Do I Need a Delaware Tax Accountant for My Delaware LLC? And More Tax Questions
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.
Who Does Delaware LLC Taxes?
Many states where you decide to form an LLC require you to file a state income tax return in the state of formation, even if you have no employees or office there. Delaware is different. The Delaware division of revenue does not require a Delaware state income tax return if you have no income, derived from Delaware.
With a Delaware LLC, you only need to file a state income tax return where you are physically located or have employees or otherwise required by state laws where you were operating.
Many single member LLCs are taxed as disregarded entities where the income and expenses are filed on the owners personal 1040 schedule C. Some owners use TurboTax for this purpose and do not hire a CPA. For those businesses who decide to engage in accountant, the accountant does not need to be located in Delaware for a Delaware LLC.
Your filing requirements will vary based on factors such as whether your LLC has one owner or multiple owners, where your business earns income, and whether you’ve elected to have your LLC tax as an S corporation or C corporation.
Not to be confused with an income tax, every LLC must pay “franchise tax” to the state of formation and other states where the LLC is foreign qualified. This is an annual fee for the privilege of maintaining an LLC in good standing. This is $400 per year, regardless of whether you’re using the company or have no income. The Delaware LLC franchise tax is a statutory requirement paid to the Delaware Division of Corporations.
Your Delaware registered agent can assist with questions regarding Delaware franchise tax and disburse this cost for you to the state in exchange for a modest processing fee. Questions regarding LLC income taxes should be directed to your certified public accountant.
However, be careful about asking your CPA for legal advice. Often, CPA’s are not familiar with the liability advantages, and other organizational advantages when you forum shop to Delaware away from your home state. The CPA may not appreciate that Delaware is the best state in which to create your LLC. They may be looking only at convenience and bean counting to save costs. They often are not aware that the liability shield is much stronger in Delaware than LLC formed in other states. In other words, the CPA may tell you how to save $400, but result in you having an LLC from a state with a very weak liability shield, something you will not know until it is too late should a major problem arise.
Do You Need an Accountant for a Delaware LLC?
For many business owners, working with a creative small business CPA is one of the best ways to organize a business to take advantage of tax laws.
While you can save tax preparation service fees by doing taxes yourself, you can often find the right CPA even for a single-member LLC with straightforward income and expenses to save on taxes. LLCs with multiple members, employees, operations in multiple states, or an election to be taxed as an S corporation or C corporation often benefit from professional tax guidance. Be careful when selecting a CPA, because many are not creative and just prepare returns. It is important to meet regularly with a tax advisor to put in service equipment to take deductions that tax year.
An accountant can help with more than filing your annual tax return. They can prepare financial statements, manage bookkeeping, calculate estimated tax payments, identify available deductions, and help ensure your Delaware LLC complies with federal, state, and local tax requirements. Keeping accurate records throughout the year can also make tax season more efficient and reduce the risk of costly filing errors.
It’s also important to understand the difference between legal and tax services. An attorney can advise on business formation, contracts, and governance, while an accountant focuses on tax planning, financial reporting, bookkeeping, and tax compliance. Many Delaware LLC owners work with both professionals to help protect and grow their businesses.
How Do You Pay LLC Taxes in Delaware?
To keep your Delaware LLC in good standing, you’ll need to pay the Delaware LLC franchise tax each year. Like other states that form LLC’s, Delaware charges LLCs a flat annual franchise tax even if it has no revenue, no assets, and never actually operated. The franchise tax is due by June 1, and late payments result in $200 penalties, interest, the loss of your LLC’s good standing and authority to conduct business.
You can pay your Delaware franchise tax online through the Delaware Division of Corporations using your business entity file number. Paying on time helps ensure your LLC remains active with authority to conduct business.
IncNow offers a Delaware Franchise Tax Payment Service that allows you to pay your franchise tax through the IncNow depository account. IncNow submits your payment to the Delaware Division of Corporations on your behalf, helping you avoid disclosing your personal information to the State to keep your LLC more private. For many business owners, especially those managing their business from outside Delaware, they like the privacy of Delaware where owners and managers do not need to be disclosed.
It’s important to remember that the Delaware franchise tax is separate from your federal, state, and local tax obligations. Depending on how your LLC is taxed and where it conducts business, you may have additional tax filing and payment requirements. Paying your annual franchise tax on time is an important part of maintaining your Delaware LLC, but it’s only one piece of your overall business compliance.
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 $400 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 $400 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.