Delaware Franchise Tax: What Startups Need to Know

Starting a business in Delaware? Many US small businesses choose Delaware for its startup-friendly laws and strong legal protections. But that choice comes with a yearly requirement: the Delaware Franchise Tax. Even if your business isn’t earning income yet, you still need to comply.

This is where reliable accounting services in the US can make a real difference—helping startups stay compliant, avoid penalties, and manage filings with ease. Here’s what you need to know.

1. Who Needs to Pay?

• Delaware corporations must file an Annual Franchise Tax Report and pay the franchise tax every year, regardless of income or business activity.

• Delaware LLCs don’t pay franchise tax, but they must pay a flat annual fee of $300, due by June 1.

• Foreign corporations (companies incorporated elsewhere but registered in Delaware) must also file an Annual Report and pay a $125 fee by June 30.

2. Key Deadlines

• Corporations: Franchise Tax and Annual Report are due March 1.

• LLCs: Annual $300 tax is due June 1.

• Foreign Corporations: Annual Report due June 30.

Missing these deadlines triggers automatic penalties—so it’s best to stay ahead of the due dates with help from an accountant.

3. How the Tax Is Calculated

There are two methods to calculate the Delaware Franchise Tax for corporations:

a. Authorized Shares Method

• Minimum tax: $175

• Used if your corporation has 5,000 or fewer authorized shares

• The tax increases as the number of shares increases

b. Assumed Par Value Capital Method

• Minimum tax: $400

• Based on your corporation’s gross assets and issued shares

• Often results in a lower tax amount for startups, making it a preferred method for many

Startups should review both methods to find the most cost-effective option. Accounting services can calculate both scenarios and choose the one that minimizes your tax.

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4. Filing and Payment Process

• All filings must be done electronically through the Delaware Division of Corporations.

• Corporations must also pay a $50 fee when submitting the Annual Report.

• Late filings incur a $200 penalty, plus 1.5% interest per month on unpaid taxes.

Professional accounting services can handle these steps to ensure nothing is missed and all forms are submitted accurately.

5. Estimated Payments for Larger Tax Liabilities

If your corporation owes over $5,000 in franchise tax for the year, you’re required to make estimated quarterly payments:

• 40% by June 1

• 20% by September 1

• 20% by December 1

• Remaining 20% by March 1 (with your Annual Report)

This is especially important for growing businesses—accountants can track these thresholds and keep payments on schedule.

6. How Accounting Services Help

For startups and small businesses, handling franchise tax compliance on your own can lead to errors or missed deadlines. Here’s how accounting services in the US can help:

• Choose the best calculation method for your situation

• File all necessary reports on time

• Monitor estimated payment requirements

• Avoid penalties and interest

• Keep records organized and audit-ready

Having an accountant on your side means you can focus on growing your business, not tracking tax rules.

Summary

If your startup is incorporated in Delaware, you’re required to pay the Delaware Franchise Tax—even if your company has no revenue. Key deadlines fall on March 1 for corporations and June 1 for LLCs. Tax is calculated using either the Authorized Shares Method or the Assumed Par Value Capital Method, with many startups benefiting from the latter. Filing and payments must be made electronically, and penalties apply for missed deadlines. For many US small businesses, working with a trusted accounting service can simplify the process and ensure full compliance.

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