Do I Have to File a Delaware Corporate Tax Return?

Delaware levies a corporate income tax on companies that are incorporated there. Corporations that conduct business in Delaware or have income derived from Delaware are subject to the tax. A corporation is deemed to be conducting business in the state and is liable for the tax if it has a physical presence in Delaware, such as an office or staff members. The tax also applies to businesses that don’t have a physical presence in Delaware but get income from the state, such as via sales to clients there.

Delaware levies a flat 8.7% corporate income tax on all taxable income. Income that is subject to tax after deductions and exemptions have been taken into account is known as taxable income. If a corporation fits any of the following descriptions, it must file a Delaware corporate tax return: They are incorporated in Delaware, conduct business there, or get income from the state. Although they are not incorporated in Delaware, they must file a federal income tax return since they get income from Delaware sources.

Delaware is frequently mentioned as a corporate tax haven due to its business-friendly legislation and low taxes. It’s crucial to remember that Delaware has a higher corporate income tax rate than some other states, including Wyoming and Nevada, which have no corporate income tax. Additionally, Delaware’s franchise tax is not applicable to firms that are incorporated there but do not have a physical presence there, which might result in considerable financial savings.

How Can I Avoid Paying Delaware Franchise Tax? is another question that many ask. The franchise tax in Delaware is a cost charged to corporations for the right to conduct business there. For larger businesses, the fee, which is based on the corporation’s authorized shares, can be substantial. There are, nevertheless, ways to reduce or forego paying the franchise tax. One strategy is to establish a holding company in Delaware that will hold the operating firm’s stock. It is possible to set up the holding company so that the number of authorized shares is kept to a minimum, which lowers the franchise tax. Another choice is to establish a series LLC, which, regardless of how many series it has, is treated as a single organization for franchise tax purposes.

You must submit articles of incorporation to the Delaware Secretary of State in order to form a holding company there. The business’s holding company status and a list of its authorized shares should be stated in the articles of incorporation. After the business is incorporated, you must open a bank account and request an EIN from the IRS. Additionally, you must continue to use Delaware as your registered agent and submit an annual report to the Secretary of State.

Do Delaware LLCs Pay Taxes With Regard To This? LLCs registered in Delaware are exempt from the state’s corporate income tax. They are pass-through entities instead, which means that the LLC’s profits and losses are distributed to the owners and recorded on their individual tax returns. However, Delaware franchise tax, which is based on the number of authorized shares of the LLC, is levied against LLCs in that state. For LLCs with up to 5,000 authorized shares, the fee is $300; it rises with the number of shares.