Everything you need to keep your DE LLC in good standing and comply with the IRS filing requirements. Learn how to what to file and avoid penalties and actions against the company. In this post we will cover:
Resident agent
State franchise tax & annual report
Federal tax return
“Our goal is to assure that each one of our clients remain in full compliance at the Federal and state level, whether they own Single-Member LLC, Multi-Member LLC or C. Corporation.” TAXUSA.
RESIDENT AGENT
What is a registered agent?
A registered agent is an individual or a business that has been appointed by a business organised in one of the U.S. states to receive service of process, government correspondence, and compliance documents on behalf of the business. Most U.S. states mandate designation of a registered agent when forming your business. .
What is the Purpose of a Registered Agent?
The main purpose of a registered agent is to receive Service of process on your business behalf. Service of process is the action of informing an individual or entity that there's a pending lawsuit against him or her, or in this case, against one's company. In addition, resident agent also accpets for your business any received tax forms, Legal documents, official government correspondence (ie. annual report) and summons (Service of Process) - Notice of a lawsuit.
Change of a Registered Agent
You can change your resident agent at any point by filing an amendment to the Articles of Incorporation or Articles of Organization. There is a fee for applying for a change of agent which should be paid when filing the change of agent document.
What do you need to do? Renewal of a Registered Agent
The Registered Agent service is renewed annually. Your resident agent is listed on the formation document (Articles of Incorporation, Articles of Organization, Bylaws, LLC operating agreement in addition to the company page on the state corporation division. You should contact the agent and check the date of the renewal.
What happen if you don't renew? Resignation of a Registered Agent
Failure to renew or maintain a registered agent and registered office may result in the revocation of the legal status of your business and assessment of penalties on the company.
STATE FRANCHISE TAX & ANNUAL REPORT
LLC
Franchise tax due
All Domestic and Foreign Limited Liability Companies, Limited Partnerships, and General Partnerships formed or registered in Delaware are required to pay an annual tax of $300.00.
Due date
The annual taxes for the prior year are due from January 1 to June 1st.
What happen if I do not file?
Failure to pay the required annual taxes will result in a penalty of $200.00 plus 1.5% interest per month on tax and penalty. There is no proration on alternative entity taxes. Annual taxes are assessed if the entity is active in the records of the Division of Corporations anytime during January 1st through December 31st of the current tax year.
C. Corporation
Franchise tax due
The minimum tax is currently $175.00, using the Authorized Shares Method and the Minimum Tax using the Assumed Par Value Capital Method is $400.00 with a maximum tax of $200,000.00 for both methods unless it has been identified as a Large Corporate, then their tax will be $250,000.00. Taxes are assessed if the corporation is active in the records of the Division of Corporations anytime during January 1st through December 31st of the current tax year.
Due date
All active Domestic Corporation Annual Reports and Franchise Taxes for the prior year are due annually on or before March 1st and are required to be filed online.
What happen if I do not file?
Failure to file the report and pay the required franchise taxes will result in a penalty of $200.00 plus 1.5% interest per month on tax and penalty.
F.A.Q
I haven’t started doing business yet do I still have to file a report and pay taxes?
Title 8 Chapter 5 § 503 states that all corporations accepting the provisions of the Constitution of this State and coming under Chapter 1 of this title, and all corporations which have heretofore filed or may hereafter file a certificate of incorporation under said chapter, shall pay to the Secretary of State as an annual franchise tax whichever of the applicable amounts as prescribed by Title 8 Chapter 5 § 503 (1) and (2).
I am going out of business or my business is closed do I still owe taxes?
Taxes continue to accrue on a corporation until a legal document filing is received and filed with the State of Delaware. The document needs to officially terminate the existence of the corporation in the State of Delaware. (i.e. Certificate of Dissolution, Certificate of Merger, etc…)
Do I have to list all of my officers and directors? Which officer do I have to list?
Title 8 Chapter 5 § 502(a)(4) states that the Annual Report shall list “The names and addresses of all the directors as of the filing date of the report and the name and address of the officer who signs the report,”
Who is authorized to file the report?
Title 8 Chapter 5 § 502 (a) states that the report shall be made on a form designated by the Secretary of State and shall be signed by the corporation’s president, secretary, treasurer or other proper officer duly authorized so to act, or by any of its directors, or by any incorporator in the event its board of directors shall not have been elected
FEDERAL TAX RETURN
Single member LLC
Which forms I must file?
Single member LLC is an LLC owned by only one owner (member). Such an LLC must file form 1120 with form 5472 to report the foreign ownership of the U.S. company and the transactions between the company and the owner and related parties.
What is the filing due date?
The deadline for filing the forms is April 15 for the previous tax year.
Who Must File form 5472?
Generally, a reporting corporation must file Form 5472 if it had a reportable transaction with a foreign or domestic related party.
The requirements for foreign-owned U.S. Corporations to file Form 5472 and Form 1120 have been around for some time, however, the IRS released TD 9796 and added new regulations to Section 1.6038A-1 of the Code of Federal Regulations. These new changes went into effect on January 1st, 2017 and now also affect all foreign-owned Single-Member LLCs that are Disregarded Entities.
Starting in 2017, all foreign-owned Single-Member LLCs that are Disregarded Entities are now treated as Corporations for federal reporting requirements (submitting information) to the IRS. This doesn’t mean the LLC is paying tax like a Corporation, but rather, it’s simply reporting information like a Corporation.
A Single-Member LLC is automatically considered a Disregarded Entity by the IRS unless the LLC has made a special election to be taxed as a Corporation. The word “disregarded” simply means the IRS “ignores” the LLC for federal tax purposes and taxes the LLC the same way the owner is taxed.
The following types of LLCs have to file Form 5472 and Form 1120 every year:
a Single-Member LLC that is Disregarded and owned by a non-US resident or foreign company
a Single-Member LLC that is Foreign-owned and taxed as a Corporation
a Multi-Member LLC that is taxed as a Corporation and has at least 1 Foreign owner that owns 25% or more of the LLC
Multi member LLC
Which forms I must file?
Multi member LLC is an LLC owned by 2 or more owners (members). Such an LLC must file form 1065 with form K1 for each member to report the foreign ownership of the U.S. company and the transactions between the company and the owner and related parties.
What is the filing due date?
The deadline for filing the forms is March 15 for the previous tax year.
Who Must File form 1065?
Entities formed as LLCs that are classified as partnerships for federal income tax purposes have the same filing requirements as domestic partnerships.
A religious or apostolic organization exempt from income tax under section 501(d) must file Form 1065 to report its taxable income, which must be allocated to its members as a dividend, whether distributed or not. Such an organization must figure its taxable income on an attached statement to Form 1065 in the same manner as a corporation. The organization may use Form 1120, U.S. Corporation Income Tax Return, for this purpose. Enter the organization's taxable income, if any, on line 6a of Schedule K and each member's distributive share in box 6a of Schedule K-1. Net operating losses aren't deductible by the members but may be carried back or forward by the organization under the rules of section 172. The religious or apostolic organization must also make its annual information return available for public inspection. For this purpose, “annual information return” includes an exact copy of Form 1065 and all accompanying schedules and attached statements, except Schedules K-1. For more details, see Regulations section 301.6104(d)-1.
A qualifying syndicate, pool, joint venture, or similar organization may elect under section 761(a) not to be treated as a partnership for federal income tax purposes and will not be required to file Form 1065 except for the year of election. For details, see section 761(a) and Regulations section 1.761-2.
Real estate mortgage investment conduits (REMICs) must file Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return.
Certain publicly traded partnerships (PTPs) treated as corporations under section 7704 must file Form 1120.
Who does not have to file?
A return isn't required if:
The partnership had no effectively connected income (ECI) during its tax year;
The partnership had U.S. source income of $20,000 or less during its tax year;
Less than 1% of any partnership item of income, gain, loss, deduction, or credit was allocable in the aggregate to direct U.S. partners at any time during its tax year; and
The partnership isn't a withholding foreign partnership as defined in Regulations section 1.1441-5(c)(2)(i).
Exception for foreign partnerships with no U.S. partners.
A return isn't required if:
The partnership had no ECI during its tax year,
The partnership had no U.S. partners at any time during its tax year,
All required Forms 1042 and 1042-S were filed by the partnership or another withholding agent as required by Regulations section 1.1461-1(b) and (c),
The tax liability of each partner for amounts reportable under Regulations section 1.1461-1(b) and (c) has been fully satisfied by the withholding of tax at the source, and
The partnership isn't a withholding foreign partnership as defined in Regulations section 1.1441-5(c)(2)(i).
A foreign partnership filing Form 1065 solely to make an election (such as an election to amortize organization expenses) need only provide its name, address, and employer identification number (EIN) on page 1 of the form and attach a statement citing “Regulations section 1.6031(a)-1(b)(5)” and identifying the election being made. A foreign partnership filing Form 1065 solely to make an election must obtain an EIN if it doesn't already have one.
C. Corporation
Which forms I must file?
If you have a C. Corporation (1 owner or more), you need to file Form 1120 with shceuldes A-K and Form 5472 for each 25% owner.
Use Form 1120, U.S. Corporation Income Tax Return, to report the income, gains, losses, deductions, credits, and to figure the income tax liability of a corporation.
What is the filing due date?
The deadline for filing the forms is March 15 for the previous tax year.
Who Must File
Unless exempt under section 501, all domestic corporations (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Domestic corporations must file Form 1120, unless they are required, or elect to file a special return. See Special Returns for Certain Organizations, later.
Entities electing to be taxed as corporations.
A domestic entity electing to be classified as an association taxable as a corporation must file Form 1120, unless it is required to or elects to file a special return listed under Special Returns for Certain Organizations. The entity must also file Form 8832, Entity Classification Election, and attach a copy of Form 8832 to Form 1120 (or the applicable return) for the year of the election. For more information, see Form 8832 and its instructions.
Limited liability companies (LLC).
If an entity with more than one owner was formed as an LLC under state law, it is generally treated as a partnership for federal income tax purposes and files Form 1065, U.S. Return of Partnership Income. Generally, a single-member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its owner's federal income tax return. The LLC can file a Form 1120 only if it has filed Form 8832 to elect to be treated as an association taxable as a corporation. For more information about LLCs, see Pub. 3402, Taxation of Limited Liability Companies.
Corporations engaged in farming.
A corporation (other than a corporation that is a subchapter T cooperative) that engages in farming should use Form 1120 to report the income (loss) from such activities. Enter the income and deductions of the corporation according to the instructions for lines 1 through 10 and 12 through 29.
Ownership interest in a Financial Asset Securitization Investment Trust (FASIT).
Special rules apply to a FASIT in existence on October 22, 2004, to the extent that regular interests issued by the FASIT before October 22, 2004, continue to remain outstanding in accordance with their original terms.
If a corporation holds an ownership interest in a FASIT to which these special rules apply, it must report all items of income, gain, deductions, losses, and credits on the corporation's income tax return (except as provided in section 860H). Show a breakdown of the items on an attached statement. For more information, see sections 860H and 860L (repealed with certain exceptions).
Foreign-owned domestic disregarded entities.
If a foreign person, including a foreign corporation, wholly owns a domestic disregarded entity (DE), the domestic DE is treated as a domestic corporation separate from its owner (the foreign corporation) for the limited purposes of the requirements under section 6038A that apply to 25% foreign-owned domestic corporations. While a DE is not required to file a U.S. income tax return, a DE covered by these rules is required to file a pro forma Form 1120 with Form 5472 attached by the due date (including extensions) of the return. See the Instructions for Form 5472 for additional information and coordination with Form 5472 reporting by the domestic DE.
Qualified opportunity fund.
To be certified as a qualified opportunity fund (QOF), the corporation must file Form 1120 and attach Form 8996, even if the corporation had no income or expenses to report. See Schedule K, Question 25. Also, see the Instructions for Form 8996.
Qualified opportunity investment.
If the corporation held a qualified investment in a QOF at any time during the year, the corporation must file its return with Form 8997, Initial and Annual Statement of Qualified Opportunity Fund Investments, attached. See the instructions for Form 8997.
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