Delaware, U.S.A., is one of the most tax-friendly states which attracts the maximum number of business entities to do the business with the most business-friendly policies. I get a maximum number of calls/inquiries about the individual tax/corporate tax or other tax-related matters. Though I have written the maximum number of articles on American Taxation, this is the first time to deal exclusively with one state.
As a preamble I would like to state that America lives on two pillars regarding tax structures broadly, one with federal tax, formally controlled by Internal Revenue Service and Division of Revenue, Delaware Government purely talking of Delaware State. Certain counties do charge the income tax, property tax, or vehicle tax which are available in their web sites if need be.
Let me give the web of Delaware government as under:
Let us deal exclusively with state taxes only in this article. All the information will be quoted from their web site and one can easily refer for serious considerations. Normally, one does go to a CPA for regular tax considerations to have a peace of mind since tax laws in America change frequently due to business considerations, resulting in the prosperity of their country.
2019 fillable forms
Delaware Individual Resident Income Tax Form (200-01)
https://revenuefiles.delaware.gov/2019/TY19_200-01e.pdf
Delaware Individual Non- Resident Income Tax Form (200-02)
https://revenuefiles.delaware.gov/2019/TY19_200-02e.pdf
Who must file a tax return?
If you are a Full-Year Resident of the State, you must file a tax return for 2019 if, based on your Age/Status, your individual adjusted Delaware gross income (AGI) exceeds the amount shown below
| AGE/STATUS | Filing Status | ||
| Filing Status | Single | Married filing joint | Married filing separately |
| Under 60 | $9,400 | $15,450 | $9,400 |
| 60 to 64 | $12,200 | $17,950 | $12,200 |
| 65 and over or | $14,700 | $20,450 | $14,700 |
| Blind | |||
| 65 &over blind | $17, 200 | $22,950 | $17,200 |
Some more information for part-time resident, you must file Delaware tax return,
- If you had income from any source while a resident of Delaware, or If you had income from a Delaware source while you were a non-resident of Delaware.
- Part-year residents may elect to file either a resident or nonresident return. You may wish to prepare both. File only the return which is more advantageous for you.
- Many Indians IT professionals, even if they had earnings from Delaware on an assignment basis, will have to file Delaware tax return failing which on one fine morning, their accounts with banks with whom they were getting salary or claims would have been frozen. No free lunch, please.
- What Form to File
Full-year residents ———————————-200-01R
Part-year residents————————————200-01R or 200-02R
Non-residents——————————————-200-02R
Let us know, who is a resident?
A resident is an individual who either:
- Is domiciled in this State for any part of the taxable year;
- Maintains a place of abode in this State and spends more than 183 days of the taxable year in this State.
Full-Time Students with a legal residence in another state remain, legal residents of that state, unless they exhibit intentions to make Delaware their permanent residence.
NOTE: Foreign Travelers – If you were out of the United States for at least 495 days in the last 18 consecutive months and (at the same time) you did not maintain a permanent place of abode in this State at which you, your spouse, your children or your parents were present for more than 45 days, you are not considered a resident of this State.
What documents to be attached with the tax return (I am enclosing the list given by web, I can’t adjust or omit anyone):
Attach the following documents to your Delaware return:
1. DE Schedule I, II, and III, if completed.
2. W-2 Form(s) issued by your employer and all 1099R forms to receive credit for Delaware tax withheld. 3. A copy of Page 1 and Page 2 of your Federal Form 1040 and supporting 1040 schedules (1,2,3,4, etc.) 4. A copy of all federal schedules you are required to file with your federal return (for example, Schedule C, D, E, F, etc.).
3. A copy of Federal Schedule EIC – Earned Income Credit.
4. Delaware Schedule A (PIT RSA), if you claim itemized deductions.
5. A signed copy of other state’s income tax return(s) if you claim a credit for taxes paid to another State. Do NOT use the amount from your W-2 form(s).
6. A copy of Federal Form 2441, if you claim a credit for Child and Dependent Care Expenses.
7. A copy of Form the 1100S, Schedule A-1, if you claim a credit for taxes paid by an S Corporation.
8. Form DE2210, pages 1 and 2, if you completed Part 3 of the DE2210 or if the calculated estimated tax penalty is greater than zero.
9. Form 700, Delaware Income Tax Credit Schedule, and Form 1801AC and/or Form 2001AC, if applicable. See Pages 7 and 8 for a description of the Form 700 Credits.
10. A copy of Form 5403, Real Estate Tax Return, if you declared and paid estimated taxes on the sale of real estate owned in Delaware.
The requirement to File Estimated Taxes
Every person who is either a resident of Delaware or has income from Delaware sources may be required to file quarterly Declarations of Estimated Tax to the Delaware Division of Revenue if the Delaware tax liability fewer payments and credits can reasonably be expected to exceed $800. Similar estimated payment of taxes on a quarterly basis is a common practice everywhere and employers themselves do it or self-employed do it by themselves.
Now let us turn over our attention towards business tax.
Some of the instructions taken down from the above web under reference deals exclusively on business. I did not intentionally change the language so that the actual businessman registered and doing business from Delaware or those intending to do business do read the instructions for thorough understanding. A Business-friendly state does not entail any laws or on the observance of no instructions.
Any company that does business in Delaware has two or more requirements:
1. If you form a corporation in Delaware, you must pay an annual Franchise Tax for the privilege of incorporating in Delaware. This Franchise Tax is payable to the Delaware Division of Corporations. The fee is based on the number of authorized shares within the corporation.
If incorporated in another state but doing business in Delaware, you must still register with the Delaware Division of Corporations.
(Good business owners do allow the CPAs to handle their business requirements in this regard)
INSTRUCTION HIGHLIGHTS CALENDAR YEAR 2019 AND FISCAL YEAR ENDING 2020 TAX YEAR
“Title 30 of the Delaware Code authorizes a number of different tax credits to be applied against Delaware income tax. Some tax credits are refundable, and others are not. All tax credits require an application to be submitted and approved prior to being claimed on a Corporation Income Tax Return.
Senate Bill 26 of the 149th General Assembly creates a new Business Tax Credit of $100.00 per unit for any business purchasing and placing into service an automatic external defibrillator at a business located in the State of Delaware. The one-time credit is available for the tax year in which the defibrillator is placed in service.
Corporations who are incorporated in Delaware and whose activities are limited to maintaining a statutory corporate office and not conducting business within Delaware are exempt from filing the Delaware corporate income tax return under Section 1902(b)(6) of Title 30 of the Delaware Code.
While a corporation may be exempt from filing an income tax return under Section 1902(b)(6), an annual franchise tax is imposed upon all corporations for the privilege of being incorporated in Delaware unless specifically exempted by law.”
One of the most important instructions is that even if the corporation has zero income, it has to file the tax return.
Consolidated corporate income tax returns are not permitted under Delaware Law. Each corporation which is a member of a consolidated group must file a separate return (1120 Pro forma) reporting income and deductions as if a separate Federal income tax return was filed.
LLC tax instructions applicable to Delaware, very important in nature.
“An LLC, which makes an election to be treated as a corporation and has a single or multiple members, will file a Delaware corporate income tax return. The corporate attributes of the LLC do not flow through to the individual member(s).
Delaware recognizes the existence of the LLC as a separate legal entity that does not create nexus for the individual LLC member(s) when the LLC has elected to be taxed as a corporation.
An LLC, which does not make a Federal election to be treated as a corporation and has a single corporate member, will not be recognized as a corporation for Delaware income tax purposes. The LLC will be considered a division of the single corporate member.
The single corporate member will be required to file a Delaware corporate income tax return.
The corporate apportionment percentage will reflect the operation of the entire corporation and the property, wage, and sales factors of the LLC will be included with the factors of the corporate single member.”
PERIOD COVERED BY RETURN
The income tax year of a corporation is the same as the taxable year for which the corporation reports for purposes of the Federal income tax. Accordingly, this return is to be filed for the calendar year 2019 or fiscal year beginning in 2019 and ending in 2020.
Another important factor to be considered before the filing of the tax return.
WHEN TO FILE AND EXTENSIONS
File Form 1100 on or before the fifteenth day of the fourth month following the close of the taxable year. A request for an automatic extension of six months to the Internal Revenue Service will automatically extend by six months the filing date for the Delaware return.
If an automatic Federal extension has been granted, a copy of the extension must be attached to the final return when filed.
An extension of time with payment for filing the Delaware corporate income tax return is made by filing Form 1100 T-EXT contained in the Delaware Corporate Tentative Tax coupon package on or before the due date of the original return.
Please note that a timely filed extension extends the period for filing a final return but does not extend the period of time for making payment.
It has happened repeatedly with my clients that they forget that filing the tax return for an extension does not absolve paying taxes on time.
Let me quote the expenditure part of the instructions.
PENALTIES AND INTEREST
Returns filed late are subject to a penalty of 5% per month, up to a maximum of 50% of the tax liability due, plus interest of I /2% per month from the original due date until paid.
In addition to the above penalties and interest, an additional penalty of I% per month (not to exceed 25%) is imposed for failure to pay (in whole or in part) the tax liability shown to be due on a timely filed return.
I have once seen that failure to pay tax on time may invite tax liability as a penalty up to 50% of the tax due plus penal interest.
TENTATIVE TAX FILING REQUIREMENTS Every corporation is required to declare the amount of its estimated tax liability and prepay the amount of its estimated tax liability in four installments. The declaration and remittance, equal to 50% of the corporation’s estimated tax liability, are due on or before the fifteenth day of the fourth month of the taxable year.
The declaration (Form T-1) is due even if the estimated tax liability is zero and no remittance is required. The remaining coupons — T-2, T3, and T-4 — are not required to be filed if the estimated tax liability is zero for the remainder of the taxable year.
Let me draw you to discuss a situation when the estimated tax liability is more than zero?
- If the estimated tax liability is greater than zero during any of the remaining three quarters of the taxable year, quarterly tentative tax payments are due according to the following schedule:
- 20% on the 15th day of the 6th month of the taxable year;
- 20% on the 15th day of the 9th month of the taxable year and 10% on the 15th day of the 12th month of the taxable year.
- e taxable year. Declarations of tentative tax and payments must be made by filing Form 1100-T, Tentative Tax Return.
- Failure to make a declaration or file and pay the required tentative tax payments will result in a penalty.
- he first preceding taxable year. Corporations that do not qualify as a small corporation must make estimated payments equal to 80% of the current year’s tax liability.
Small corporation rule
Let us study the above entity in its entirety related to tax.
Many clients approach me to float an S Corporation without understanding the legal angles in Delaware state. Let me explain a little more from the instructions.
Small Corporation Rule:
The term “small corporation” means any corporation, including, without limitation, an S corporation subject to § 1158 of this title, if such corporation (or any predecessor corporation) had aggregate gross receipts from sales of tangible personal property and gross income from other sources both within and without the State for purposes of computing the ratio described in schedule 3-D of this return that do not exceed the applicable threshold of $20,000,000 for any 2 of the 3 taxable years immediately preceding the taxable year for which estimated tax is being calculated. The estimated tax has to be paid on time as per laid down instructions.
Let us look at the 2019 Delaware partnership form.
https://revenuefiles.delaware.gov/2019/TY19_300e_v1.pdf
2019 Delaware S corporation reconciliation and shareholders’ information return form the 1100S.
https://revenuefiles.delaware.gov/2019/TY19_1100Se.pdf
We shall discuss these forms and other instructions in some other essay written exclusively on this subject.
Conclusion
The article emanated out of tax penalties or interest suffered by various IT clients of mine who just failed to follow the instructions clearly laid down by the Department of Revenue, Delaware state government which runs one of the most business-friendly atmospheres for tax purposes and nearly 500k business units have registered and running successfully their transactions there. Similar was the same reason which forced me to write about corporate tax applicable in that state. This article is not intended to replace the highly qualified and experienced CPAs from handling your tax evaluation, tax filing and advice to maintain timely payment of taxes to have a peaceful professional life. Yes, while handing over the work to professionals, it is better to have some ideas about the web sites handling the work, read concise instructions, and do not commit fundamental failure to pay tax.
If that purpose is served, the article has achieved its goal.
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Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
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