How to File Your Delaware Franchise Tax On Time

The annual deadline for Delaware Franchise Tax is March 1. If you still need to take care of yours, don’t lose hope: the process is actually very simple and easy to DIY.

Who needs to pay the Delaware Franchise Tax?

The Delaware franchise tax must be paid by all companies that are incorporated in Delaware, regardless of whether or not you’ve generated any revenue or profit (technically, this filing is the “franchise tax and annual report”).

This means it’s easy to determine if you owe this tax: if your company is incorporated in Delaware, then yes, you need to pay the Delaware franchise tax.

How to pay the Delaware Franchise Tax

If you already have a tax preparer, they might do this for you. It’s a good idea to ask, and many will handle it free of charge (Pilot Tax, for example, will take care of this for you for free).

If you don’t have a tax preparer (or if it’s too last-minute for them to help you with this), here’s how to handle it yourself. The process might look intimidating, but it’s actually very straightforward, and we’ll walk you through the trickiest parts.

Step 1‍

Visit Delaware’s website for paying the tax, click on “Pay Taxes / File Annual Report,” and enter your information as prompted. If you don’t know your Business Entity File Number, you can search for your company here (but make sure you get it right—you don’t want to accidentally pay someone else’s tax!

Step 2‍

Click on “File annual report.”

You’ll probably see a large “amount due,” (like, 10K+) but don’t panic. This has unnecessarily freaked out generations of startup founders, and is sort of a rite of passage.

There are two methods to calculate the amount of tax you owe, and you can use whichever one is lower. Those methods are:

• Authorized shares: This bases your tax obligation amount on the total number of shares authorized in your company charter, regardless of the number of actual shares outstanding. For startups, this method tends to result in much higher numbers than using the assumed par value method. (This is the default method used by the Delaware Division of Corporations to calculate your taxes, which is why the initial number is often alarmingly large.)‍
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• Assumed par value: This bases your tax obligation amount on a mix of issued shares and gross assets. For startups and small companies, this method usually results in a much lower tax value. The minimum tax using this method is $400. This is almost certainly the method you’re going to use.
  
  You can learn more about the calculation methods on Delaware’s franchise tax website.

You are almost certainly going to want to use the "Assumed par value" method, so don't panic and keep reading.

Step 3

Enter all of the stock information details into the relevant table then click “Recalculate Tax.” 

You’ll be asked for your issued share count and your gross assets.:

• For “issued shares,” provide the total number of shares the company has issued, not the number that have been authorized.
• It doesn’t matter how many of them have vested, and you can ignore unconverted SAFEs or convertible notes here. If you use a cap table management system, this is the number of shares outstanding.
• Typical early-stage startups have authorized 10m shares and have issued something like 9m of them—it's rare that you've actually issued all 10m shares.
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• For “gross assets,” enter the “Total Assets” number from last year’s year-end balance sheet. This will most likely be your bank balance as of 12/31, but check with your accountant if you have any questions. (If you have a foreign subsidiary, this is likely just the bank balance of the US topco.)

Step 4‍

In the boxes that follow, enter the following information:

• Your actual business address—not the address of your Delaware registered agent—as your “principal place of business.” If your company doesn’t have a physical office, it’s OK to use your home address.
• The name, address, and contact details for one of your company’s corporate officers (probably you/your CEO). This is generally whoever is signing the annual franchise tax report. 
• The name, address, and contact details of everyone who’s currently on your board of directors. You may not think you have a board, but you almost certainly do—check your incorporation docs.
  

Once you've reviewed all the information, you're ready to pay the tax, which you can do via the website.

For early-stage startups, we expect this amount to be about $400 per $1 million in gross assets, plus a $50 filing fee.

It’s important to pay on time to remain in good standing with the state of Delaware, and avoid potential problems down the line. 

Can a tax preparer file the Delaware Franchise Tax on your behalf?

There are a number of specialty providers that will try to charge you a fee for this service. The issue is that you'll need to provide them all of the information we discussed above, which means you’ll still have to do the work of finding and assembling it. So instead of having them charge you, for nearly the same effort, you can simply do the filing yourself and save a little money.

If you already have a full-service tax provider, the story is a bit different: they will likely do this for you for no additional fee. (As an example, Pilot Tax subscribers have Delaware franchise tax filings included in their service free of charge.)

Once you’ve filed your Delaware franchise tax, you’re good with Delaware for another year, but you might not be done thinking about taxes just yet! The federal corporate income tax deadline is fast approaching.

If you don’t have a tax preparer, don’t wait until the last minute! Get a provider lined up now, to avoid scrambling at the deadline.

Still have questions?

Still have questions about the Delaware franchise tax? We're always happy to help: send us an email.