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Delaware

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    DELAWARE CORPORATE TAX FILING

    Delaware provides many incentives on Delaware corporate tax to business owners, founders, and CEOs as a tax haven. There is no residency requirement to incorporate in Delaware, and non-residents frequently benefit the most from doing so.

    Delaware ranks 49th out of 50 states in terms of overall land area, despite being one of the smallest and frequently delivering the largest impact for business owners. 

    Any U.S. state may serve as the headquarters of a Delaware corporation, in which case they are frequently exempt from state corporate income tax.

    Additionally, Delaware corporations are subject to a more favourable legal procedure through the Chancery Court of the state.

    When filing paperwork with the state to register a corporation, businesses may not be required to list the names of their executives and directors.

    Furthermore, the Delaware business tax might not be applicable if the company doesn’t operate there. These Delaware firms pay a franchise tax, which is a lot less expensive, rather than an income tax. Delaware also has usury rules that are favorable to businesses, giving banks and credit card companies far greater latitude to charge more for loans.

    TYPES OF CORPORATE TAXES IN DELAWARE

    NO STATE TAXES

    Delaware does not impose a sales tax. No matter if a company has a physical presence in the state or not, as a Delaware corporation, no purchases made within the state are subject to tax. In addition, Delaware firms that operate outside of Delaware do not have to pay a state corporate income tax on the goods and services they offer.

    A Delaware holding company’s interest and other investment income are not subject to state corporate taxes. A holding corporation is not subject to state income tax on gains if it owns fixed-income or equity investments.

    Additionally, there is no personal property tax in Delaware. There may be a real estate property tax at the county level, but it is often quite minimal in comparison to other states. Companies are allowed to own their own offices, which results in lower property taxes than in other states.

    Value-added taxes (VATs), commercial transactions, use, inventory, and unitary taxes are not imposed by the state. There is no inheritance tax, capital gains tax, or stock transfer tax in Delaware.

    S-CORPORATIONS AND LLCS

    S-corporations, which can be very advantageous from a tax viewpoint, are allowed in the state of Delaware. Although S-corps have shareholders, they are not subject to federal taxation. As opposed to LLCs, these corporations are classified as pass-through entities, which means that all profits and losses are distributed to the stockholders.

    Additionally, LLCs are legal in the state of Delaware. These corporations enable business owners to realize their gains and deduct any losses. A business may be able to lower its quarterly tax payments by using S-corps and LLCs.

    SHAREHOLDER TAX

    Owners who are also employed by a corporation must pay shareholder taxes. Shareholder taxes are paid as personal income taxes based on individual income. This is necessary for both salaries and bonuses received. These taxes will ultimately be subtracted from the corporation’s overall income taxes.

    DIVIDEND TAX

    Dividends, which are monetary sums paid to the owners, are not tax deductible. They must report these dividends and pay tax on them. Corporations will pay taxes twice on dividends: once to the business itself and once to the shareholders.

    SEPARATE COURT SYSTEM

    The Court of Chancery is a unique legal system in Delaware. This court permits the state to decide corporate disputes, and the state’s corporate laws frequently affect Supreme Court rulings. Delaware’s business statutes are periodically reviewed by the Delaware State Bar Association. This provides Delaware-incorporated entities with a more advantageous mechanism for evaluating legal issues when it comes to analysing tax legislation.

    No taxes on intangible assets

    If the company produces anything that generates royalties and the applicant lives in another state, they can transfer ownership of those assets to Delaware. Anything that isn’t a physical object but nevertheless has worth is considered an intangible asset (for example, works of art, songs, novels, and photographs). The produced royalties will not be taxed if the asset is retained in Delaware.

    WITHHOLDING TAXES

    When paying salaries or other compensation to a resident or non-resident (of Delaware), an employer who has an office or conducts business in Delaware is required to withhold tax. A business is required to withhold an expected amount of tax from its employees under withholding tax. Regarding exemptions, new workers must submit the Delaware W-4 Federal Form or Form W-4A. The employer is required to deduct the appropriate amount of tax from the employee’s pay based on that information.

    Every year, companies are required to give each employee a W-2 form that details their total earnings and the amount of taxes deducted. By January 31st, employers must mail W-2 forms to every employee. Additionally, before February 28th, employers must submit to the Division of Revenue a Reconciliation of Monthly/Quarterly/Eighth-Monthly Returns on a W-3 form along with a duplicate of each W-2 form.

    SMALL AMOUNT OF FRANCHISE AND LLC TAX

    The majority of states impose annual LLC and franchise taxes depending on earned revenue. The franchise tax for limited partnerships and limited liability firms in Delaware is a yearly flat cost.

    The franchise tax for businesses is determined by the kind of business, the number of authorized shares, and other variables. However, Delaware has a $100 flat-fee franchise tax and a $250 flat-fee LLC tax. Delaware offers significantly reduced franchise taxes and LLC taxes when compared to other jurisdictions.

    WHO HAS TO FILE AND PAY CORPORATE TAX IN DELAWARE?

    Every for-profit corporation formed in Delaware is required to pay the yearly franchise tax irrespective of whether the corporation is doing business or generating revenue in Delaware or in other jurisdictions. 

    It is a franchise tax, not an income tax. You are paying for the privilege to form a Delaware corporation and maintain that status.

    In general, non-profit corporations are not required to pay the franchise tax. They must still submit an annual report by March 1 nevertheless.

    ANNUAL FRANCHISE TAX REPORT

    The following is a list of the data included in the report:

    • The registered office and registered agent
    • The main commercial location
    • Number of authorized shares and par value
    • The directors’ full names and addresses
    • The officer’s name and address of who signs the report

    DELAWARE CORPORATE ANNUAL REPORT

    Franchise Taxes and Annual Reports for all Active Domestic Corporations are due on or before March 1st of each year and must be filed online. A $200.00 fine plus 1.5% interest per month on the tax and fine will be assessed if the report is not filed and the necessary franchise taxes are not paid.

    ANNUAL REPORT FILING FEES

    Fees for submitting an annual report or an amended annual report are as follows:

    • Exempt Domestic Corporations – $25.00
    • Non-Exempt Domestic Corporations – $50.00

    WHAT EXPENSES ARE TAX-DEDUCTIBLE?

    Understanding what is tax-deductible for the organization is crucial because corporations have the ability to lower their taxable revenue as a result of business expenses. By lowering the amount of profits for which the business must pay taxes, tax deductions can lower the effective tax rate.

    Typical tax-deductible expenses consist of:

    • Salaries
    • Operating expenses
    • Investments
    • Advertising and marketing costs
    • Benefits
    • Tuition
    • Insurance
    • Travel expenses
    • Debts
    • Interest
    • Taxes (sales, fuel, excise)
    • Tax preparation costs
    • Legal services
    • Bookkeeping

    HOW BUSINESS OWNERS BENEFIT FROM CORPORATE TAXATION

    In general, business owners can benefit greatly from paying corporation taxes. They can deduct family medical insurance and fringe benefits from corporate tax returns rather than paying additional individual income tax. This makes it simpler to deduct losses as well as tax-deferred trusts and retirement plans.

    There will not be a requirement to present evidence of this intention to make a profit prior to the deduction because a corporation may lawfully deduct the total amount of losses. 

    Any profit made by a corporation can be kept within the corporation, allowing it to more effectively plan its taxes and anticipate future tax benefits. In essence, paying personal taxes as a corporation can reduce the tax burden and keep their rate at the 21% cap allowed when filing. 

    Refer to Delaware company incorporation to know more about establishing a new corporation in Delaware.

    Reach out to us at Relin Consultants for further assistance with your Delaware company’s taxation.

    FAQs

    What is the corporate income tax rate in Delaware?

    The corporate income tax rate in Delaware is a flat rate of 8.7%.

    What is the minimum amount of income required to file a corporate tax return in Delaware?

    Any corporation doing business in Delaware or deriving income from Delaware sources is required to file a corporate tax return, regardless of the amount of income earned.

    When are corporate tax returns in Delaware due?

    The returns are due on or before March 15th for calendar year filers, and on or before the 15th day of the third month following the end of the fiscal year for fiscal year filers.

    Are there any extensions available for corporate tax returns?

    Yes, a six-month extension is available for filing the tax returns. However, the extension only applies to the filing of the return, not the payment of any tax owed. The extension must be requested before the original due date of the return.

    What types of corporations are subject to Delaware corporate income tax?

    Any corporation doing business in Delaware or deriving income from Delaware sources is subject to Delaware corporate income tax.

    Are there any deductions or credits available to Delaware corporations?

    Yes, Delaware offers a number of deductions and credits, including a credit for job creation, a research and development tax credit, and a manufacturing equipment and energy systems tax credit, among others.

    What is the franchise tax in Delaware?

    Delaware also imposes a franchise tax on corporations, which is based on the corporation’s authorized shares. The minimum franchise tax is $175, and the maximum is $200,000.

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