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Want to Save Thousands of Dollars on Delaware Corporate Tax?

Many corporations are incorporated in Delaware even though they have no operations in Delaware.

These corporations then fail to pay and file the Delaware Annual Report and franchise tax by April 1.

Subsequently, Delaware issues notices of delinquent tax typically in the thousands of dollars.

Without filing a tax return, Delaware calculates its tax on the worst method possible which is based on authorized shares (rather than actual number of shares issued) in its corporate charter.

There is a minimum tax of $175 and a minimum filing fee of $50; so there is a minimum Delaware franchise tax and annual report payment total of $225 a year for Delaware domestic corporations. Domestic corporations must file by March 1 or face a $200 penalty, and a 1.5% interest rate on the amount due.

How to Calculate the Delaware Franchise Tax

Authorized Share Method

Delaware uses this as the default method which taxes you on number of possible authorized shares. many companies with minimal stock prices authorize millions of shares.

5000 shares or less, pay the minimum $175 tax.
5001 to 10,000 shares pay $250 tax.
For each additional 10,000 shares, there is an additional $75 tax with a maximum franchise tax of $180,000.

Assumed Par Value Capital Method
With this method your Delaware Franchise Tax bill is calculated based on issued shares, authorized shares and total gross assets.

  1. Divide total gross assets by total issued shares. This will give you your assumed par value.

  2. Multiply your assumed par value by your total authorized shares. This will be your assumed par value capital.

  3. Your annual franchise tax will be $350 for each $1,000,000 (or fraction of a $1 million) of your assumed par value capitol.

In many cases the assumed par value capital method will result in the lowest tax. So file your tax return and calculate your taxes both ways. Don’t let Delaware use the highest tax.

For those about to incorporate in Delaware, try not to authorize millions of shares unless you really expect to issue them.

For help with your business tax issues, contact me today.

Richard Pon CPA, CFP