How to File Delaware Franchise Taxes Online: A Founder's Guide

Team Digits

Published December 29, 2024

Corporations formed in Delaware benefit from the state's business-friendly regulatory environment, which is why it is a popular place to incorporate. While the state is considered tax-friendly, businesses must file and pay annual franchise taxes to remain in good standing.

Ignoring this tax filing isn't an option, and it can help to have a tax professional on your side. At a minimum, you should learn all you can about the Delaware Franchise Tax, when it's due, and how to pay it online. This article explains how to do all of this so you can comply with the law and offers suggestions for lightening the burden, too.

When are Delaware Franchise Taxes due?

Delaware franchise taxes for corporations are due annually by March 1st. Missing this deadline results in a $200 late penalty plus interest, calculated at 1.5% monthly. Unfortunately, we have seen dozens of new startups miss this deadline as they operated under the assumption that they were not profitable, so no tax filings were needed.

Delaware is notably strict on this deadline, and a missed payment can lead to a company losing its "good standing" status, which may impact financing and compliance with contracts requiring a corporation to be in good standing. Delaware corporations should mark the March 1st date well in advance, with reminders for any annual payments due.

If you work with a tax professional, discuss the timeline for the Delaware Franchise Tax each year. Make an appointment to work through any concerns well before the filing deadline, so you have time to work together on a resolution.

Who needs to pay Delaware Franchise Taxes?

According to the Delaware Division of Revenue, any corporation incorporated in Delaware must file an Annual Franchise Tax Report and pay the Franchise Tax.

Delaware's franchise tax applies to all corporations regardless of their physical location or revenue levels, making it crucial for both local and out-of-state companies to stay on top of this requirement. You must still file even if you didn't earn much (or anything at all), and even if you are a brand-new business that was just incorporated.

Depending on how you calculate your taxes, you'll likely pay a minimum of $175 - $400.

Delaware requires those owing $5,000 or more to pay estimated quarterly taxes according to a schedule of 40% due June 1, 20% due by September 1, 20% due by December 1, and the remainder due March 1.

What if I'm late or make a mistake?

Failing to submit the required annual report alongside the tax payment can result in penalties. Delaware imposes an additional $50 fee for unfiled reports, even if taxes aren't due. Failure to file consistently may lead to administrative dissolution.

This isn't the only mistake corporations make, however. While Delaware's franchise tax process is straightforward, there are additional traps that corporations often overlook, leading to confusion and sometimes grossly overpaid taxes. They include:

• Default to Authorized Shares Method: Delaware defaults to the Authorized Shares Method of franchise tax calculation (based only on how many shares are authorized) if the Assumed Par Value Method isn't specifically requested on the annual report. Corporations with a large number of authorized shares should always assess both methods to avoid paying excessive taxes.
• Incorrect Asset Valuation: Asset values must be accurate and up-to-date for you to calculate your taxes based on the Assumed Par Value Capital Method (based on business total gross assets divided by total number of issued shares). Misreporting can lead to overpayment, underpayment (which could trigger penalties), or future audit issues.

It's often easier to handle the filing correctly the first time rather than try to go back and fix the error (plus pay for any penalties and interest). Working with a tax professional can help you avoid these costly and stressful mistakes.

How to file your Delaware franchise taxes on your own

The best way to file Delaware franchise taxes is to work with your tax preparation professional. They can ensure you have the right information to file and won't miss any deadlines. They can even file for you in most cases.

However, if you prefer a DIY approach, you can follow these steps to start the job. Just remember that it can be very difficult to file on your own, and incorrect or late filing can be a mess for your business.

What you'll need before you start

The key to a quick filing is to have the right information at your fingertips before you begin. At a minimum, you'll need the following:

• The name of your Delaware corporation, its registered agent, and the office address on file
• The Federal Employer Identification Number (FEIN) for your business
• Authorized Shares or Assumed Par Value Capital, depending on your method of calculation
• Previous year's franchise tax filing, if you've filed before
• All of your LLC's relevant financial data, including total assets, gross receipts, and metrics used for reporting profit, value, and operating expenses
• Your contact information, even if it's different from the agent's information, as this is how the Delaware Division of Corporations will reach out to you if needed

If you don't have some of this information or don't feel comfortable including it all, it may be best to contact an accountant or tax professional to handle it for you. This is especially smart for businesses that already have a professional accountant or bookkeeping service, as it will save a lot of time and effort.

Step 1: Start your filing

Visit the Delaware Division of Corporations website to begin your filing. Choose the "Pay Taxes/File Annual Report" option and follow the on-screen prompts to go through the process.

You'll need your Business Entity File Number, a specific number just for paying the Delaware taxes. If you don't have it handy, you can look it up using this online tool.

Step 2: Calculate the tax you owe

Delaware offers two primary methods for calculating franchise taxes for corporations: the Authorized Shares Method and the Assumed Par Value Capital Method.

Corporations can choose whichever method results in a lower tax amount, but understanding both is important to avoid overpayment. If the initial result looks out of whack, there is an excellent chance you used the wrong method to calculate your tax liability.

Method 1: Authorized Shares Method

This is the simplest calculation method. Delaware bases your tax owed on the total number of shares authorized in the corporation's charter, regardless of issued shares or revenue.

The Authorized Shares Method may lead to significant franchise tax liabilities for corporations with a high number of authorized shares.

Method 2: Assumed Par Value Capital Method

This method calculates taxes based on the assumed par value of a corporation's issued shares, considering both the total assets and issued shares. For some, this method can yield a lower tax than the Authorized Shares Method, especially if the corporation has many authorized but few issued shares.

Here's how this method calculates your tax due:

• Divide total gross assets by the number of issued shares to determine "assumed par value."
• Multiply the assumed par value by the number of authorized shares.
• The franchise tax is based on the resulting number, with a minimum of $400 and a maximum of $200,000.

Given these calculations, corporations with a lot of authorized shares and few issued shares often benefit from the Assumed Par Value Capital Method.

Step 3: Enter your stock information

Find the relevant table for your situation and enter the details. Then click to recalculate according to your preferred method from the calculations above. Some helpful tips include:

• Provide the total number of issued shares in the "issued shares" field, not how many have been authorized.
• It's rare for startups to have issued all the available shares, so this number should be lower than what's available.
• Check with your accountant if you have questions about the "gross assets" value, which typically equals the "total assets" from the previous year's balance sheet (but could be different).

Most fields should match the numbers you have on hand, but if you have any doubts that you're entering it correctly, refer to the expertise of a tax professional. You may already have some of this information in your investor reporting.

Step 4: Enter your company and contact information

Next, you'll be asked to fill out the details for your business and corporation (which likely have different contact information). You'll need:

• The address where you do business (usually your "principal place of business"), which may be outside of Delaware.
• The name and contact information for your board of directors as listed by your incorporation filing.
• The contact information for your company's corporate office, such as a C-level team member who signs the franchise tax report.

This information may be the same as the previous filing year, but always check to ensure there are no changes to report.

Step 5: Pay the tax

With the filing information completed and the calculation made for taxes owed, you can now pay your bill. The same website will prompt you on how to make the payment. If you have a tax professional handling it for you, they will pay according to your preferred method.

Additional Delaware Franchise Tax best practices

Even if you have your first year's tax filing behind you, it's never too late to put these pro tips into practice:

• Calculate early: By comparing both methods well before the March 1st deadline, corporations can ensure they use the least costly option.
• Track asset changes: Companies using the Assumed Par Value Capital Method should regularly update asset values to avoid any discrepancies at tax time. This is especially true if you are receiving VC funding.
• Seek guidance when expanding: Companies considering an increase in authorized shares should review franchise tax implications with a lawyer versed in DE tax law. Increasing authorized shares may increase franchise tax costs, leading to a problem when you file.

Remember, there is a difference between filing your report and paying your taxes. These are two separate actions, even though they can be done from the same website. To avoid any surprises, have a plan for filing on time and for paying your taxes owed. (Those owing larger amounts may need to pay quarterly.)

Get expert tax filing help with Digits

It may be difficult to figure out how to file Delaware franchise taxes, especially if you’re unfamiliar with the best method for calculation. Will it be the Authorized Shares Method or the Assumed Par Value Capital Method? Your unique business and assets determine which you should go with, and it may not be evident at first glance.

For startups with large authorized shares or corporations with evolving asset bases, careful evaluation of tax options is essential. Working with a tax strategist like the team at Digits can help maintain compliance and avoid unwelcome surprises. It ensures a smoother experience in Delaware's otherwise welcoming business environment and keeps you focused on running your business.

For more information on completing the annual Franchise Tax filings, please reach out to us for assistance.

Delaware Franchise Tax FAQs

What happens if you don't file?

Companies that incorporate in Delaware, regardless of where they do business or how much they make, must complete the Franchise Tax filing each year. Failure to do so by the deadline can result in a late fee of $200, subject to a 1.5% interest accrued for every month you don't pay the original tax bill plus fines.

If you don't pay for two years in a row, the State of Delaware may dissolve your corporation, which can cause big problems for your business.

How do I check if my Delaware LLC is dissolved?

You should be able to ask your tax professional about the status of your corporation, and they can tell you what you need to know. However, if you want to find out this information on your own, you can visit the Delaware Division of Corporations website Online Status page. Enter your LLC company name in the search bar — this will return both inactive and active results. Click your company name to see its status.