A Delaware LLC is a pass-through entity by federal default: a single-member LLC is a disregarded entity and a multi-member LLC is a partnership, with profits taxed on the owners' returns. Delaware personal income tax runs up to 6.6%, with no income tax on out-of-state operations. The LLC can elect S-corporation treatment to reduce self-employment tax once net income passes $40,000-$60,000. Delaware LLCs also pay a flat $300 annual franchise tax due June 1. This page covers federal default treatment, Delaware state tax, the S-corp election, self-employment tax, and non-resident owner filings.
A Delaware LLC is a pass-through entity by federal default, so the LLC pays no federal entity-level tax and profits flow to the owners' personal returns. A single-member LLC is a disregarded entity; a multi-member LLC is a partnership. The default treatment applies automatically at formation, so no election form is needed to be taxed as a pass-through. A single-member LLC reports business income on Schedule C of the owner's Form 1040. A multi-member LLC files Form 1065 and issues a Schedule K-1 to each member, who reports their share on their personal return. In both cases the income is taxed once, at the owner level, which avoids the double taxation a C-corporation faces. The LLC can also elect C-corporation treatment on Form 8832 when retaining earnings inside the company at the corporate rate serves the business, though that reintroduces entity-level tax.
Delaware personal income tax runs up to 6.6% on pass-through profit, but there is no income tax on operations conducted outside the state. The LLC itself pays no Delaware entity-level income tax. An owner who lives in Delaware and earns Delaware-sourced income pays the up-to-6.6% rate on that pass-through profit. An LLC doing business entirely outside Delaware owes no Delaware income tax on that revenue. This is why non-resident founders form Delaware LLCs for US-facing businesses without incurring Delaware income tax on foreign-earned profit. Delaware's 6.6% top rate sits below several high-tax states, but Wyoming and New Mexico charge no state income tax at all, which matters for owners choosing among the anonymous states.
A Delaware LLC should elect S-corporation status once net business income passes $40,000-$60,000, because the election reduces self-employment tax on the portion of profit taken as distributions rather than salary. The election is made on IRS Form 2553. An S-corp owner pays a reasonable salary subject to payroll tax, then takes remaining profit as distributions that avoid the 15.3% self-employment tax. Below $40,000-$60,000, the added payroll compliance cost outweighs the savings. Above it, the self-employment tax saved on the distribution portion exceeds the cost of running payroll. The election also requires the owner to be a US person or otherwise eligible, so most non-resident owners keep the default pass-through treatment rather than electing S-corp status.
A default Delaware LLC owner pays 15.3% self-employment tax on net business income: 12.4% Social Security on the first $168,600 plus 2.9% Medicare on all of it. This is on top of income tax. The self-employment tax funds Social Security and Medicare, which an employee would split with an employer. An LLC owner pays both halves. The S-corporation election is the main lever to reduce it, by splitting profit into a salary (taxed) and distributions (not subject to self-employment tax), which is why the election matters once income is high enough. A non-resident owner with no US effectively connected income is outside the US self-employment tax system entirely, so this calculation applies mainly to US-based owners of a Delaware LLC.
A non-resident owner of a Delaware LLC with no US effectively connected income owes no US federal income tax on foreign-earned profit, but a foreign-owned single-member LLC must file Form 5472 with a pro-forma Form 1120 each year. Whether US tax is owed turns on effectively connected income (ECI). An LLC selling to US customers without a US office and without dependent agents in the US has no ECI in most cases. A multi-member LLC files Form 1065 and issues K-1s. An ITIN may be needed for personal filing. Anonymousllc.co partners with US tax preparers familiar with non-resident filings.
Form 5472 is an IRS information return required for any US disregarded entity with 25% or more foreign ownership. A non-resident-owned single-member Delaware LLC must file it annually alongside a pro-forma Form 1120. Form 5472 reports transactions between the LLC and its foreign owner, such as capital contributions and distributions. It is an information return, not a tax return; filing it does not itself create a tax liability. The penalty for not filing is $25,000, so it matters even when no US income tax is owed. Anonymousllc.co connects non-resident owners with preparers who handle it. The form is due with the pro-forma 1120 by the April deadline each year, and the LLC needs its EIN in hand to file, which is one more reason the EIN is part of every formation package.
Yes. Every Delaware LLC pays a flat $300 annual franchise tax to the Delaware Division of Corporations, due June 1 each year, regardless of income or activity. This is separate from income tax. The $300 franchise tax is not tied to profit; a dormant LLC and a high-revenue LLC owe the same amount. Delaware LLCs file no annual report, so the franchise tax is the LLC's only recurring state obligation. Missing June 1 adds a $200 penalty plus 1.5% monthly interest. Anonymousllc.co tracks the date and pays it on request.
Under the March 21, 2025 FinCEN interim final rule, domestic reporting companies are exempt from beneficial ownership information reporting. A US-formed Delaware LLC is a domestic reporting company, so it currently files no BOI report. Foreign reporting companies, meaning entities formed abroad that register into the US, remain obligated to file. A standard Delaware LLC formed for a founder, whether US-resident or non-resident, is a domestic entity and is exempt under the current rule. Anonymousllc.co files a BOI report at $150 per report when a foreign-owned structure requires one. Because FinCEN rules have shifted more than once, Anonymousllc.co monitors the current requirement and flags any change that would bring a client's Delaware LLC back into scope.
Wyoming and New Mexico charge no state income tax, while Delaware charges up to 6.6% on Delaware-sourced pass-through income. All three treat the LLC as a federal pass-through, and none tax foreign-earned profit with no US effectively connected income. Delaware adds a $300 annual franchise tax; Wyoming charges a $60 annual license tax; New Mexico charges no annual fee. For a non-resident with no US ECI, the federal treatment is identical across all three, so the choice comes down to ongoing cost and legal infrastructure rather than income tax.
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