If you just formed a C Corporation in Delaware—congratulations! But before you get back to coding your SaaS MVP or pitching investors, there’s one annual requirement you can’t afford to overlook: Delaware Franchise Tax. Every year, first-time founders lose money or standing because of common errors in how this tax is calculated, filed, or paid. Here’s how to avoid the top 5 penalties in 2025.
Relevant IRC Codes & Definitions
Delaware Franchise Tax is state-level, but related federal rules come into play:
- IRC §162 – Allows deduction of state franchise taxes as business expenses
- IRC §6037 / §6012 – Governs filing requirements for corporations (Form 1120, 1120-S)
- IRC §11 – Applies the flat federal corporate tax rate to C Corporations
Even though the Franchise Tax is a state obligation, it impacts your federal deductibility and compliance timeline.
IRS & State Form References
Federal Forms:
- Form 1120 (C Corporations)
- Form 2553 (if electing S Corporation status)
Delaware Requirements:
- Franchise Tax & Annual Report
- Due by June 1, 2025
- Calculated using either:
- Authorized Shares Method
- Assumed Par Value Method (recommended for early-stage)
Real-World Example
Case Study:
CloudPilot Inc., a first-time SaaS C-Corp founder, ignored their franchise tax notice and defaulted to the Authorized Shares Method—with 10M shares authorized.
Result:
- Received a $75,000 tax bill
- Missed the filing deadline
- Paid late penalties and interest
- Lost good standing with Delaware
- Had difficulty closing a pre-seed round until the issue was resolved
Avoiding these five pitfalls could have saved them over $80,000 in their first year.
Step-by-Step: The 5 Most Common Penalties and How to Avoid Them
- Late Filing Penalty
- Consequence: $200 fine + 1.5% monthly interest
- Solution: Calendar the June 1, 2025 deadline now
- Choosing the Wrong Calculation Method
- Consequence: Tax bills in the tens of thousands
- Solution: Use the Assumed Par Value Method if you’re pre-revenue
- Not Filing an Annual Report
- Consequence: Incomplete submission = noncompliance
- Solution: File both the Annual Report and Franchise Tax together
- Using Authorized Shares Without Par Value
- Consequence: Exponentially higher tax
- Solution: Assign a nominal par value and calculate using that basis
- Assuming No Tax Is Due If There’s No Revenue
- Consequence: Fines, interest, possible loss of status
- Solution: All Delaware C Corps must file, regardless of income
Conclusion
If you’re a first-time founder, Delaware compliance isn’t optional—it’s foundational. Avoiding these five costly mistakes in 2025 can preserve your capital, reputation, and ability to scale without legal interruptions. Startups win by playing smart—especially with state filings.
Call to Action
Don’t let your startup’s first legal mistake be its most expensive one.
👉 Book your consultation now with Anshul Goyal, CPA. We’ll calculate your franchise tax, select the best filing method, and ensure zero penalties.
Disclaimer
This article is for educational purposes only and does not constitute tax, legal, or financial advice. Each corporation’s tax liability may differ based on capital structure, filing method, and asset valuation. Founders should consult a qualified CPA for accurate calculations and timely filing.
Anshul Goyal, CPA EA FCA, is a U.S.-licensed Certified Public Accountant, IRS Enrolled Agent, and Chartered Accountant in India. He specializes in helping first-time and seasoned founders meet all federal and state tax obligations while optimizing entity structure and tax efficiency.
FAQs (Top 5 High-Searched)
Q1. Is the Delaware Franchise Tax required even if I made no revenue?
A1. Yes. All C Corporations registered in Delaware must file and pay.
Q2. What happens if I miss the filing deadline?
A2. You’ll be charged $200 + 1.5% monthly interest and may lose good standing.
Q3. What is the cheapest method for calculating Franchise Tax?
A3. The Assumed Par Value Method, especially for early-stage or pre-revenue startups.
Q4. Can I fix a late or incorrect filing?
A4. Yes. You can file retroactively, pay penalties, and restore good standing.
Q5. Is Franchise Tax deductible on my federal return?
A5. Generally yes, under IRC §162, as a business expense.
About Our CPA
Anshul Goyal, CPA EA FCA, is a multi-credentialed tax advisor licensed in the U.S. and India. With 2,000+ client startups, $200M+ in tax savings delivered, and full expertise in Delaware, federal, and cross-border compliance, Anshul helps founders navigate first-year filings with precision and confidence.