Almost anyone can form an LLC in Delaware. Your company does not need to conduct business in Delaware to form as a Delaware LLC. As a result, companies located in most parts of the world benefit from Delaware’s #1 rated corporate laws and business protections. But this comes with a lot of questions, including details about Delaware taxes.
Questions owners of Delaware companies typically ask include:
- What taxes will I owe in Delaware?
- What other fees does a Delaware LLC pay?
- Do I need to consult a Delaware tax professional?
- Do I need to file a Delaware income tax return?
Here we tell you what you need to know about Delaware LLC taxes.
Do I Need a Delaware Tax Accountant?
Working with a CPA located in Delaware is not required for operating a Delaware LLC. As a business owner, you are free to work with a tax professional in your home state. This is because you will pay taxes from where you operate and will likely not have Delaware specific tax issues.
You may consider working with a Delaware tax professional if your company does begin conducting physical business in Delaware. This may include:
- Opening a storefront in Delaware;
- Establishing a Delaware office; or
- Hiring employees in the state of Delaware.
Will My Delaware LLC Owe Taxes in Delaware?
If your Delaware LLC does not conduct business physically in the state of Delaware, you will likely not owe Delaware taxes. This includes Delaware state income tax. Delaware LLCs operating outside of Delaware are not even be required to file Delaware tax returns.
However, the state requires Delaware LLCs to pay the Delaware Annual Franchise Tax no matter where its operations are located. This is true even if a Delaware LLC does not do any business or own any assets in a given year.
What Is the Delaware Annual Franchise Tax?
The Delaware Annual Franchise Tax is a flat fee of $300 paid to the Delaware Secretary of State’s Division of Corporations. Delaware LLCs must pay Annual Franchise Tax by June 1 of each year after formation.
The Annual Franchise Tax does not change based on income, however, a Delaware LLC must pay Annual Franchise Tax even if it does not have any income during a given year.
Delaware LLCs pay the Annual Franchise Tax to keep their good standing status with the state. Think of the Delaware Franchise Tax as a “privilege fee” for the protections and rights provided to a Delaware LLC. This includes access to Delaware’s business courts which are ranked best in the world.
LLC owners pay Delaware Annual Franchise Tax in arrears for the previous calendar year. This means that even if you form your business on December 31st, you will still need to pay the full $300 for having an LLC that existed any time during the previous year.
What Happens If I Don’t Pay Delaware Franchise Tax?
A Delaware LLC that fails to pay the Annual Franchise Tax will lose its good standing status. The Delaware Secretary of State will cancel the LLC if it does not pay its Annual Franchise Tax on time.
Allowing the state to cancel an LLC is problematic for a business for the following reasons:
- LLC Members lose personal liability protection and become exposed to business liabilities;
- The LLC must undergo a costly Renewal and Revival process to put the company back in good standing.
Your Delaware Registered Agent can assist with keeping your company compliant by paying the Delaware Annual Franchise Tax.
For example, IncNow helps companies avoid tax penalties by:
- Sending complimentary email reminders when tax deadlines are approaching; and
- Forwarding the paper tax notice from the state of Delaware by US First Class Mail.