Delaware Franchise Tax: How to Calculate and File (2026 Guide)

If you incorporated in Delaware — and if you’re a startup, you probably did — you owe franchise tax every year. This isn’t income tax. It’s a fee for the privilege of being incorporated in Delaware, and it’s due March 1 regardless of whether your company made money.

The good news: for most startups, it’s just $400. The bad news: Delaware’s default calculation method can produce a bill of $100,000+ if you don’t know what you’re doing.

Here’s everything you need to know.

What Is Delaware Franchise Tax?

Delaware franchise tax is an annual tax paid by all corporations incorporated in Delaware. It has nothing to do with franchises — the name is historical. Think of it as an annual registration fee.

Key facts:

• Due date: March 1 for C-Corps (June 1 for LLCs/LPs)
• Minimum tax: $400 (C-Corps)
• Maximum tax: $200,000
• Late penalty: $200 + 1.5% monthly interest
• Where to file: Delaware Division of Corporations

Every Delaware C-Corp must file, even if the company is inactive, has no revenue, or operates entirely outside Delaware.

Delaware Franchise Tax Calculator: Which Method to Use

Delaware offers two calculation methods. You get to choose the cheaper one.

Method 1: Authorized Shares Method (the expensive default)

This is what Delaware calculates by default. The formula:

• Up to 5,000 authorized shares: $175
• 5,001 to 10,000 shares: $250
• Each additional 10,000 shares (or portion): $85

The trap: Most startup certificates of incorporation authorize 10,000,000+ shares. At that rate:

10,000,000 shares = $250 + (999 × $85) = $85,165

This is why founders panic when they get their franchise tax notice showing a five-figure bill. Don’t pay it — use Method 2 instead.

Method 2: Assumed Par Value Capital Method (almost always cheaper)

This method bases the tax on your actual assets, not your authorized shares. The formula:

1. Total Gross Assets — from your federal tax return (Form 1120, Schedule L)
2. Divide total gross assets by total issued shares = assumed par value per share
3. Multiply assumed par value × total authorized shares = assumed par value capital
4. Tax rate: $400 per $1,000,000 of assumed par value capital (or portion thereof)
5. Minimum: $400

For most startups: If your total assets are under a few hundred thousand dollars and you have a typical share structure, the calculation produces the $400 minimum.

Example Calculation

Let’s say your company has:

• 10,000,000 authorized shares (common for startups)
• 1,000,000 issued shares
• $50,000 in total gross assets (bank balance + any other assets)

Assumed Par Value: $50,000 ÷ 1,000,000 = $0.05 per share

Assumed Par Value Capital: $0.05 × 10,000,000 = $500,000

Tax: $500,000 is under $1,000,000, so: $400 (minimum)

Compare that to the Authorized Shares method: $85,165. Same company, same year — $84,765 difference.

How to File Delaware Franchise Tax Step by Step

Step 1: Gather Your Numbers

You need:

• Total gross assets — your bank balance plus any other assets on your balance sheet as of December 31
• Authorized shares — from your certificate of incorporation
• Issued and outstanding shares — how many shares have actually been issued to founders, investors, etc.
• Par value — from your certificate of incorporation (typically $0.00001 or $0.0001 for startups)

Step 2: Calculate Using Both Methods

Run the numbers through both methods. You’ll almost certainly want the Assumed Par Value Capital method, but verify.

Step 3: File Online

Go to the Delaware Division of Corporations annual report/tax filing page. You’ll need your:

• File number — assigned when you incorporated (7 digits)
• The numbers calculated above

Enter the Assumed Par Value Capital method figures. Pay by credit card or ACH.

Step 4: Keep Your Receipt

Download or screenshot the confirmation. You’ll need proof of payment if your registered agent or accountant asks for it.

How to File Form 1120 for Your Delaware C-Corp

Form 1120 is your federal corporate income tax return, due April 15 (or the 15th day of the fourth month after your fiscal year ends). This is separate from Delaware franchise tax but uses much of the same data.

What Form 1120 Requires

• Gross receipts — total revenue before expenses
• Cost of goods sold — if applicable
• Deductions — categorized expenses (compensation, rent, taxes, depreciation, etc.)
• Balance sheet — Schedule L, beginning and end of year
• Reconciliation — Schedule M-1 (book vs. tax income) and M-2 (retained earnings)

Using AI to Prepare Form 1120

The fastest way to prepare Form 1120 is to use AI to process your bank statements. Drop your full-year bank CSV and payment processor summary into an AI assistant, and it will:

• Parse and categorize every transaction
• Build your income statement and balance sheet
• Calculate taxable income and tax owed at 21%
• Prepare Schedules M-1 and M-2
• Flag inconsistencies with prior year returns

This turns hours of spreadsheet work into about 10 minutes. You still file the actual forms yourself, but all the numbers are pre-calculated and documented.

Form 5472: Foreign Ownership Reporting

If your C-Corp has a foreign shareholder who owns 25% or more (common for non-US founders), you must also file Form 5472 with your Form 1120. This reports transactions between the company and its foreign owner.

The penalty for not filing Form 5472 is $25,000 per form, so don’t skip it.

Common Mistakes (And How to Avoid Them)

Paying the Authorized Shares Amount

The most common (and expensive) mistake. Delaware sends a notice with the Authorized Shares calculation by default. Always recalculate using the Assumed Par Value Capital method. For most startups, this reduces the bill from tens of thousands to $400.

Missing the March 1 Deadline

Delaware charges a $200 late penalty plus 1.5% monthly interest. Mark your calendar. The filing takes less than 10 minutes once you have your numbers.

Using Wrong Asset Figures

Your total gross assets must match what you report on Form 1120 Schedule L. If you file your franchise tax before completing your federal return, use your best estimate — but make sure they align.

Forgetting to File When Inactive

Even if your company had zero revenue and zero activity, you still owe the $400 minimum franchise tax and must file Form 1120. Delaware will eventually void your company for non-payment, and reinstatement is expensive.

Skipping Form 5472

Foreign founders often don’t know about this requirement. If you’re not a US citizen/resident and own 25%+ of your C-Corp, file it. The $25,000 penalty is not worth the risk.

Using AI to Speed Up the Process

The mechanical work of tax preparation — parsing bank statements, categorizing expenses, building balance sheets — is exactly what AI is good at. I used AI to prepare my entire Delaware franchise tax filing and Form 1120 in about 15 minutes total.

Read the full walkthrough: AI Tax Preparation: How I Filed My Entire Tax Return in 15 Minutes

The key insight: give AI your raw bank CSV and payment processor data, and it will produce every number you need to fill in both the Delaware franchise tax form and Form 1120. You still file the forms yourself, but the preparation goes from hours to minutes.