A corporation with 1,000,000 shares authorized pays $8,665 ($250 plus $8,415[$85 x 99]). A corporation with 20,000 shares authorized pays $335 ($250 plus $85). 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. Most startups use the a beginner’s guide to vertical analysis in 2021 to calculate their franchise tax bill. This method almost always results in a lower tax for our customers because startups generally have few assets but authorize millions of shares.
Assume a Delaware corporation has 20 million of authorized shares with a par value of .001, $50,000,000 of total gross assets and 15,000,000 of issued shares. Franchise taxes are generally due in arrears for the prior calendar year. Delaware requires that annual report(s) be current prior to all dissolution and merger filings. At the time of dissolution or merger, all franchise taxes must be paid through the date of the filing of the Certificate of Dissolution or Merger with the Delaware Secretary of State.
Ideally, Delaware Franchise Tax liability should be quantified prior to incorporating in the state and prior to any new shares being authorized or issued. There are two methods that you can use to calculate the amount of Delaware franchise tax due for your corporation (the Authorized Shares Method and the Assumed Par Value Capital Method), which result in vastly different amounts due. For corporations using the Authorized Shares Method, the minimum franchise tax is $175 and the maximum franchise tax is $200,000. For corporations using the Assumed Par Value Capital Method, the minimum franchise tax is $350 and the maximum tax is $200,000; however, for the 2018 tax year, the minimum will increase to $400. The Delaware annual report and franchise tax payment are both due by March 1. Your notification of annual report and franchise tax due is sent to a corporation’s registered agent in December or January of each year.
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. 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. Delaware’s franchise taxes are calculated either using the “authorized shares method,” which assigns a set value to each share, or the “assumed par value capital method,” which takes into account the corporation’s assets.
Annual Report Filing Fee:
A professional registered agent company can assist with identifying total taxes due on any given date when you are handling a merger or dissolution. If you are a startup that has chosen Delaware as its state of incorporation, you are likely aware that you are subject to Delaware franchise tax. While the typical franchise tax is based on a corporation’s net worth or capital, the tax can also be based on other criteria such as income or gross receipts.
- The values that are chosen will affect several structural aspects of the entity, including equity, capital and ownership.
- 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.
- As discussed above, the tax on 20 million of authorized shares is $170,165 ($250.00 plus $169,915.00[$85.00 x 1999]).
- At the time of dissolution or merger, all franchise taxes must be paid through the date of the filing of the Certificate of Dissolution or Merger with the Delaware Secretary of State.
- Thus, it is generally advisable to avoid no par value stock and to assign a very low par value to shares if possible.
A corporation may pay its franchise taxes directly via Delaware SOS ACH. Note that only one Delaware annual report is required to be filed by March 1st, even for corporations paying quarterly franchise taxes. The Delaware Secretary of State charges an additional filing fee of $50 for a Delaware corporation annual report. If a corporation has 5,000 shares or less, it pays the minimum tax of $175.
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. This option is fairly simple; 5000 shares or less you pay 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.
How do I calculate the Delaware franchise tax?
The California franchise tax, for example, is equal to the larger of your California net income multiplied by the 8.84 percent tax rate or the $800 minimum tax. The minimum tax is due the first quarter of each accounting period and must be paid whether your startup is active, inactive, operates at a loss or files a return for a short period of less than 12 months. The minimum tax is waived on newly formed or qualified corporations filing an initial return for their first taxable year. However, any first-year net income is still subject to the 8.84 percent tax rate. When using the ‘Assumed Par Value Capital Method,” you must provide numbers for all issued shares (including treasury shares) AND total gross assets. You are still required to file the Delaware annual report and pay the Delaware corporation tax (franchise tax) even if the corporation never engaged in business.
It is important to note that Delaware will not issue Good Standing Certificates for corporations that have not met the annual report filing requirements. The Delaware corporation annual report must be signed by the corporation’s president, secretary, treasurer, or other duly authorized officer or by any of its directors. If filing an initial report, any incorporator can be an authorized signer in the event the board of directors has not yet been elected.
Q: Are there any additional fees required to be paid when filing my corporation’s Delaware annual report?
Delaware domestic corporations must file a fully completed annual report and pay both the annual report filing fee and franchise tax by Tuesday, March 1st, 2022. The Franchise Tax Department will be available to assist on Saturday, February 26th, by email and chat from 8 am to 4 pm. There are several variables that enter into 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. The tax under this method is $400 per $1,000,000, or portion thereof, of assumed par value. Authorized Share Method
5000 shares or less, pay the minimum $175 tax.
FAQs About Delaware Corporation Annual Reports and Franchise Taxes
For each additional 10,000 shares, add $75 to the tax total, with a maximum franchise tax of $180,000. 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. This method calculates the tax based on the number of shares your corporation has authorized. Your corporation will owe an estimated $85 for each 10,000 shares authorized.
Q: How do I calculate the franchise tax for non-exempt non-stock corporations?
In addition, since stock must be sold at higher than par value, it gives the entity more choices when issuing shares to investors. Most startup companies are typically formed with a small number of authorized shares and a low (or zero) par value. After two years of non-filing and non-payment of the Delaware LLC annual fees, the corporation’s Certificate of Incorporation will be revoked.
Taxpayers owing $5,000 or more pay estimated taxes in quarterly installments with 40% due June 1st, 20% due by September 1st, 20% due by December 1st, and the remainder due March 1st. Taxpayers subject to the quarterly payment requirement will receive a reminder notice each quarter. “EisnerAmper” is the brand name under which EisnerAmper LLP and Eisner Advisory Group LLC and its subsidiary entities provide professional services.
EisnerAmper LLP is a licensed independent CPA firm that provides attest services to its clients, and Eisner Advisory Group LLC and its subsidiary entities provide tax and business consulting services to their clients. Eisner Advisory Group LLC and its subsidiary entities are not licensed CPA firms. As discussed above, the tax on 20 million of authorized shares is $170,165 ($250.00 plus $169,915.00[$85.00 x 1999]). See our handbook glossary for more information about authorized shares.
The Delaware Department of Corporations defines total gross assets as “those ‘total assets’ reported on the U.S. Form 1120, Schedule L (Federal Return) relative to the company’s fiscal year ending the calendar year of the report”. Well, a minimum stock company (generally an entity with less than 5,000 authorized shares) with zero par value typically pays Franchise Tax under the Authorized Shares Method. This will usually end up to be the minimum of $175, plus the $50 Annual Report Fee, for a total due of $225. This lesser-known requirement can be quite frustrating when it delays time-sensitive filings. We recommend identifying the tax due in these cases well in advance of the date of filing for a dissolution or merger.