Delaware LLC Income Tax: Everything You Need to Know
A Delaware LLC income tax structure is more suited for your business. Delaware LLCs must generally pay an annual $250 fee to maintain an LLC in Delaware.3 min read
Delaware LLC Income Tax
Delaware LLC laws are considered the gold standard among aspiring business owners who wish to start a small business.
Of all states, Delaware retains the most pro-business laws in the United States. The U.S. Chamber of Commerce designated Delaware’s litigation system as number one in the past decade. Most states have some form of business taxation, and the type of taxes levied depends on the business entity type.
In addition, most states impose an income tax on businesses. With that, certain business structures are taxed via the “pass-through” method, where profit and losses are passed from the business to individual owners to file on their personal taxes. The following business entities qualify for the pass-through method:
- Sole Proprietorships
- S Corps
The entities are not subject to business taxation, and owners would only pay taxes from their personal tax filings. Beyond the obligatory annual tax, the amount of taxes you pay depends on how much income you receive from your share of the business. From there, you would report those shares on your personal tax returns and pay the necessary taxes owed. It is worth noting that LLCs are taxed as partnerships, unless you choose an S corporate tax structure.
Corporate tax rates vary between 4 to 9 percent, but they usually come in the form of a flat charge, regardless of income. Personal rates depend on state laws as well, but rates range from none (in cases of small income) to 9 percent. Some states do not have personal or income taxes.
However, many states levy a separate a tax known as a Franchise Tax, which is a tax on certain businesses. It is usually imposed for the privilege to do business in a state, and businesses usually pay a set fee or a sum based on the LLC’s net worth. Franchise taxes also depend on the state where your LLC resides. Delaware levies a franchise and a corporate tax, including taxes on:
- General Partnerships
- Limited Partnerships
Your business could pay such taxes, which varies on the legal structure and tax classification you choose. Further, all income passed from an LLC to your personal tax returns are open to taxation.
S Corp Franchise Taxes
The Delaware-based franchise system is the right to conduct business in the state, and it applies to C and S corps.
Delaware has two different ways of calculating franchise taxes: assumed par-value capital and authorized shares. The par-value method entails paying a set fee that depends on the amount of no-par capital, including a fee regarding assumed par-value capital.
For instance, this method is calculated as follows:
- $500,000 or less than the assumed no-par capital equals $75 fee
- $500,001 to $1 million less than the assumed no-par capital equals $150 fee
- $1 million or greater than the assumed no-par capital equals $150 and an added $75 fee for each additional $1 million
The authorized shares method works a little differently:
- 5,000 shares or less means payment of $75
- 5,001 to 10,000 shares equate to $150
- 10,000 or more shares means that a $150 flat fee and $75 additional fee for each added 10,000 shares.
Taxes regarding assumed par-value is $350 based on every $1 million or fraction of assumed par-value capital. Moreover, annual filing fees for non-expert domestic corporations would be $50, including applicable taxes. Corporate filings are due before or on March 1 of every year.
Delaware corporations must pay franchise and corporate income taxes. For instance, a Delaware corporation has a taxable net income of $100,000 with 10,000 authorized shares, assumed capital of $100,000, and an assumed par value capital of $100,000. Therefore, the corporation would owe corporate income taxes of $8,7000 (8.7 percent of $100,000). If the corporation chose the authorized shared method of franchise taxes, the business would owe franchise taxes amounting to $150 ($150 on a corporation with 5,000 to 10,000 shares).
To find out more about how much a Delaware LLC income tax would cost you, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s quality lawyers will assist you in finding the right tax structure for your LLC, and they can help you determine a basic overview of your income bracket. We will also help you with any filing procedures and maintenance schedules you need to be aware of to keep your LLC current.