1. Delaware Corporate Taxes

Delaware Corporate Taxes

Author: Real Estate Holding Company

Published Jul 12th, 2023Updated Feb 14th, 2024
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Corporate taxes are also known as corporate tax and company taxes. These taxes are directly charged per jurisdiction on the income or capital of corporations. Most countries impose corporate taxes at a national level, and sometimes even on a state level.

Once charged, a corporate tax is a levy placed on a firm's profit. In America, there may or may not be state taxes, but there are always federal taxes on corporate income.

How Corporate Taxes Work

The purpose of corporate taxes is to generate revenue for the government. In the United States, U.S. resident corporations are taxed at a solid rate of 21 percent. This was as high as 35 percent but was reduced by the 2017 Tax Cuts and Jobs Act. The corporate income tax raised $230.2 billion in fiscal 2019, which accounted for 6.6 percent of total federal revenue. Previously, it accounted for nine percent in 2017.

Taxes that Need to be Paid by Delaware Corporations

Taxes that need to be paid by corporations vary from state to state. Overall there are a few specific taxes that must be paid. Although Delaware corporations are subject both to the state’s franchise tax and its corporate income tax. Delaware has something that is called a tax shelter. Tax shelters are methods of reducing taxable income by reducing tax payments. Generally, it is defined by a business that recovers more than $1 in tax for every $1 spent within a four-year period.

Additionally, there is no state corporate income tax on goods and services that are provided by Delaware corporations operating outside of Delaware. Because of this, Delaware is attractive for forming corporations (incorporating) because of the favorable legal process.

Delaware Corporation Taxes

  • IRS Payroll Tax:
    • Income $20,000 - $25,000: 5.20%
    • Income $25,000 - $60,000: 5.55%
    • Income $60,000: 6.60%
  • Delaware State Income Tax: Ranges from 0-6.6%
  • Sales and Use Tax Payable to the State of Delaware: No sales tax in Delaware
  • Franchise Taxes:
    • 5,000 shares or less = $175 fee
    • 5,001 to 10,000 shares = $250 fee
    • 10,000 or more shares = $250 base fee + $85 for each additional 10,000 shares or fraction thereof.

What Corporation Expenses Are Tax-Deductible in Delaware?

When forming a corporation you are able to reduce your overall taxable profits. This is done by claiming tax-deductible expenses. This can allow you to pay less in taxes than you would normally. There are specific items that you can write off as a corporation:

  • Operating expenses: Operating expenses are customary tax deductions because these are expenses that your business relies on to run operations. This might include payroll, rent, or office supplies.
  • Employee Salaries: Employee salaries are often the largest expense businesses have. Corporations can deduct salaries as well as pay distributed for bonuses, awards, sick leave, vacations, and tuition reimbursement.
  • Advertising and Marketing costs: Known as an essential part of business, these costs are tax-deductible.
  • Benefits to Employees: When it comes to medical and other benefits, these costs are tax-deductible.
  • Business travel: Work-related expenses such as travel or business use of a personal vehicle receive tax breaks as well.
  • Bad debts: Debt that a business incurs and cannot repay, is considered a bad debt. It is a contingency that must be accounted for by all businesses that extend credit to customers, because there is always a risk that it will not be repaid.
  • Interest: In finance, interest is the payment from a borrower or deposit-taking financial institution that is given to a lender or depositor of an amount. It is on top of the principal sum, and always at a specific rate.
  • Insurance: Insurance is a form of protection from financial loss. It is also a form of risk management to help mitigate loss in case contingent or uncertain circumstances occur.
  • Equipment: Tools or other objects that are necessary when it comes to the operation of a business are able to be written off as tax-free items.

How Are Corporations Taxed in Delaware Compared to LLCs?

When it comes to Delaware corporations, there is a huge difference in the way they are taxed as compared to LLCs. Corporations are subject both to the state’s franchise tax and its corporate income tax. The corporate income tax rate is 8.7%, which LLCs are not subject to this tax. Additionally, there is the corporate franchise tax, which is $250 corporations with 5,000 to 10,000 authorized shares but varies based on the number of shares. LLCs do not have authorized shares, therefore they do not pay this tax.

Regular corporations are subject to double taxation, which is something both S corporations and LLCs are not subject to. This is because both LLCs and S corps have their taxable income pass down through to the individual shareholders, and each shareholder is subject to federal tax on their own share of that income. This is what is called a pass-through entity.

LLCs are not required to pay federal or state income tax but are required to pay a flat annual tax of $250 to the state. Additionally, similar to an s corp, income from the business is distributed to individual LLC members, who then pay federal and state taxes on the amounts distributed to them.

How Delaware Business Owners Benefit from Corporate Taxation

There are plenty of advantages of having a separate income tax statement for your business. The first is that employees don't have to deal with saving a percentage of their income for taxes. Instead, you as an employer will handle the taxes. This provides you the opportunity to write things off your income.

You can include medical deductions, which allows you to deduct tax responsibility for any medical costs, you can also write off taxes from other business-related costs, such as computer equipment, office supplies, furniture, and even travel expenses.

There is even the opportunity to write off your mortgage interest, and other mortgage-related expenses. Finally, you can write off the depreciated value of an automobile, employee pay, retirement contributions, and car mileage. This makes your overall company tax responsibility a lot lower.

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