If a company doesn’t have a physical presence in Delaware, there are professional registered agents available for hire; prices and levels of service vary. Incorporating in a state usually creates income tax nexus with the jurisdiction. However, in addition to incorporation, a corporation must be “doing business” in Delaware to be subject to the state income tax. The above calculations must be done for each class of stock that is authorized by a corporation.
Estimated Tax
This method calculates the tax based on your corporation’s total gross assets and the ratio of issued shares to authorized shares. Your corporation will owe an estimated $400 for each $1,000,000 in gross assets. The minimum tax when using this method is $400, and the maximum tax is $200,000. Form 1120 Schedule L for tax year ending prior to filing the Delaware franchise tax report. Thus, for a calendar-year taxpayer, total assets reflected in a corporation’s March 1, 2021 Delaware franchise tax filing should tie to Form 1120, Schedule L for the tax year ending in 2020. If the federal income tax return is on extension, other financial data will need to be used for total gross assets.
DELAWARE ANNUAL FRANCHISE TAX CALCULATION INSTRUCTIONS
The Assumed Par Value Capital Method in the above example results in a much lower tax ($26,800 vs. $170,165). Delaware would automatically show the higher tax due on their website using the authorized shares depreciable asset definition method. It is up to the taxpayer to select the Assumed Par Value Capital Method if it results in a lower tax.
Interests in entities that are consolidated with the Delaware reporting company must be included in “total gross assets” at a value determined in accordance with GAAP. 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. Simply report your corporation’s total gross assets and the number of shares issued when completing the online filing. Foreign Corporations, Nonprofits, Limited Liability Companies, General Partnerships, Limited Partnerships and Limited Liability Partnerships pay a flat-rate annual fee or tax. There are two methods that corporations can figure their annual franchise tax. The default method for the State of Delaware is the Authorized Share Method.
The minimum franchise tax is $175.00 for corporations using the Authorized Shares Method and $400.00 for corporations using the Assumed Par Value Capital Method. All corporations using either method will have a maximum tax of $200,000.00 unless it has been identified as a Large Corporate Filer, then the tax will be $250,000.00. Delaware Franchise Tax calculations are prorated if a corporation’s authorized and/or issued shares change during the year. Technology and life sciences companies that choose to incorporate in Delaware must pay an annual franchise tax.
Delaware Annual Franchise Tax Directions
This option is fairly simple; 5000 shares or less you pay 1 what is a contra asset account the balance of contra asset the minimum $175. If your DE Corporation has high value assets, the Assumed Par Value Capital Method is more complicated, but sets a cheaper tax fee. It is mandatory for Delaware Corporations to file their annual franchise taxes online. There are several variables that enter the Assumed Par Value Capital Method including the corporation’s gross assets, issued shares, number of authorized shares and their par value. Delaware provides a Microsoft Excel worksheet that can be used to show the tax based on various assumptions.
A corporation generally has one year from the date of filing to amend a Delaware Franchise Tax return and claim a refund. A refund might be available if the Assumed Par Value Capital Method was not considered. Taxpayers owing direct materials efficiency variance managerial accounting $5,000.00 or more must pay estimated taxes in quarterly installments with 40% due June 1, 20% due by September 1, 20% due by December 1, and the remainder due March 1.
- Foreign Corporations, Nonprofits, Limited Liability Companies, General Partnerships, Limited Partnerships and Limited Liability Partnerships pay a flat-rate annual fee or tax.
- The default method for the State of Delaware is the Authorized Share Method.
- Most startups use the Assumed Par Value Capital Method to calculate their franchise tax bill.
- It is mandatory for Delaware Corporations to file their annual franchise taxes online.
- Thus, it is generally advisable to avoid no par value stock and to assign a very low par value to shares if possible.
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This article discusses how the tax is calculated, filing and payment due dates and other requirements applicable to for-profit C corporations that incorporate in Delaware. In addition to paying the Franchise Tax, Delaware requires every corporation to have and maintain a registered agent in the State. This is a person or a representative that is physically located in Delaware.