How do I calculate the Delaware franchise tax? Clerky

Each shareholder must pay federal taxes on their respective portions of the income. A typical company must first be established before electing “S” status by submitting a particular form to the IRS. Unlike a standard corporation, an S company often isn’t liable to a separate federal income tax.

The franchise tax is an additional state tax imposed on certain enterprises in exchange for permission to operate legally and conduct business in a specific area. If so, that document can be sent directly from the Delaware Secretary of State. This document certifies the date the company was formed, that the company is current, and that the company is in good standing. The annual Registered Agent fee is paid to Harvard Business Services, Inc. for you to act as an agent of your business in the state of Delaware. If your Delaware franchise tax is submitted late, a $125 late fee and interest fee of 1.5 percent will be charged.

How to Calculate the Franchise Tax using the Authorized Share Method Calculation?

So if your Delaware corporation has a million authorized shares, your annual franchise tax will be approximately $7,500. Typically, this corporation is better off to use the second calculation option. You can calculate your corporation’s franchise tax using the Assumed Par Value Capital Method when you file the annual franchise tax report on the Delaware Division of Corporations website.

• Then you need to hit the “recalculate” button and wait while the system generates a new balance.
• They may decide to start with a minimum stock structure which is 1 to 5,000 shares of stock.
• If necessary, a Stock Amendment may be submitted to the state for permission to raise the total number of corporation-authorized shares.
• So step 1 in the directions below is what you’ll multiply against your total number of shares, then you divide by 400/1,000,000 to get to what you owe.

Assumed Par Value Capital Method

With this method your Delaware Franchise Tax bill is calculated based on issued shares, authorized shares and total gross assets. The Delaware franchise tax for a corporation is slightly more complicated. A corporation with 5,001 authorized shares or more is considered a maximum stock corporation. The annual report fee is $50 and the tax would be somewhere between $200 and $200,000 per year, as illustrated below. If DE sent your startup a huge tax bill for their annual franchise tax, don’t panic - you can likely reduce your Delaware Franchise Tax by using an alternative calculation method.

delaware franchise tax - frequently Asked Questions

If your company falls into the maximum stock option of 5001 or more shares, there are two possible methods to calculate the Delaware franchise tax. The Delaware Annual Franchise Tax assessment is based on the authorized shares of your company. You can find more comprehensive information about franchise tax rates, how to calculate Delaware franchise tax, and tax calculators here. Or you can go directly to the Delaware Secretary of State franchise tax calculator(s) here. Owners of multiple corporations will need to pay Delaware Franchise Tax for each entity separately as each entity is required to file an annual report. A non-stock/non-profit company is considered exempt by the State of Delaware.

• You will also be charged a 1.5 percent monthly interest on the amount due.
• This could include banks and other lenders, suppliers, and distributors.
• Payment can be submitted with an electronic check or credit card.
• The minimum tax when using this method is $175, and the maximum tax is $200,000.
• Often, the tax is then calculated to the minimum payment of $350, with a $50 annual report fee.

The online fee will vary depending on when the online payment is submitted. You’ll incur a $200 penalty if you don’t file an annual report on or before March 1. You’ll also pay 1.5% per month applied against any unpaid tax and penalty.

Do I Have To Report Delaware Franchise Tax?

Further, in failing to file or to pay the appropriate remedial fees, the corporation would be out of “good standing” with the State. Most parties involved in a significant transaction or agreement will require a Certificate of Good Standing as a precondition to the deal. This could include banks and other lenders, suppliers, and distributors. Many companies find that they cannot complete a deal on time because of a late report or payment that prevents them from obtaining an attestation of good standing from Delaware. Non-stock or non-profit companies are considered exempt from tax in Delaware.

For these reasons, more than a million businesses are incorporated in Delaware, including more than half of all publicly traded and Fortune 500 companies. Startups who choose Delaware as their place of incorporation are probably already aware that they must pay the Delaware franchise tax. There are methods to get how the coronavirus is affecting small business around Delaware’s franchise tax in some situations. The Assumed Par Value technique is the most effective approach. Senior persons may also get tax-free property status from the city of Wilmington. Seniors may be eligible for a reduction in their sewage and water rates and an exemption of up to $715.64 per year.

How Do I Pay My Delaware Franchise Tax?

The annual Registered Agent Fee is a fixed amount paid to Harvard Business Services, Inc. to act as an agent for your entity in the state. Corporations must complete an annual report along with their Delaware Franchise Tax payment. The term "Franchise Tax" does not imply that your company is a franchise business. If you’ve authorized 5,001 to 10,000 shares, your franchise tax is $250. If your company has authorized 5,000 shares or fewer, your total Delaware franchise tax amount is $175.