How to Start a Business in Delaware: Accounting and Taxes Checklist

Critical steps for establishing accounting, applicable registrations and staying compliant when starting a business in Delaware.

Introduction

While the convenience of Delaware can open a company in the state, and identify whichever formation type is best for you, accounting and tax responsibilities kick in from the moment you forge your own company. This checklist provides a list of some of the most common accounting and tax related tasks for newly formed businesses in Delaware, specifically including information that will help you every step of the way from registering your company with various state agencies that are set up to assist with formation (such as the Delaware Department of State Division of Corporations), to ongoing bookkeeping and annual filing.

Confirm what type of business you want to operate and incorporate it.

Before crunching numbers, you first have to guess the legal structure of your business (LLC, corp, partnership or sole proprietorship). Forming a business in Delaware is relatively straightforward—the state just requires you to file your formation documents and name a registered agent. The type of structure you choose will affect taxation, reporting and accounting, so keep track of when the entity was formed, member or shareholder agreements and initial capital contributions.

Obtain a Federal Employer Identification Number (EIN)

One of the very first things you do when you get a business going is to get an employer identification number from the federal government. Delaware EIN requirement is also required to open Delaware Business bank account, for DE employee hiring purpose and this number can be applied in various tax forms of the federal as well some state registrations. Keep a record of the date your EIN was assigned for inclusion in you company’s permanent records.

Open a business checking account, and keep your personal spending separate

Day I Do Not Mix Business With Pleasure (Separate Accounts) Open a business bank account with your formation documents and EIN. This distinction simplifies accounting, maintains the shield of limited liability — and removes the sting from tax season and a potential audit.

Establish bookkeeping and accounting procedures

• Normalize how you track income, expenses, assets and liabilities. At a minimum:
• Set up a company-specific chart of accounts.
• Elect an accounting method (cash or accrual) and make a constant reference to that choice.
• Do the bookkeeping, including entering up your incomings and outgoings, reconciling your bank statements each month to ensure they match what’s in or out of the bank account and counting how much (and even what type) of expenses you can claim for taxes.
• Up-to-date books make filing taxes a breeze and provide business owners with timely visibility into their cash flow and profitability.

Tax now for state and local 

There are also state and local tax considerations, even in the case of Delaware’s wonderful corporate law. And, based on what you do, you might need to apply for:

• State employer payroll taxation withholding.
• If you have employees, state unemployment insurance accounts.
• A sales and use tax permit if you sell taxable products or services in any place where you must collect.
• Check county or municipal requirements in areas of the country where your business has a physical presence.

UNRAVEL THE DELAWARE FRANCHISE TAX AND ANNUAL REPORTS

The annual report and franchise tax is due for most entities formed in Delaware. The calculation and deadlines will vary based on your entity type and whether you decide to calculate this tax. To avoid unnecessary penalties, watch when you were formed and the deadlines of your annual reports. Document shares or membership units issued and any ownership transfers, as it will impact filings.

Expect payroll taxes and employee designatons

If you have employees, set up payroll the right way. Determine employee status (employee or independent contractor), withhold federal and possibly state income tax withholdings, report all payroll taxes on time. Keep payroll records, written contracts of employment, and evidence that you’ve paid PAYE. Using the wrong workers or not paying funds in can lead to heavy penalties.

This Is How You Pay Federal And State Estimated Taxes Penalties as part of a filing strategy for estimated taxes.

Pass-through entity and corporate owners must make estimated tax payments on a quarterly basis. You estimate taxable income, calculate estimated payments for federal and state obligations, and you make deadlines to avoid underpayment penalties. Keep a calendar for federal and state estimated taxes.

Keep deductions and credits organized

Good record-keeping is crucial to substantiate those deductions, and can be especially important if your returns are audited. Keep slips, bills and statements as proof of receipts; however, mileage logs and business reasons should be saved as well. Maintain separate start-up and organization costs as opposed to regular operating expenses for favorable tax treatment.

Prepare basic financial statements regularly

Generate profit and loss statements, balance sheets, and cash flow reports on a monthly or quarterly basis. These reports inform pricing, hiring and financing decisions, and you need them when you seek loans or investors. Analyze statements to identify trends and pin down potential costs.

Periodically reconcile your books and close them

Comparing your bank and credit cards statements each month will aid in preventing errors and finding fraud. Close the books, make adjusting entries, start tax preparation. Proper closing entries eliminate the need to keep every account open in order to prepare annual taxes or financial statements.

Watch out for tax elections and business tax choices.

Different structures allow for different tax elections (eg, when an LLC elects to be taxed). Consider whether certain tax elections align with your approach to profitability and growth. Take State Election Voting Record: (To be filed and a copy of it be sent to your records.)

Get ready for the sales tax if it applies to you

If your business sells taxable items, learn the nexus rules and register to collect sales tax as required. Maintain taxable sales separately, filed returns timely and paid collected taxes. Keep appropriate exemption certificates for exempt sales and resale certificates.

Build a compliance calendar

Create a calendar of when you started the business, deadlines for annual reports, franchise tax due dates, deposit requirements for payroll taxes, required to repay estimated tax payments and file sales tax returns. Schedule reminders automatically or set up a recurring event to make sure that you are never missing any deadlines.

Seek periodic professional review

And even if you have all your internal processes running on all cylinders, a fresh set of eyes from an experienced accounting professional could uncover opportunities for optimization, fix tax elections and keep you squarely on the right side of state and federal law. (Check back One year after beginning and then at least annually)

Checklist Summary (Action Items)

• Prepare the company’s formation documents and select a registered agent.
• Obtain a federal EIN and maintain records of it.
• Open a small business account and keep your personal finances separate.
• Set up books, chart of accounts and accounting system.
• Sign up for state payroll, unemployment and sales tax accounts if needed.
• Don't miss the franchise tax or annual report filing deadlines.
• Do payroll the right way and classify workers accordingly.
• Send in quarterly estimates if you have to.
• Keep the receipts with backup papers together and file.
• Prepare monthly GRM-3 balance sheet and reconciliation of accounts.
• Maintain a compliance calendar and consult professionals periodically.

Conclusion

But there is something more to starting a business in Delaware than just filling out forms. When you decide to get the accounting structure, registrations and bookkeeping right from the start, your business will thank you with success. Refer back to it as you take off and amend as necessary once your business is in place.