Delaware LLCs pay taxes through the owner's personal tax return, not through a separate LLC tax bill

A Delaware LLC (limited liability company) does not pay income tax to Delaware itself. Instead, the LLC passes its profits to you, and you report that income on your personal federal tax return. Delaware has no corporate income tax and no LLC income tax — this is one reason many people form LLCs there.

However, you still owe federal income tax on the money the LLC makes. How you pay depends on whether your LLC has one owner (called a sole proprietorship for tax purposes) or multiple owners (called a partnership for tax purposes). The IRS does not care where your LLC is formed; it only cares about how many owners you have.

You may also owe Delaware's annual Franchise Tax, which is a flat fee to keep your LLC registered with the state. This is separate from income tax and is due every year, regardless of whether your LLC made money.

Key Takeaways

  • Delaware LLCs do not pay state income tax, but you pay federal income tax on the LLC's profits through your personal return.
  • A single-owner LLC reports income on Schedule C of your Form 1040; a multi-owner LLC files a separate partnership return (Form 1065) and you report your share on Schedule E.
  • Delaware's annual Franchise Tax is a flat fee (currently $300 for most LLCs) due by March 1 each year, separate from federal income tax.
  • You may owe self-employment tax on LLC profits if you are the sole owner, even though Delaware has no state income tax.

How a single-owner Delaware LLC reports income to the IRS

If you are the only owner of your Delaware LLC, the IRS treats it as a sole proprietorship for tax purposes. You do not file a separate business tax return. Instead, you report the LLC's income and expenses on Schedule C (Profit or Loss from Business), which attaches to your personal Form 1040.

On Schedule C, you list all the money the LLC brought in, subtract all business expenses, and report the net profit. That profit is what you owe federal income tax on. You file Schedule C along with your regular 1040 return, usually by April 15 each year (or October 15 if you file an extension).

You will also owe self-employment tax on that profit. Self-employment tax covers Social Security and Medicare for people who work for themselves. You calculate it on Schedule SE and add it to your income tax bill. The rate is roughly 15.3% of your net profit, though you can deduct half of it from your taxable income.

How a multi-owner Delaware LLC reports income to the IRS

If your Delaware LLC has two or more owners, the IRS treats it as a partnership for tax purposes. The LLC itself files a return with the IRS called Form 1065 (U.S. Return of Partnership Income). This return shows the IRS how much total income the LLC made and how it was divided among the owners.

Form 1065 is due by March 15 of the year after the tax year ends (so for 2024 income, it is due March 15, 2025). The LLC does not pay federal income tax on this return. Instead, each owner receives a Schedule K-1, which shows that owner's share of the LLC's profit, loss, and other tax items.

You then report your Schedule K-1 information on your personal Form 1040, usually on Schedule E (Supplemental Income and Loss). You pay federal income tax on your share of the profit. Like a sole proprietor, you also owe self-employment tax on your share, which you calculate on Schedule SE.

Delaware's annual Franchise Tax and when it is due

Every Delaware LLC must pay an annual Franchise Tax to the Delaware Division of Corporations to stay registered and in good standing. This is a flat fee that does not depend on how much money your LLC made. For most LLCs, the fee is $300 per year.

The Franchise Tax is due by March 1 each year. You pay it to Delaware, not to the IRS. If you miss the important date, Delaware charges a penalty and may eventually dissolve your LLC for non-payment, which means you lose your legal protection as an LLC.

You can pay the Franchise Tax online through the Delaware Division of Corporations website, by mail, or through a registered agent (a person or company that accepts legal documents on behalf of your LLC). Many people use a registered agent anyway, and the agent can handle the Franchise Tax payment for you.

Federal estimated tax payments if your LLC makes significant income

If your LLC will owe more than $1,000 in federal income tax for the year, you are required to make estimated tax payments throughout the year instead of waiting until April 15. These are quarterly payments to the IRS.

Estimated payments are due on April 15, June 15, September 15, and January 15 of the following year. You calculate them based on how much profit you expect the LLC to make. If you underpay, the IRS charges interest and penalties.

You can pay estimated taxes online through the IRS website (using the Electronic Federal Tax Payment System, or EFTPS), by mail, or through a tax professional. Many people find it easier to set aside a portion of the LLC's income each month and then make the quarterly payment, rather than trying to estimate the full year's profit at the start.

State taxes you may owe outside Delaware

Even though Delaware has no income tax, you may owe income tax to other states if you or your LLC does business there. If you live in another state, that state may tax your share of the LLC's income. If the LLC has customers or employees in another state, that state may tax the LLC's income from that state.

For example, if you live in New York and own a Delaware LLC that sells products to New York customers, New York will likely tax that income. You would file a New York state return in addition to your federal return. The rules vary widely by state, so it is worth checking with a tax professional or your state's tax authority if you do business outside Delaware.

Record-keeping and documentation for LLC tax payments

Keep records of all the LLC's income and expenses for at least three years. The IRS can audit your return up to three years after you file it, and you need to be able to prove the numbers you reported. Save receipts, invoices, bank statements, and any other documents that show money coming in and going out.

Also keep records of the Franchise Tax payment to Delaware, including the confirmation number or receipt. If Delaware ever questions whether you paid, you will need proof. Many people use accounting software (like QuickBooks or FreshBooks) to track income and expenses automatically, which makes tax time much simpler.

Frequently Asked Questions

Do I have to file a separate tax return for my Delaware LLC?

Not if you are the only owner. You report the LLC's income on your personal Form 1040 using Schedule C. If you have multiple owners, the LLC files Form 1065, but the LLC itself does not pay tax — you do, based on your share of the profit shown on your Schedule K-1.

What happens if I do not pay the Delaware Franchise Tax?

Delaware will send you a notice and charge a penalty. If you do not pay within a certain period, Delaware can dissolve your LLC, which means you lose your legal protection as a business entity. You would then be personally liable for business debts and lawsuits. Paying the $300 annual fee is much cheaper than dealing with dissolution.

Do I owe self-employment tax on LLC income?

Yes, if you are the owner and you work in the business. Self-employment tax covers Social Security and Medicare. It is roughly 15.3% of your net profit (after deducting business expenses). If you have multiple owners, each owner owes self-employment tax on their share of the profit.

Can I deduct business expenses from my LLC income before paying taxes?

Yes. On Schedule C (for a single-owner LLC) or Form 1065 (for a multi-owner LLC), you list all business expenses and subtract them from income. Common deductions include supplies, equipment, rent, utilities, insurance, and professional fees. Keep receipts to prove the expenses if the IRS asks.

What if my LLC loses money in a year?

You report the loss on your tax return. A business loss can reduce your other income (like wages from a job), which may lower your overall tax bill or create a refund. However, the IRS has rules about how much loss you can deduct if you do not actively work in the business, so check with a tax professional if this applies to you.