Introduction
Delaware is known as a business-friendly state, but companies incorporated there must pay a Franchise Tax each year. This tax is separate from income taxes and applies to corporations, LLCs, and partnerships.
This guide explains who needs to pay Delaware’s Franchise Tax, how it’s calculated, filing deadlines, and ways to reduce tax liability.
What Is Delaware’s Franchise Tax?
The Delaware Franchise Tax is an annual tax paid by businesses incorporated in Delaware. It is not a tax on business income but rather a fee for the privilege of being incorporated in the state.
Who Needs to Pay Delaware’s Franchise Tax?
| Business Type | Franchise Tax Requirement | Annual Fee |
|---|---|---|
| C Corporations | Required | $175–$250,000 (varies by shares) |
| S Corporations | Required | $175 minimum |
| Limited Liability Companies (LLCs) | Required | $300 |
| Limited Partnerships (LPs) | Required | $300 |
| Nonprofit Corporations | Exempt | $0 |
How Is Delaware’s Franchise Tax Calculated?
1. Authorized Shares Method (For Corporations)
- 1-5,000 shares: $175
- 5,001-10,000 shares: $250
- Over 10,000 shares: Additional $85 per 10,000 shares (up to $250,000 max)
2. Assumed Par Value Capital Method (For Corporations)
- Based on total gross assets and number of issued shares.
- Minimum tax: $400
- Maximum tax: $250,000
3. Flat Fee for LLCs & LPs
- All LLCs and LPs pay a flat $300 annual tax.
How to File & Pay Delaware Franchise Tax
Step 1: Determine Your Business Type
- Corporations pay based on shares or par value.
- LLCs and LPs pay a flat fee.
Step 2: File the Franchise Tax Report
- All corporations must file an Annual Report and pay Franchise Tax.
- LLCs and LPs only need to pay the tax (no report required).
Step 3: Submit Payment Online or By Mail
- Pay via Delaware’s Division of Corporations website.
- Payments can be made by credit card, ACH, or check.
Delaware Franchise Tax Deadlines & Penalties
Business Type Tax Due Date Late Penalty
Corporations March 1 $200 + 1.5% interest per month
LLCs & LPs June 1 $200 + 1.5% interest per month
How to Reduce Delaware Franchise Tax Liability
- Use the Assumed Par Value Capital Method if it results in a lower tax amount.
- File on time to avoid penalties and interest.
- Dissolve inactive businesses before the end of the tax year to avoid unnecessary fees.
IRS Compliance & Tax Considerations
- Form 1120/1120-S – Federal tax return for corporations.
- Delaware Annual Report – Required for corporations paying Franchise Tax.
- LLCs and LPs do not file an Annual Report but must pay the tax.
Conclusion
Delaware’s Franchise Tax is a necessary cost for corporations, LLCs, and LPs operating in the state. Understanding tax rates, filing deadlines, and reduction strategies can help businesses minimize costs and remain compliant.
For expert business tax planning, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.
Frequently Asked Questions (FAQs)
1. Do all Delaware businesses have to pay a Franchise Tax?
Yes, all corporations, LLCs, and partnerships must pay, except nonprofits.
2. What happens if I don’t pay Delaware Franchise Tax?
Failure to pay results in penalties, interest, and potential revocation of your business status.
3. How do I lower my Delaware Franchise Tax?
Using the Assumed Par Value Capital Method may reduce your tax liability.
4. Do LLCs have to file an Annual Report in Delaware?
No, LLCs and LPs only need to pay the tax but do not file a report.
5. Should I hire a CPA for Franchise Tax planning?
Yes, a CPA helps determine the best filing method, reduce taxes, and ensure compliance.
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant and an IRS Enrolled Agent (EA). He specializes in business tax planning, Delaware Franchise Tax compliance, and corporate tax strategies.
Schedule a consultation today with Anshul Goyal, CPA, for expert Franchise Tax guidance.