Delaware Franchise Tax Calculator

This calculator is designed to estimate your Delaware franchise tax. If your DE franchise tax seems too high, use our calculator to see if your CPA used the wrong calculation method, and read our info on how the calculation method can dramatically increase the tax bill. 

Use Tax Calculator

Scott Orn and Healy Jones, Kruze Consulting
VANESSA KRUZE, CPA
KRUZE CONSULTING

Caveat: The information on this page intended as general guidance for startups and it doesn’t substitute the need to work with a professional. Your company is unique; contact us for a free consultation.

Delaware Franchise Tax Calculator

Delaware Franchise Tax Calculator Form

Enter Each Class of Authorized Shares and Their par Value

How is franchise tax calculated in Delaware?

The Delaware Division of Corporations provides two methods to calculate Delaware franchise tax.  The first method is based on the authorized share count, and VC-backed startups with option pools can quickly get to thousands of dollars in taxes due. The second method is the “assumed par value” method and is a more complicated formula based on shares issued and the company’s gross assets. This second method often results in lower tax bills for VC-backed startups. 

If your young, unprofitable startup gets a letter stating that you owe a massive tax bill, contact your CPA - or us

How to Calculate DE Franchise Tax

Let’s breakdown the two methods to calculate this tax: the “Authorized Shares Method” and the “Assumed Par Value Capital Method.” 

Authorized Shares Method

The Math

This is the simpler of the two methods - it’s just based on the number of authorized shares a company has (which can be quite high for many VC-backed startups!!!) The Authorized Shares Method is also the default way Delaware will calculate your franchise tax, and it can result in some very, very high tax bills for VC-backed startups that have a lot of shares. The calculation is based solely on the number of authorized shares your corporation has. Here’s how it works:

  • Up to 5,000 shares: $175 
  • 5,001 to 10,000 shares: $250
  • Each additional 10,000 shares or part thereof: An extra $85

The minimum tax for companies using the Authorized Shares Method is $175, and the maximum annual tax is $200,000. We’ve seen startups get a huge tax bill when this calculation method is used; let’s do an example of a typical, venture backed startup.

An Example of the Authorized Shares Method

Let’s assume that a startup has 20,000,000 shares outstanding - not inconceivable for an early-stage, VC backed company. For the first 10,000 shares they will pay $250. Then, for the next 19,990,000 shares they pay $85 per 10,000 shares, which is 1999*$85. So their total is:

$170,165 = $250 (first 10,000 shares) + $169,951 (19,990,000 shares / 10,000 x $85)

Note that a single additional authorized share will cause this startup to pay an extra $85. Not a cheap share, but the even more expensive thing is using the Authorized Shares Method to calculate the Delaware Franchise Tax instead of using the Assumed Par Value Capital Method, which yields a lower bill for most early-stage, funded businesses.

Assumed Par Value Capital Method

The Math

This method is a bit more complicated and involves multiple variables, including the total gross assets, total shares issued, and total authorized shares by class with their respective par values. Basically, a company pays $400 per million dollars of par value, but the way par value gets calculated is a bit complex. 

Most VC backed startups will have very low par value shares, meaning that you’ll end up using the assumed par value in the franchise tax calculation. So step 1 in the directions below is what you’ll multiply against your total number of shares, then you divide by 400/1,000,000 to get to what you owe.

Note that this is a very, very high level explanation. Really, use the calculator above and make sure to consult with a tax professional who works with a lot of Delaware corporations! Directly from the Delaware Division of Corporations’ website

  1. Divide your total gross assets by your total issued shares carrying to 6 decimal places. The result is your “assumed par”.
  2. Multiply the assumed par by the number of authorized shares having a par value of less than the assumed par. This will be pretty much all shares at a normally financed and legally paper-worked startup. Read about par value below.
  3. Multiply the number of authorized shares with a par value greater than the assumed par by their respective par value. 
  4. Add the results of #2 and #3 above. The result is your assumed par value capital.
  5. Calculate your tax by dividing the assumed par value capital, rounded up to the next million if it is over $1,000,000, by 1,000,000 and then multiply by $400.00.

When are Delaware Franchise Taxes Due?

Understanding the Delaware franchise tax deadlines is crucial for all incorporated businesses, especially for VC-backed startups operating as C-Corps. At Kruze, our CPA firm specializes in serving these dynamic entities, ensuring they navigate their tax obligations seamlessly.

Delaware Franchise Tax Deadline for C-Corporations

For C-Corporations, including VC-backed startups that Kruze proudly serves, the Delaware franchise tax and annual report filings are due by March 1st every year. It’s a critical deadline that these corporations must meet to avoid incurring late fees. Alongside their tax payments, corporations are also required to pay a $50 filing fee for their annual reports. This fee is a small but essential part of maintaining compliance with Delaware’s corporate regulations.

Annual Taxes for LLCs, LPs, and General Partnerships

While our focus at Kruze is on C-Corps, it’s worth noting that Delaware has different requirements for other business structures. Limited Liability Companies (LLCs), Limited Partnerships (LPs), and General Partnerships face a June 1st deadline for their annual tax payments. Learn more about this deadline on Delaware’s tax website.

Late Payment Penalties - Don’t Miss the Deadline!

All entities should be aware of the penalties for late payments. Missing the due dates results in a $200 penalty, with interest on the overdue amount (including the penalty) accruing at 1.5% per month. This can significantly increase the financial burden for businesses that delay their payments.

Kruze has an entire, interactive and downloadable calendar of C-Corp tax deadlines - get it here

Delaware Franchise Tax - Answers to Frequently Asked Questions

Do I need to file Delaware Franchise Tax?

If you incorporated in Delaware, yes, you need to file and pay the Delaware Franchise Tax. Most VC backed startups are Delaware C-Corps, which means that most VC-backed startups DO need to file.

When do I need to file the Delaware Franchise Tax?

DE Franchise taxes are now due March 1st every year. Visit the Delaware Division of Corporation’s website to file

Where should I file the DE Franchise Tax?

Do it online, on the the Delaware Division of Corporation’s site: https://corp.delaware.gov/paytaxes.shtml

Where should I file the DE Franchise Tax?

Where should I file the DE Franchise Tax?

Do it online, on the the Delaware Division of Corporation’s site: https://corp.delaware.gov/paytaxes.shtml

Where should I file the DE Franchise Tax?

What Method Should I Use?

The vast majority of our startups use the Assumed Par Value Capital Method because it results it significantly less tax. The other method, the authorized share method, can result in a much higher tax calculation in most instances for early-stage companies.

How much should I expect to pay?

Most of our startups pay between $400 - $10,000 in DE Franchise taxes. Roughly, if you’ve raised $500k to $1M in venture funding, you are likely to owe between $500 to $1,000. If you’ve raised $10M in VC funding, you are going to owe closer to $4,000. If you’ve received a bill for $75K, it is because Delaware has calculated the tax using the Authorized Shares Method. Don’t freak out; recalculate using the Assumed Par Value Capital Method.

How much should I expect to pay?

What is par value?

Par value is the value per share. From the cap tables we’ve seen, the par value is usually set at $0.0001 or $0.00001. The par value has no connection to the market value of the share of stock.

How do you find your par value?

For most VC backed startups, the par value will be listed in one or more of the following legal documents. (Make sure you work with experienced attorneys so they don’t mess up important items like par value!) Your lawyer may also have put your par value into your cap table software

Certificate of Incorporation (or Articles of Incorporation)

This foundational document is filed with the state to legally form the corporation. It often includes details about the classes of stock the corporation is authorized to issue, including the par value of each class. For VC-backed startups, it will specifically mention the par value of preferred shares. Any changes to these details typically require an amendment to the Certificate of Incorporation. Read here about how to find your Articles of Incorporation

Stock Purchase Agreement (SPA)

This agreement outlines the terms and conditions under which shares are sold and purchased. The par value of the preferred shares being transacted is usually specified here, along with other particulars like the issue price, number of shares, and payment terms.

Investor Rights Agreement

Although not as common, the Investor Rights Agreement may also make reference to the par value of preferred shares. This document outlines the rights of the investors, including anti-dilution protections and information rights, among others.

What date should I use to value the Gross Assets?

12/31/XX (most often)

Why Delaware Incorporation is Important to VCs?

We often get the question, “why should my startup consider incorporating out-of-state and become a Delaware C-corp?”. Here are a few reasons why you would want to initially incorporate in Delaware.

Reasons Venture Capitalists Want Delaware C-Corps:

  • A C-Corp structure retains the profits and losses at the C-Corp level. It is not a pass-through entity like LLCs or S-Corps where the profits or losses get passed through to investors, C-Corps C-Corps are friendly with the venture capitalists’ tax structure.
  • There is a ton of litigation and VCs tend to understand what the rules are in Delaware
  • Most importantly, venture capitalists would usually rather fund a Delaware C-Corp and will tell you to switch as soon as they invest in your company.

There are many things you must do after becoming a Delaware C-Corp. Click here to learn more.

Becoming a Delaware C-Corp is simple, but there is a lot of legwork. Our experts here at Kruze are happy to do it for you. Also at Kruze, another option is working with a PEO; that is how you “Incorporate in a state.” Hope that helps, thanks.

Why is my Delaware Franchise Tax so high?

Don’t panic - your Delaware Franchise Tax is likely so high because your accountant has used the wrong calculation method. Use the calculation method in our estimator above to estimate how much you likely owe. Your company will likely need to use the assumed par value calculation method instead of the authorized share method of calculation. 

We’ve outlined the most common reasons your Delaware Franchise Tax may be so high, including multiple issues and mistakes that companies often unwittingly make during the filing process. These range from the overstatement of assets and authorized shares to inaccuracies in the capitalization table. Unapproved payments or not fulfilling estimated tax obligations can also escalate your tax, as well as discrepancies in asset reporting. Failing to file multiple annual reports, or incorrectly calculating your tax based on a complex formula, can lead to more significant tax liabilities. Additional factors include late tax filings, incorrectly identifying your company type, and failing to maintain your Delaware Registered Agent. Understanding these common errors can help your startup navigate the complexities of Delaware Franchise Tax and avoid unexpectedly high bills. It’s always best to work with a qualified CPA who works with DE C-Corps to avoid these pitfalls - and to avoid paying way too much in taxes!

How to reduce your company's Delaware Franchise Tax

If DE sent your startup a huge tax bill for their annual franchise tax, don’t panic - you can likely reduce your Delaware Franchise Tax by using an alternative calculation method. We typically recommend calculating the franchise tax by using the assumed par value method, which our calculator above does, vs. the authorized share method. The authorized share method is generally Delaware’s tax team’s default method of calculating the franchise tax, and it can result in a much higher tax bill vs. the assumed par value method. Ask your accountant if you can use the assumed par value method to reduce your tax bill.

Make sure to use the recalculate button on the Delaware Franchise Tax website

It’s important for founders to remember that the Delaware Franchise Tax website defaults to the largest tax bill possible when you first log into the site. That’s because the state of Delaware doen’t know how many outstanding shares you have or what your asset base is until you fill out that information. If you’re not working with an accounting firm, you’ll need to total up your asset base and enter that number. Then you need to hit the “recalculate” button and wait while the system generates a new balance. The new number will very likely be lower than the original number you saw.

What other taxes do Delaware corporations need to file/pay?

What other taxes do Delaware corporations need to file/pay?
 

Here is a partial list of taxes, other than the Delaware franchise tax, that startup corporations need to pay or file:

  • Income Tax: Both federal and state tax forms are required for startups, even unprofitable ones.
  • Gross Receipts Tax: A number of cities (such as San Francisco), will tax your Gross Revenue.
  • Franchise Tax: The DE Franchise tax is the most well known, but a startup may also owe this tax if they do business in particular states (California being a common one).
  • Payroll Tax: If you have employees, you have a payroll tax liability due regularly - do not mess this up, the cost and pain of fixing payroll tax issues is huge. 
  • Sales Tax: Many states/counties/towns now levy sales tax on goods (and sometimes services) sold to customers in their jurisdictions - getting a software to manage this is a good idea. 
  • Property Tax: Startups with significant property holdings, whether that be land, or even just computers/tables/chairs, you may be subject to property taxes. 
  • Foreign Tax: If you have a foreign subsidiary or parent company, you might be subject to withholding tax, or FBAR/5471/5472 reporting. 

Why is my DE Franchise Tax getting rejected?

These filings get rejected due to two main reasons. The first is the use of virtual mailboxes, which Delaware does not accept because they require a physical address to know where your company is actually operating from. As a last resort, the CEO can list their personal address, but this is not ideal for everyone. The second reason is bad bank accounts, such as using the wrong bank account on tax filings or not informing your accountant of changes in bank accounts, which can delay tax filings and result in late fees. Learn more about why they get rejected here.

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