It is not implied by the term “Franchise Tax” that your US company is a franchise. Regardless of their organization’s revenue, business plan, or organizational structure, why every freelancer should consider forming an llc all businesses must pay the Delaware Franchise Tax. 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.

Your authorized share number is the maximum number of shares your corporation could sell based on your corporate bylaws or charter. The franchise tax is $400 for each $1,000,000 of “assumed par value capital.” For calculation purposes, round up to the next million if the assumed par value capital is over $1,000,000. Issued shares are the total number of shares allotted to all company shareholders.

The Assumed Par Value Capital method: an example

All LLCs, Limited Partnerships, and General Partnerships formed in Delaware are required to pay the annual franchise tax by June 1. All Delaware-incorporated businesses must, however, still pay the annual franchise tax, submit an what is sganda margin formula annual report, and pay a filing fee. Here’s how to figure out how much you need to pay, how to file, and what happens if you don’t. For corporations, the annual franchise tax payment and annual report are both due by March 1st.

What happens if I don’t pay?

1. Exempt domestic corporations in Delaware are not required to pay franchise tax, but they must still file an annual report.
2. To pay your Delaware franchise tax online, visit the Delaware Department of State’s Division of Corporations website.
3. Franchise taxes contribute to Delaware’s state revenue and are essential for the maintenance of state services.
4. S Corporations, as well as large corporate filers, governed by the state of Delaware are subject to Franchise Tax, with different considerations for calculating the amount due.
5. Regardless of their organization’s revenue, business plan, or organizational structure, all businesses must pay the Delaware Franchise Tax.

Exempt domestic corporations in Delaware are not required to pay franchise tax, but they must still file an annual report. These entities might include non-profit organizations, educational institutions, and certain religious organizations. Since they are exempt from the tax, it is crucial for them to comply with their annual reporting obligations. Delaware franchise tax is an annual fee paid by businesses that are incorporated in the state, irrespective of whether they conduct business in Delaware or not.

Types of Business Entities Affected

Prolonged non-payment can lead to the loss of good standing status or even administrative dissolution of the business entity. To get the specific calculations for your business, visit the Division of Corporations website and follow the instructions provided. Provide all relevant documentation such as proof of payment and the reason for the refund request. Refunds are processed on a case-by-case basis, and approvals are not guaranteed. S Corporations, as well as large corporate filers, governed by the state of Delaware are subject to Franchise Tax, how to calculate accounting rate of return with different considerations for calculating the amount due.

Have questions on formation, banking and taxes?

However, they must still file an annual report and pay the filing fee. In addition to paying the franchise tax, businesses incorporated in Delaware must also file an annual report and pay a small filing fee. You must file your annual report if your business is a corporation and pay your franchise tax and filing fee by March 1.