State Tax Laws - Delaware

Personal income tax rates range from 2.2% to 6.75%. There is a $3250 standard deduction and double that if married. There is an individual credit of $110 per person including dependents. Those over age 60 get a double credit. Social security and a portion of military pensions are exempt. Delaware has no sales tax.

One of the more popular states for forming corporate entities, contrary to popular belief Delaware is not a tax-free state. Delaware charges an 8.7% flat rate tax on earnings attributed to the state. So why then are so many corporations headquartered there? Among other things, clearly written corporate business laws especially with regards to mergers and acquisitions attract businesses. Delaware does not tax their businesses on income that is earned in other states.

Delaware has a franchise tax that those who form companies there need to watch out for. If you do not assign a par value to your stock, or assign too high of par value, you can end up with sky-high franchise tax rates. Hearing of clients that got a $30,000 bill in the mail for their first franchise tax payment on a startup is not uncommon. Best to obtain legal counsel when forming in Delaware as it is a legally complex state, which is why it is so beloved by corporate lawyers. Delaware tax and business information can be found at: http://revenue.delaware.gov/


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