Introduction
Delaware is considered the #1 state for incorporating a business due to its business-friendly tax laws, strong legal protections, and corporate privacy benefits. Over 60% of Fortune 500 companies and countless startups choose Delaware incorporation for lower taxes and flexible corporate structures.
This guide explains why Delaware is the best state to form an LLC or Corporation, covering tax benefits, legal protections, and cost savings.
Top Reasons to Incorporate in Delaware
1. No State Sales Tax
- Delaware does not charge sales tax, making it a great place for businesses that buy and sell goods.
2. No State Corporate Income Tax for Delaware-Registered Companies
- If your business does not operate in Delaware, you pay $0 in corporate income tax.
3. Low Franchise Tax for LLCs & Small Corporations
- LLCs pay a flat $300 annual tax.
- Corporations pay as little as $175 per year, depending on shares issued.
4. Strong Business Privacy Protections
- Owner names do not have to be publicly disclosed, offering increased privacy for business owners.
5. Delaware’s Business-Friendly Court System
- The Court of Chancery specializes in corporate law, meaning business disputes are handled faster and more efficiently.
How Delaware Compares to Other States for Business Incorporation
| State | Corporate Income Tax Rate | Sales Tax Rate | Franchise Tax |
|---|---|---|---|
| Delaware | 0% (if no in-state operations) | 0% | $175+ (corporations) / $300 (LLCs) |
| California | 8.84% | 7.25% | $800 minimum (LLCs & Corps) |
| New York | 6.5% | 4-8.875% | $25-$4,500+ (based on income) |
| Florida | 5.5% | 6% | $0 (no franchise tax on LLCs) |
Who Should Incorporate in Delaware?
| Business Type | Best Delaware Business Structure |
|---|---|
| Tech Startups | C-Corporation (for venture capital funding) |
| E-commerce & Online Businesses | LLC (low taxes, fewer requirements) |
| Freelancers & Consultants | LLC (simple structure, no corporate tax) |
| Investment Companies | C-Corp or LP (Delaware’s strong investor protections) |
How to Incorporate a Business in Delaware
Step 1: Choose Your Business Structure
- LLC – Best for small businesses, freelancers, and e-commerce.
- Corporation (C-Corp or S-Corp) – Best for startups, large businesses, and investors.
Step 2: File a Certificate of Incorporation or Formation
- LLCs file a Certificate of Formation.
- Corporations file a Certificate of Incorporation with the Delaware Division of Corporations.
Step 3: Pay the Franchise Tax
- LLCs pay $300 per year.
- Corporations pay at least $175 per year (based on shares).
Step 4: Appoint a Registered Agent
- Delaware requires all businesses to have a registered agent with a physical address in the state.
Step 5: File an Annual Report (Corporations Only)
- LLCs do not need to file annual reports.
- Corporations must file an Annual Report and pay Franchise Tax by March 1.
Tax Benefits of Incorporating in Delaware
| Tax Type | Delaware LLC | Delaware Corporation |
|---|---|---|
| State Corporate Income Tax | None (if business operates outside DE) | None (if business operates outside DE) |
| Franchise Tax | $300 Flat Fee | $175+ (based on shares issued) |
| State Sales Tax | None | None |
| Personal Income Tax on Business Profits | Yes (if owner is a DE resident) | Yes (if paid as salary/dividends) |
Common Misconceptions About Incorporating in Delaware
1. Do I Need to Live in Delaware to Incorporate?
- No. You do not need to live in Delaware to incorporate. Many companies register in Delaware while operating in other states.
2. If I Incorporate in Delaware, Do I Avoid All Taxes?
- No. If you operate in another state, you may owe taxes there. However, Delaware does not tax companies that do not operate within the state.
3. Are Delaware Filing Fees Expensive?
- No. LLCs pay a flat $300 per year, and corporations start at $175 per year.
IRS Compliance & Business Tax Considerations
- Form 1120 (C-Corp) or 1120S (S-Corp) – Federal tax return for corporations.
- Form 1040 (Schedule C) – For LLC owners reporting business income.
- Delaware Franchise Tax Report – Required annually for all incorporated businesses.
Conclusion
Delaware is the best state for incorporating a business due to zero sales tax, no corporate tax for out-of-state businesses, and strong legal protections. Choosing the right business structure (LLC or Corporation) can help maximize tax savings and attract investors.
For expert business tax planning and Delaware incorporation services, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.
Frequently Asked Questions (FAQs)
1. Why do businesses incorporate in Delaware?
Delaware offers zero sales tax, no state corporate tax for out-of-state businesses, and strong corporate protections.
2. Should I form an LLC or Corporation in Delaware?
- LLCs are better for small businesses and freelancers.
- Corporations are best for startups and investment-heavy businesses.
3. Do I have to live in Delaware to register a business there?
No, you can incorporate in Delaware without living there.
4. Does Delaware have franchise tax?
Yes, LLCs pay $300 annually, and corporations pay at least $175 annually.
5. Should I hire a CPA to incorporate in Delaware?
Yes, a CPA ensures proper filing, tax planning, and compliance with state laws.
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant and an IRS Enrolled Agent (EA). He specializes in Delaware business incorporation, tax planning, and compliance strategies.
Schedule a consultation today with Anshul Goyal, CPA, for expert business structuring and tax-saving strategies.