How Your Corporation Will Be Taxed
In this guide, you'll learn about the main Delaware taxes that apply to corporations, including sales, self-employment, corporate and federal taxes.
How your corporation is taxed will depend on whether it's a Delaware S Corporation or a C Corporation.
Delaware Taxes for Corporations
There are two types of Delaware state tax you must pay to the DE Division of Revenue: income and franchise.
Important: All of these taxes apply whether you have a C Corp or an S Corp.
Delaware State Income Tax
Anyone who takes earnings out of your corporation will need to pay Delaware state income tax at standard rates. Any employees will also need to pay state income tax. The State of Delaware has a graduated tax rate ranging from 2.2 percent to 5.55 percent for income under $60,000 and 6.60 percent for income of $60,000 and over.
Delaware Corporate Income Tax
The State of Delaware levies an income tax on corporations. Every domestic or foreign corporation doing business in the state is required to file a corporate income tax return.
Any corporations that own property, do business in Delaware or receive income from state sources are subject to corporate income tax. The rate is 8.7 percent of a corporation's federal taxable net income.
Delaware Sales and Use Tax
Delaware is unlike most states in that it does not have a sales tax.
Federal Taxes for Corporations
Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your Delaware corporation is paying the correct amount and that you're paying the correct individual amount.
Federal Taxes for Corporations
All shareholders who earn wages or a salary from a C Corporation must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA) and covers Social Security, Medicare and other benefits. The current self-employment tax rate is 15.3 percent.
You’ll be able to deduct some of your business expenses from your income when calculating how much self-employment tax you owe.
Federal Taxes for S Corps
The Internal Revenue Service may allow your business to be treated as an S Corporation for tax filing purposes, provided it meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary (on which you'll pay self-employment tax) and other income as distributions (which are not subject to self-employment tax).
Speak to your accountant or professional tax preparer for more information on reducing your tax burden through an S Corporation tax election.
We can file your Form 2553 with the IRS on your behalf.
Unlike a limited liability company or a DE S Corp, a DE C Corp is required to file a corporate tax return and pay taxes on any profits.
When those profits are paid to shareholders as dividends, they will also be subject to taxation on the shareholders' personal tax returns.
This is often referred to as “double taxation” and is one reason many business owners prefer to file their taxes as S Corporations.
Note: It is possible for a C Corp to file taxes as an S Corp. Consult with your accountant or professional tax advisor for more information.
A C Corporation may pay shareholders dividends as a share of the profits of the company. The value of dividends to which each shareholder is entitled depends on how many shares they own.
Dividends distributed to shareholders are taxed twice — first at the corporate level as profit (on the corporation’s Form 1120, the U.S. Corporation Income Tax Return), and again at the individual level as stock dividends (on the shareholder's Form 1040, the U.S. Individual Income Tax Return).
Incfile provides a complete Business Tax Filing service.
Employee and Employer Taxes
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your unique situation.
Other Taxes and Duties
Depending on your industry, you may be liable for certain other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties.
Speak to your accountant about any other taxes or duties you may need to withhold or pay.
If you expect to owe $500 or more in income tax, you must make four quarterly estimated tax payments to the IRS. You'll estimate your total tax on Form 1120-W, then pay 25% on each due date. Please note that the IRS will no longer be updating Form 1120-W, so follow up with your accountant with any questions on estimated tax payments after 2023.
Important: This applies to you as the owner of the DE C Corp, not the business itself. C Corporations do not pay income tax.
It's a little less straightforward for a Delaware S Corp, which will pay estimated taxes by filing an IRS Form 1120-S, which is the income tax return form for S Corps.
Also, as the owner of an S Corp, you'll need to make estimated payments on self-employment tax.
Learn more on the IRS website, and speak to your accountant for more information. Or use Incfile's Business Tax Filing service.
FAQs on Corporate Delaware Taxes
No. Delaware does not have a sales and use tax.
Yes. Delaware does have a state income tax. You can find more information <a href="#general-rules above.
Yes. Delaware does have a franchise tax, which all business entities must pay. You'll find more information above.
Yes. In most cases, you must pay estimated taxes to the federal government, whether you run a C Corp or an S Corp. You'll find more information above.