If you run a Delaware small business, you likely already know how important paying your taxes on the federal, state, and local levels is to staying legally compliant. Knowing which taxes apply to your business can cause anxiety for even the most experienced entrepreneurs. We’ve put together a short guide to state taxes to give you a jump start. Read on to learn more about the different types of business taxes in Delaware, how and when to pay them. You’ll also learn which of our products and services can help make the process easier when the time comes.
With our Worry-Free Compliance Service, we keep your business documents organized and accessible on your personalized dashboard and alert you when required filing deadlines are approaching.
If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses.
Step 1: Establish your Delaware business’s corporate income tax obligations
Your business’s taxes largely depend on your entity structure and business activities. Most corporations that form under Delaware law and conduct business within the state must pay a Corporate Income Tax to the Delaware Division of Revenue. There are certain corporations that are exempt from the Corporate Income Tax, which are listed under Section 1902(b) of the Delaware Code. The current Delaware business tax rate on income is 8.7% of federal taxable income allocated and apportioned to Delaware. There’s a three-factor method used to determine the amount allocated to Delaware, which is outlined by the Division of Revenue. However, regardless of the amount of gross or taxable income, if your company conducts business in Delaware, it has to file a corporate income tax return.
Keep in mind that Delaware requires all corporations to prepay corporate income tax through estimated tax payments. These are to be made in four installments throughout the year in the following amounts:
- 50%—due on or before the 1st day of the 4th month of the taxable year
- 20%—due on or before 15th day of the 6th month of the taxable year
- 20%—due on or before the 15th day of the 9th month of the taxable year
- 10%—due on or before the 15th day of the 12th month of the taxable year
The income taxation of corporations differs from that of pass-through entities. A pass-through entity isn’t subject to income tax, but rather the owners or members of the entity report the income on their personal tax returns. Examples of pass-through entities include limited liability companies (LLCs), partnerships, and sole proprietorships.
Step 2: Determine your Delaware business’s employment taxes
Having employees means you’ll probably owe a withholding tax. Any business that maintains an office or transacts business in Delaware and pays wages or other payments to a Delaware resident or non-resident must deduct and withhold a certain amount, i.e., a withholding tax. There are different formulas for employers to use to determine the amount to withhold. However, the amount must result in no tax being owed on the wages paid to the employee when it’s time for them to file their personal income tax return.
The Delaware Division of Revenue provides a tax computation table that can help you calculate the amount of withholding tax for your employees, but the highest you’ll owe is 6.6%. The due dates for withholding tax depend on the payroll end date and the tax period end date. Check out the Department of Revenue’s due date table for more details.
Step 3: Establish your Delaware business’s additional state tax obligations
There are other possible state taxes that a Delaware business might face.
Delaware doesn’t have a state or local sales tax. However, for businesses selling goods or providing services, Delaware imposes a gross receipts tax on the total gross revenues of a business. The tax is imposed on the seller (i.e., your business) rather than the consumer. The current rate ranges from .0945% to .7468%, depending on the type of business activity. To know which rate applies, choose your industry from the Division of Revenue’s Business Tax Tips page.
Depending on your business’s total gross receipts (which is the total amount of income without deducting any expenses or costs), the gross receipts tax return and payment is due either monthly or quarterly.
Delaware imposes a franchise tax on any corporation formed under Delaware law. This is a tax on the privilege of incorporating in the state. The amount of tax owed is based on the number of authorized shares within the corporation, but the minimum tax amount is $175 and the maximum amount is $200,000. Tax payments are due no later than March 1st of each year.
For businesses owing $5,000 or more, they will pay estimated taxes in quarterly installments in the following amounts:
- 40% due by June 1
- 20% due by September 1
- 20% due by December 1
- Remainder due by March 1
LLCs, limited partnerships (LPs), and general partnerships (GPs) must also pay an annual tax of $300, which is due no later than June 1st of each year.
In Delaware, employers pay unemployment tax to the Department of Labor to fund potential unemployment payments to employees. The amount of tax an employer owes depends on the size of the employer’s taxable payroll, the employer’s unemployment tax rate, and the taxable wage base. Currently, the taxable wage base is $18,500. The minimum tax rate is .3% and maximum tax rate is 8.2%.
Employers are required to file their unemployment tax returns each quarter. The return and payment are due at the end of the month following the end of the quarter. The Division of Unemployment Insurance’s website provides more information about the unemployment tax.
Some states impose an excise tax on certain products and goods. In Delaware, there’s an excise tax on alcoholic beverages, gasoline, and cigarettes. If your business sells any of these products, there are also licensing requirements that you need to research and comply with.
Not sure how to stay compliant? Learn more about legal compliance for small business owners.
Step 4: Prepare to file and pay your Delaware business taxes
The Delaware Division of Revenue is the main tax agency responsible for business taxes in Delaware. The division encourages and sometimes requires tax filings to be made online using their Delaware Taxpayer Portal. To register, you’ll need the business’s federal Employment Identification Number (EIN) or the entity owner’s social security number, as well as the personal identification number (PIN) that should have been sent to you in a letter from the Division of Revenue.
It’s important to have your business records in order as you prepare to file your Delaware small business taxes. For example, you may need last year’s returns, accounting records, receipts, and other legal documents.
Do I need an accountant?
In most cases, small businesses need professional accounting help to make sure their taxes are done correctly and filed on time. You can face serious consequences if you miss a filing deadline or don’t calculate your taxes accurately. Give yourself some peace of mind and consider hiring an accountant.
If you’re not sure how to choose a tax professional, the IRS has a helpful guide on tax return preparer credentials and qualifications.
How We Can Help
Taxes can be confusing, but they’re essential to operating a business. With our help and tax advice from a professional, you can feel confident that you’re meeting your tax obligations.
The ZenBusiness Money App allows you to easily send custom invoices, accept credit card and bank transfer payments, and manage your clients from an easy-to-use dashboard. We’re here to help you satisfy your tax obligations and provide support with other business needs.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
- How much can a Delaware small business make before paying taxes?
Regardless of whether your business generates revenue, it will have to pay taxes. Delaware imposes a franchise tax on corporations just for the privilege of doing business within the state. Other entities like LLCs and partnerships also owe an annual tax no matter how much they make.
- What percentage does a Delaware small business pay in taxes?
It’s difficult to come up with an average percentage amount for small business taxes since they vary based on the business’s structure and activities.
- How does a Delaware small business pay taxes?
Most taxes are paid online using the Delaware Department of Revenue’s Taxpayer Portal.
- Do I have to file taxes for my small business in Delaware?
Yes, it’s very likely that your small business will owe some sort of small business tax in Delaware. Delaware taxes businesses for the privilege of conducting business within the state.