What Are the Delaware LLC Income Tax Requirements?

Delaware is a common choice for forming a Limited Liability Company (LLC) due to its business-friendly legal system and privacy protections. The state’s specialized Court of Chancery focuses on business law, providing predictability for business owners. Delaware law also allows for a high degree of privacy, as LLC member names are not required in public formation documents. The tax obligations for a Delaware LLC depend on federal rules and where the company conducts business.

Federal Income Tax Treatment of a Delaware LLC

The Internal Revenue Service (IRS) does not have a specific tax classification for LLCs. Instead, federal tax treatment is determined by default rules based on the number of members or by an election made by the owners.

A single-member LLC is considered a “disregarded entity” by default. The IRS does not view the LLC as separate from its owner for income tax reporting. The owner reports all business income and expenses on their personal tax return using Schedule C (Form 1040).

A multi-member LLC is automatically classified as a partnership. The LLC itself does not pay income tax but must file an informational return, Form 1065. Profits and losses are “passed through” to the members, who each receive a Schedule K-1 detailing their share of income to report on their personal tax returns.

An LLC can elect a different tax status. Filing Form 8832 allows an LLC to be taxed as a C corporation, which is subject to corporate income tax and files Form 1120. An LLC can also file Form 2553 to be treated as an S corporation, allowing profits to pass to owners without being subject to self-employment taxes, though owners who work in the business must receive a reasonable salary.

Delaware State-Level Business Taxes

Delaware does not levy a state-level income tax on LLCs that are formed in the state but earn their income elsewhere. For LLCs taxed as disregarded entities or partnerships, profits are passed through to the owners. The owners are then responsible for paying personal income tax in their state of residence, not Delaware.

The requirement to pay Delaware income tax hinges on “doing business” in the state. Activities that create a tax nexus include having a physical office, employing residents, or deriving revenue from customers within Delaware. Simply forming an LLC and maintaining a registered agent in Delaware does not constitute doing business there.

Delaware also imposes a Gross Receipts Tax on revenue from goods sold and services rendered within the state. This tax is not based on profit, and rates vary by business activity. LLCs with no business operations in Delaware are not subject to the Gross Receipts Tax.

Delaware Annual Requirements and Fees

Every Delaware LLC must pay an annual Franchise Tax to remain in good standing. This is not an income tax but a flat fee for the privilege of maintaining an LLC in the state. All domestic and foreign LLCs registered in Delaware are required to pay this tax.

The annual Franchise Tax for an LLC is a fixed amount of $300, due on or before June 1st each year. For a Series LLC, this tax is required for the main LLC and for each of its registered series. Failure to pay by the deadline results in a $200 penalty, plus 1.5% monthly interest on the unpaid amount.

Every Delaware LLC must also maintain a registered agent with a physical address in the state. The registered agent receives official legal and state correspondence for the LLC. The cost for this service is paid to the provider and ranges from approximately $50 to $300 per year.

How to Pay the Delaware Franchise Tax

The Delaware Franchise Tax must be paid online through the official Delaware Division of Corporations website. The state no longer accepts physical payments. On the website, navigate to the section for paying taxes, which may be labeled “Pay Taxes/File Annual Report.”

You will need your LLC’s 7-digit business file number to make a payment. If you do not know this number, you can find it using the business name search feature on the same website. Entering the file number will retrieve your company’s information and the amount due.

Payment of the $300 fee can be made with a credit card or an ACH debit from a bank account. After submitting the payment, you will receive a transaction confirmation. You should save a copy of this confirmation for your business records.