The #1 Mistake Founders Make When Filing Delaware Franchise Taxes

Hint: If you are an early-stage founder, you probably don’t owe Delaware more than $500. And it's not hard to do on your own.

Understanding the Basics

The Delaware Franchise Tax, due annually by March 1st, is a mandatory requirement for all business entities incorporated in the state, regardless of their revenue or profitability status. If your company is incorporated in Delaware, you are obligated to pay this tax.

Calculating Your Tax Obligation

A common mistake founders make is paying more than $500 for their Delaware Franchise Taxes. There are two methods to calculate your franchise tax, and you can choose the one that results in the lower amount:

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• Authorized Shares Method: This method is based on the total number of shares authorized in your company charter. It's the default method used by the Delaware Division of Corporations but it's not very startup-friendly.
  
  
• Assumed Par Value Method: Alternatively, this method calculates your tax based on issued shares and gross assets, typically landing you at a much more palatable minimum tax of around $400.

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For the sake of our sanity and bank accounts, the Assumed Par Value Method is the way to go. You'll need information from your financial records as a public company, such as issued share count and gross assets. 

Filing Your Taxes

Now that you understand the calculation methods, here's a step-by-step for filing your Delaware Franchise Tax:

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1. Visit Delaware's Website: Find the section for paying taxes and filing annual reports.
2. Enter Your Information: Keep it accurate to avoid any issues later on.
3. Choose Your Calculation Method: Select the Assumed Par Value Method for calculating your tax obligation, which is likely the best option for business owners.
4. Review and Submit: Double-check everything before submitting. Payment for the filing fee is the last step of the process after you submit your information (payment by credit card is accepted). 

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And that's it — your tax filing is done, leaving you more time to focus on what truly matters: growing your business.

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Avoiding Unnecessary Expenses

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Here's our best advice to first-time founders: you can do this on your own. It is crucial to efficiently manage your tax obligations and ensure compliance with state regulations. By understanding the process and using the free resources available, you can save on unnecessary expenses and invest them back into your startup. While there are accounting services available that can handle your franchise tax for a fee, you can easily handle the tax forms yourself.

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However, if you still want help from an experienced accountant, check out our certified partners here.

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At Puzzle.io, we're committed to empowering startup founders to easily navigate the complexities of finances, allowing them to focus on building and scaling their business. Our free accounting software lets you streamline your finances and get real-time insights needed to make the best decisions for your company.

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If you still have questions or need any help with Delaware Franchise Taxes, Luke (me!) Puzzle's resident CPA is on standby to help. Sign up for Puzzle and contact me in-app, or book a call here.

Learn more: The Founder's Guide to Filling Taxes