Calculating the Delaware Franchise Tax
This comprehensive guide provides detailed information on Delaware’s Franchise Tax system for LLCs and corporations.
For Delaware LLCs, the Franchise Tax is a flat annual rate of $300. For corporations, the Franchise Tax is determined by the type of corporation and the number of authorized shares it has. The total cost includes both an annual report fee and the actual tax owed.
For example, a corporation with 5,000 or fewer authorized shares is classified as a minimum stock corporation. The annual report fee is $50, and the tax is $175, totaling $225 per year.
A corporation with 5,001 or more authorized shares is classified as a maximum stock corporation. The annual report fee is $50, and the tax ranges from $200 to $200,000 per year, depending on the number of authorized shares.
Franchise Tax Calculator
Customers can easily access the franchise tax calculator on the Delaware government website at the following link: Delaware Franchise Tax Calculator.
Calculating Your Franchise Tax
Authorized Shares Method:
Under the Authorized Shares Method, your Franchise Tax is determined by the number of authorized shares your company has. Here’s how it works:
- If your company has between 1 and 5,000 authorized shares, the tax is a flat $175.
- For 5,001 to 10,000 authorized shares, the tax is a flat $250.
- For each additional 10,000 authorized shares beyond 10,000, add $85 to the tax.
For example:
- A company with 5,000,000 authorized shares owes $37,675.
- A company with 10,000,000 authorized shares owes $75,175.
- The maximum tax applies just under 24,000,000 authorized shares, capping at $200,000 per year.
Note: This estimation is based solely on authorized shares, not outstanding shares. Additional fees may apply during filing, but the total Franchise Tax cannot exceed $200,000.
Assumed Par Value Method:
Alternatively, the Assumed Par Value Method calculates tax based on a more complex formula involving authorized and issued shares, as well as gross assets. Here’s a simplified overview:
- It multiplies the assumed par value (gross assets divided by issued shares) by the number of authorized shares.
- The tax is then 0.04% of the rounded-up total market capitalization (nearest million dollars).
This method typically benefits companies with more than 5,000 authorized shares. For precise calculations under this method, consulting with an accountant or tax expert is recommended.
For further details or assistance, visit the Delaware government’s official resources or consult with a professional familiar with Delaware tax laws.
Reducing Franchise Taxes
Corporations can often reduce their franchise taxes by opting for the Assumed Par Value method, which bases taxes on total assets. This method is advantageous because it can potentially lower taxes, especially for startups. However, companies should be cautious: if a corporation authorizes a large number of shares but only issues a small percentage, it could still owe significant franchise taxes. To optimize tax savings under this method, ensure that issued shares constitute at least a third to a half of authorized shares. For precise guidance tailored to your company’s situation, consulting with a tax professional is advisable.
Do you have any other questions?
If you need further clarification or assistance with Delaware Franchise Tax or anything else related to your business formation, don’t hesitate to reach out. Our team at Startxpress is here to help guide you through the process with ease.
For further insights, explore the Startxpress Help Center and Blog. If you have questions or need support, reach out anytime at support@startxpress.io!
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