Delaware Pass-Through Entity Taxes 2023 - 2024
LLCs and S-corporations are considered pass-through entities, meaning their profits or losses flow through owners' personal tax returns. This article will cover Delaware Pass-Through Entity Taxation.
The state of Delaware has an attractive tax structure that includes several unique elements and distinct regulations for different types of businesses. Most corporations operating in the state must pay a franchise tax, gross receipts tax, withholding tax, and unemployment insurance taxes. In addition, the state requires that LLCs and other pass-through entities pay a flat annual tax of $300
Delaware is a popular place to form business and has a favorable corporate tax framework, including no state sales tax. However, it also levies other taxes that corporations should be aware of. For example, it has a franchise tax, which is based on the value of the corporation’s authorized shares, and a tax on taxable dividends. Additionally, it has a number of other deductions, such as a charitable mileage deduction and a volunteer firefighter tax credit.
How Does Pass-Through Taxation Work in Delaware?
Most LLCs are taxed as partnerships under a system called “pass-through taxation.” This means that the profits or losses of an LLC are passed through to each member, and they must report this information on their personal tax returns. Also, LLCs with employees must pay employment taxes based on the wages paid to each employee.
In addition to payroll taxes, LLCs must be mindful of unemployment insurance taxes. These are taxes that are levied by the state and must be withheld from each employee’s paycheck. They are then remitted to the Department of Labor. Unemployment insurance taxes are based on a wage base of $10,500, and the tax rate ranges from 0.3% to 8.2%. Additionally, businesses should be mindful of other taxes that may apply to them at the local or county level, such as real property taxes and sales tax.
Property and State Sales Taxes in Delaware
Other than income tax, Delaware doesn’t impose property taxes or state sales tax on goods and services. Instead, the state relies on other forms of revenue, including an annual franchise tax, gross receipts taxes for some businesses, and withholding and unemployment insurance taxes.
Employers are expected to file reports (Form UC-8) and make tax payments on a quarterly basis, with returns due by the end of each quarter and payment vouchers (PIT-VCH) due the following month after the end of the filing period. Tax payments are based on an estimated amount of tax owed, and companies must submit their estimates and pay the correct tax amounts by the due date to avoid interest and penalties.
