How to Start an S Corp in Delaware

Is an S Corporation the Best Strategy for Your Business?

For help with choosing the right structure for your business, visit ourChoosing a Business Structureguide.

S Corporation Restrictions

S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read ourWhat Is an S Corporationguide for full details.

Are S Corp Tax Advantages Right for You?

An S corporation is a tax designation that can be elected by a limited liability company (LLC) or corporation. With an S corp, business owners are considered employees of the company and must receive areasonable salary．因为所有年代队技术员工,the s corp must run payroll.

In order to benefit from a Delaware S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take largedistributionsin addition to their salary.

To learn more about the tax advantages of an S corp, read ourLLC vs. S corpguide and take a look at ourS Corp tax calculator．

Steps for Forming an LLC and Electing S Corp Status in Delaware

Starting a Delaware LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider likeNorthwestto guide you through this process.

There are five basic steps to start an LLC and elect S corp status:

Step 1:Name Your LLC

Step 2:Choose a Registered Agent

Step 3:File the Certificate of Formation

Step 4:Create an Operating Agreement

步骤5:Get an EIN and File Form 2553 to Elect S Corp Tax Status

Step 1: Name Your LLC

Choosing a company name is the first and most important step in starting your LLC in Delaware.

Be sure to choose a name that complies with Delaware naming requirements and is easily searchable by potential clients.

1. Follow the naming guidelines for a Delaware LLC:

• Your namemustinclude the phrase “limited liability company,” or one of its abbreviations (LLCorL.L.C.).
• Your namecannotinclude words that could confuse your LLC with agovernment agency(FBI, Treasury, State Department, etc.).
• Your namemaycontain the following words: Company, Association, Club, Foundation, Fund, Institute, Society, Union, Syndicate, Limited, Public Benefit, or Trust.
• Your namecannotcontain the word “bank,” or any variation unless the company is authorized as a bank by the state. However, the word “bank,” or any variation, can be used if the context clearly doesn’t refer to a banking business or mislead the public about the nature of the business. An example of acceptable use would be Bank Shot Basketball LLC.
• Your namemust be distinguishablefrom any existing business in the state.

You can also read theDelaware state statuteabout LLC naming guidelines for more information.

2. Is the name available in Delaware?You can use the general information name search on theDelaware Division of Corporations网站,看看你想要公司的名字是可以的le.

3. Is the URL available?We recommend checking to see if your business name is available as a网络域．Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.

Delaware S Annual Franchise Tax

Because your Delaware S corp is, technically, an LLC taxed as an S corp, you’ll need to payDelaware’s annual franchise tax．This is a $300 flat-rate tax due by June 1 each year to the Delaware Division of Corporations.

You can file your Annual Franchise Tax Report online, starting the year following your business’s formation. If you formed your business in 2023, for example, you must pay the annual franchise tax before June 1, 2024.

Delaware S Corp Taxes

S corporations benefit from pass-through taxation, meaning the business’s profits pass-through to S corp owners’ individual tax returns. S corp owners make money from theirreasonable salaryanddistributions, and Delaware S corp owners can expect to pay the following taxes:

Federal Self-Employment Taxes

Self-employment taxes cover social security and medicare. The self-employment tax rate is 15.3%, and money you take as salary will be subjected to the self-employment tax. However, distributions are not subjected to this tax.

Federal Income Taxes

Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets as well as the percent owed will change each year. Both your salary and distributions are subjected to federal income tax.

Delaware Income Taxes

Delaware has a graduated income tax, ranging from 2% to 7% based on an individual’s income level. While some states have no income tax, others levy income tax rates higher than 9%. Delaware’s graduated state income tax is fairly standard when compared to other states.

Additional Income Taxes

Delaware’s Wilmington tax jurisdiction has an additional income tax rate of 1.25% that area residents must pay on top of the state income tax.

Delaware Sales and Use Tax

Delaware doesn’t have a state or local sales tax. Only four states — Delaware, New Hampshire, Montana, and Oregon — lack state and/or local sales taxes. This tax incentive helps make Delaware a great state in which to form a business.

Delaware Gross Receipts Tax

While Delaware doesn’t impose a sales tax, it does have a gross receipts tax. Businesses must pay this tax on a quarterly or monthly basis, depending on their total revenue, to the Delaware Division of Revenue. Delaware’s gross receipts tax typically is less than 1% of all revenue.

For more information, visit theDelaware Division of Revenuewebsite.

Additional State Taxes

The Delaware Division of Revenue also handles other state-specific taxes your business may need to pay, depending on its industry, location, and number of employees. Some examples of these additional taxes include:

• Cigarette & Other Tobacco Products Tax
• Alcohol Tax
• Motor Vehicle Handling Fee
• Insurance Premiums Tax

Visit theDelaware Division of Revenuewebsite for more information on specific permits and taxes required based on your business’s industry.

Delaware Local Taxes

Whether you locate your business in Wilmington, Dover, or a smaller town within Delaware, each local jurisdiction may have its own laws governing businesses. We recommend you seek out resources in your community to learn more about local laws and regulations.