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Incorporated in Delaware? Here’s How That Impacts Your Business Taxes

Posted by Melissa Hollis to Taxes, Business Advice

What Delaware Corporations Need to Know About Filing Small Business Taxes

Delaware isn’t a state that typically surprises you, but there’s one particular fact about the First State that might:

More businesses are incorporated in Delaware than there are people living there!

It’s not just small businesses either. In fact, over 60% of Fortune 500 companies are incorporated there. This may seem bizarre, but it’s definitely no accident: Delaware has been consciously choosing to be the ideal home for businesses as far back as 1899.

 

Whether your business already a Delaware C Corporation or hasn’t incorporated there yet, this article will explain how this impacts your taxes.

 

Out-of-State Businesses Don’t Pay Income, Property, or Sales Tax

One of the main incentives for small businesses and other companies to incorporate in Delaware is that they do not need to pay corporate income tax unless they actually conduct business in Delaware. Non-resident companies are also exempt from property and sales taxes.

However, there is a catch. Instead of paying an income tax, your small business will pay a Delaware franchise tax and file an annual report (Form 1902(b)).

 

According to the state, “the total tax will never be less than $175.00, or more than $180,000.00.” Obviously, that’s a big range; but when it comes to small business taxes, it’s safe to assume that the vast majority of small to mid-sized companies don’t come anywhere close to having to pay a six-figure franchise tax (or even a five-figure one).

 

By the way, we know this sounds like a hassle, but the juice is definitely worth the squeeze. You can talk to one of our experts to learn more about how we help you manage your Delaware franchise tax payment when it’s due.

 

Tax Deadlines for Delaware Corporations:

You might be wondering whether Delaware corporations file federal tax forms. Yes, they do. Delaware corporations (C Corporations and S Corporations both) need to file a federal income tax return along with their Delaware Corporate Income Tax Return and Delaware Informational Return.

Tax Form:

Due Date:

State of Delaware Corporate Income Tax Return: Form 1100 or Form 1100EZ

March 1

Federal Income Tax Return (S Corps): Form 1120S

March 15 (September 15 with extension)

Federal Income Tax Return (C Corps): Form 1120

April 15 (October 15 with extension)

Delaware Informational Return: Form 1902(b)

April 15

 

*Dates are approximate and may change year to year due to federal and state holidays. Be sure to check out our 2018 business tax calendar blog post for your 2017 tax return deadlines.

 

Are you looking for more ways to be smarter about your small business taxes?

You’ll love our three-piece tax pack including a guide on building a year-round tax savings strategy, checklist for calculating your taxable income, and workbook for organizing your most essential tax info. Save yourself some time this tax season and download the tax pack today!

business taxes

 

Bonus—It’s Not Just About Saving Taxes:

Companies also love the Delaware Court of Chancery...

It’s not all about avoiding small business taxes. Although it sounds like something from a Harry Potter novel, Delaware’s Court of Chancery is a very real advantage for businesses that are incorporated there. This world-renowned court of equity has become the preeminent authority on matters of corporate law and relies on the expertise of its five judges all of whom are corporate law experts as opposed to relying on a jury that may know nothing about corporate law at all.

 

...But could the tide turning?

Recently, there have been some grumblings from several companies that the Court of Chancery is not doing enough to curb a rash of litigation from shareholders. The most notable company that has taken umbrage with the court is Dole, which has been incorporated in the state since 2001. Dole argues that the court has become too imbalanced in favor of shareholders, hinting that the canned fruit giant may be considering a move out of the state. Although there are hints that the tide may be turning against Delaware as an optimal site of incorporation, it will be quite a long time before we see the amount of companies incorporated there drop significantly.

 

Because of the enormous tax advantages for small businesses, inDinero generally recommends that companies incorporate in Delaware if it fits their needs; however, we cannot perform this incorporation for you. To take advantage of Delaware’s favorable corporate climate, you should talk to an attorney knowledgeable in Delaware corporate law. Luckily, we know plenty of those, so let us know if you need a referral!

If you own a small business, pay attention to Delaware. The state continues to offer many perks that give small businesses (and every company) good reason to incorporate there.

 

Suggested Reading:

Be sure to also check out our article on tips for how your Delaware-incorporated company can become compliant in California.

About the author
“Melissa

Melissa Hollis

Melissa Hollis is a content marketer and lover of all things West Coast. She enjoys waking up every day and getting the chance to rethink the obvious and enable the dreams of aspiring entrepreneurs.


Disclaimer: The inDinero blog provides general information about tax, accounting, and business-related topics. It is not intended to provide professional advice. Read more in our Terms of Use.

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