Your Comprehensive Guide To Delaware LLC Tax Rate
Delaware LLC tax rates are usually lower than corporation tax rates. Most of the LLCs registered in Delaware have to pay a flat annual tax of $300 plus a tax on their profits.
Taxes For Businesses Registered In Delaware
Taxes for businesses are different from state to state. In Delaware, the state taxes different types of business revenue. The type and the amount of tax depends on your type of business entity and on your filing status of choice.
While corporations must pay their taxes at corporate income rates, LLCs, sole proprietorships and partnerships are considered pass-through entities. This means that these businesses aren’t taxed neither at state nor at federal level. Nevertheless, their owners must pay tax instead.
The most common tax types for a Delaware business are corporate income tax, franchise tax, and annual taxes and fees. If you operate a traditional LLC, for instance, you’ll pay your $300 annual LLC tax and personal taxes on the profit of your company.
More often than not corporate taxes are flat. No matter how much income your business generates, you’ll pay the same flat tax rate that ranges between 4 and 9 percent. Owners of LLCs, sole proprietorships and partnerships must pay between 0 and 9 percent tax.
How To Determine Which Taxes Apply To Your LLC In Delaware
The good news for all Delaware LLC owners is that they only have to pay an annual tax of $300, due every year by June 1st. Even though this tax is usually called a “franchise tax,” this doesn’t make your business a franchise.
When it comes to tax purposes, LLCs may choose to be assimilated to S corporations. If you choose this regimen for your Delaware LLC, you’ll have to pay corporate income tax. This is why you should assess all benefits and drawbacks of this decision, in order to make an informed choice that’s actually good for your business.
If you decide to choose the S corporation tax status for your LLC, you’ll have to file a form with the IRS. The S corporation tax status is different than the C corporation when it comes to federal taxes.
All taxable income an S corporation generates is automatically passed to its shareholders. These shareholders must pay federal taxes on their shares. They have to add these amounts when they file their personal taxes.
How To Determine Your Corporate Income Taxes
There are two ways of calculating the taxes of an S corporation or of a LLC that files as such: the assumed par value capital method and the authorized shares method.
The Authorized Shares Method:
The owed fee is determined by taking into account the number of authorized shares as follows:
– Entities with 5,000 shares or less must pay $175 fee
– Entities with 5,001 – 10,000 shares must pay $250
– Entities with more than 10,000 shares must pay $85 base fee for each additional 10,000 shares (or fraction of this amount)
The Assumed Capital Method
Businesses must pay a fee that varies with the amount of their assumed no-par assets value. This fee comes on top of the basic fee for assumed per value capital. If you need more information on this method of calculating your corporate income tax amount, you can read the explanations offered by The Delaware Division of Corporations.
What Makes Delaware A Tax Shelter?
Delaware is not only a relatively low taxation state but also a tax shelter. By definition, a tax shelter is anything that can lower the amount of taxable income. By using tax shelters to your advantage, you can reduce your tax amount, and therefore make your LLC more profitable.
You can consider a method a tax shelter if it allows you to save one dollar for every dollar you spend over a four-year period. Individuals, corporations and LLCs can all benefit from tax sheltering methods. Here are a few ways Delaware can help you save money on tax:
– There’s no sales tax in Delaware. By registering your business in Delaware, you won’t need to pay sales tax on purchases made in Delaware, regardless of the physical location of your company.
– A Delaware corporation that operates outside the physical limits of the state doesn’t pay any state corporate income tax on goods and services.
– Delaware doesn’t require corporations to pay tax on investments that involve fixed income or equity.
– Delaware doesn’t collect personal property tax (there are a few exceptions in some counties).
– Delaware doesn’t charge inheritance tax or tax on stock transfers.
– Delaware protects business owners by shielding their identity and preventing it from appearing in public records. This is something most other states don’t offer.