Your Responsibilities for Delaware LLC Taxes
Navigate the tax landscape for your Delaware LLC. Understand how federal tax elections and your business's physical presence shape your state-level duties.
A Delaware Limited Liability Company (LLC) is a popular business structure due to the state’s business-friendly legal system. Owners must navigate tax obligations at both the federal and state levels, each with distinct rules that dictate how and when taxes are paid. The specific tax treatment depends on choices made by the LLC’s owners and the nature of its business activities.
Federal Income Tax Classification for LLCs
The Internal Revenue Service (IRS) does not have a specific tax classification for the LLC structure. Instead, an LLC is taxed based on a default status determined by its number of owners, known as members. A single-member LLC is automatically treated as a “disregarded entity,” meaning it is viewed as the same entity as its owner for tax purposes. The LLC’s income and expenses are reported on the owner’s personal tax return, similar to a sole proprietorship.
For an LLC with two or more members, the default classification is a partnership. In this scenario, the LLC files an informational tax return, but the entity itself does not pay income tax. Profits and losses are “passed through” to the members, who report their respective shares on their personal income tax returns and pay taxes at their individual rates. This structure avoids double taxation.
An LLC can reject its default status and elect to be taxed as a corporation by filing specific forms with the IRS. One option is to be taxed as an S Corporation by filing Form 2553. This classification maintains the pass-through nature of profits and losses but allows members who work for the business to be paid a “reasonable salary,” with remaining profits distributed as dividends not subject to self-employment taxes.
Alternatively, an LLC can file Form 8832 to be taxed as a C Corporation. Under this structure, the LLC pays corporate income tax on its profits. If profits are then distributed to members as dividends, the members also pay personal income tax on that distribution, leading to double taxation. This election may be advantageous when a company needs to retain significant earnings for reinvestment.
Delaware State Tax Requirements
Every LLC formed in Delaware is subject to an annual Franchise Tax. This tax is not based on income or business activity but is a fee for the privilege of maintaining a Delaware LLC and keeping it in “good standing.” Failure to pay this tax can result in penalties and the eventual loss of the LLC’s legal protections.
An LLC is required to pay Delaware’s corporate income tax only if it is taxed as a C Corporation and actively conducts business in the state. For pass-through LLCs, the entity itself does not pay state income tax. Instead, individual members are responsible for paying Delaware personal income tax on the portion of their income sourced from the LLC’s business activities within Delaware.
Establishing a tax obligation in the state is known as creating “nexus.” This occurs if the LLC has a physical presence, such as an office or warehouse, has employees in the state, or generates a significant volume of sales from customers in Delaware. An LLC with no business operations in Delaware, even if formed there, will not have a state income tax liability for its members.
Businesses that have established nexus in Delaware may also be subject to the state’s Gross Receipts Tax. This tax is calculated on the total receipts of a business from the sale of goods and services sourced within Delaware and is separate from income tax. The rates for the Gross Receipts Tax vary by business activity.
If an LLC has employees who perform their work in Delaware, the company must register with the Delaware Division of Revenue for withholding tax. This requires the LLC to withhold state income taxes from the wages of its Delaware-based employees and remit those funds to the state.
Annual Filing and Payment Process
The annual Franchise Tax payment of $300 is due by June 1st each year. This payment must be completed online through the Delaware Division of Corporations’ website. To complete the payment, you will need the LLC’s 7-digit Delaware business file number, and the system allows for payment by credit card or from a bank account.
If you fail to pay the Franchise Tax by the June 1st deadline, the state imposes a $200 penalty plus 1.5% interest per month on the unpaid amount. The state sends reminder notices to the LLC’s registered agent, but timely payment is the owner’s responsibility. The first Franchise Tax payment is due the year after the LLC is formed; for example, an LLC formed in 2025 will have its first payment due by June 1, 2026.
LLCs required to pay state income or gross receipts taxes must register with the Delaware Division of Revenue. This registration creates an account for filing and paying these taxes. Filings are done through the Division of Revenue’s online tax portal.
The required forms depend on the LLC’s federal tax classification. An LLC taxed as a C Corporation that owes Delaware income tax files Form 1100. A pass-through LLC with Delaware-sourced income may need to file an informational return, Form 300. The deadlines for these filings generally align with federal tax deadlines, but you should confirm specific due dates with the Division of Revenue.