Business Taxes in Texas - A Comprehensive Guide

In Texas, businesses are required to pay a variety of taxes, including franchise taxes and sales taxes.

The Texas Comptroller's office is responsible for collecting these taxes, and it's essential for businesses to understand their tax obligations to avoid penalties and fines.

Businesses in Texas with an annual tax liability of $1,000 or more must file a franchise tax report by May 15th of each year.

The franchise tax rate in Texas is 0.375% of a business's taxable margin, which is the difference between its revenue and its cost of goods sold.

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Texas has no personal income tax, but businesses still need to comply with various state and local tax requirements. There are nine states with no personal income tax, and Texas is one of them.

The most common forms of taxes in Texas are sales tax and franchise tax, as well as business-specific taxes like Texas corporation taxes. You'll need an Employer Identification Number (EIN) as a business and a Social Security Number (SSN) as a sole proprietor to file taxes in Texas.

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The state and local tax burden in Texas is relatively low, at 8.0% of state income, compared to other states like Indiana and Ohio. This makes Texas a highly tax-friendly state for entrepreneurs.

As a sole proprietor, you'll report all business income and losses on your personal income tax return, and you'll also be required to make contributions towards Medicare and Social Security, which are classified as self-employment taxes.

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Business taxes in Texas can be complex, but understanding who must pay them is a great place to start. If you're a business owner, it's essential to know whether you're liable for Texas franchise tax.

Businesses, rather than individuals, are liable for franchise tax, and the legal formation of an entity dictates whether it must pay the tax. This means that corporations, LLCs, and partnerships must pay franchise tax, regardless of their federal income tax status.

Taxable entities in Texas include banks, business associations, corporations, joint ventures, limited liability companies (LLCs), partnerships, professional associations, S corporations, savings and loan associations, and trusts.

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On the other hand, certain entities are generally not subject to franchise tax, such as sole proprietorships (except for single-member LLCs), certain grantor trusts, estates of natural persons, and escrows.

Here's a list of entities that must pay franchise tax if they do business in Texas and earn over $2.47 million in total revenue:

Additionally, online sellers formed in Texas are generally required to register for Texas franchise tax, and remote businesses may also need to if they earn $500,000 or more in annual gross receipts from business in Texas.

The Texas Franchise Tax is calculated on a company's margin for all entities with revenues above $2,470,000, which is subject to change each year.

The margin can be calculated in one of four ways: Total Revenue Multiplied by 70 Percent, Total Revenue Minus Cost of Goods Sold, Total Revenue Minus Compensation, or Total Revenue Minus $1 Million.

To give you a better idea, here are the four methods of calculating the margin:

This can be a bit confusing, but understanding how to calculate the margin is crucial for businesses with revenues above $2,470,000.

Calculating Business Taxes is a complex process, but understanding the rates can make a big difference. Franchise tax rates in Texas vary depending on your business's annual revenue and how you report it.

Franchise tax rates are not fixed, and they may change by report year. This means you'll need to stay up-to-date on the latest rates and thresholds.

Businesses with lower revenue may have lower franchise tax rates, but the specifics depend on your business's unique situation. For example, franchise tax deductions, rates, and thresholds may change by report year.

Rates, thresholds, and deduction limits for Texas franchise tax can be found in the official records, but it's essential to check for updates regularly. Franchise tax rates vary in Texas depending on your business's annual revenue and how you report it.

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Calculating business taxes can be a complex process, but understanding the basics can make it more manageable. The Texas Franchise Tax is calculated on a company's margin for entities with revenues above $2,470,000, which is subject to change each year.

To calculate the margin, you have four options: multiplying total revenue by 70 percent, subtracting the cost of goods sold, subtracting compensation, or subtracting $1 million. These methods can yield different results, so it's essential to choose the one that best suits your business.

Total revenue is calculated by taking revenue amounts reported for federal income tax and subtracting statutory exclusions. This includes dividends and interests from federal obligations, schedule C dividends, foreign royalties and dividends, and certain flow-through funds.

Here are the common statutory exclusions:

Keep in mind that the tax laws and regulations can change, so it's crucial to stay up-to-date on the latest information.

Filing business taxes in Texas can be a bit overwhelming, but don't worry, I've got you covered. You can file your Texas Franchise Tax Report using either the EZ Computation or the Long Form.

If your business falls under the $2,470,000 revenue limit, you don't owe any franchise tax, but you may still need to file a Public Information Report or Ownership Information Report. You can download the necessary forms from the Comptroller's website and submit them by mail to the address listed.

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You can also choose to file online through the Texas Comptroller WebFile, which is generally the preferred method. If online filing isn't an option, you can find the necessary information and instructions on the Texas Comptroller website.

Here are the two ways to file your Texas Franchise Tax Report:

The annual franchise tax reports are due on May 15, or the next business day if that falls on a weekend or holiday.

In Texas, business owners can take advantage of various tax credits to reduce their tax liability. The Temporary Credit for Business Loss Carryforwards under TX Tax Code Section 171.111 is one such credit.

This credit can be a significant relief for businesses that have experienced losses in previous years. By utilizing this credit, business owners can offset their tax liability and keep more of their hard-earned profits.

Here are some tax credits available to Texas businesses:

Compensation deductions include W-2 wages and cash compensation paid to directors, owners, partners, and employees. These are the types of compensation that can be deducted.

W-2 wages and cash compensation are the foundation of a compensation deduction. Benefits provided to all personnel, to the extent they are deductible for income tax purposes, are also included.

Compensation does not include 1099 labor or payroll taxes paid by the employer. These types of expenses are not considered compensation for tax purposes.

Here is a breakdown of what types of compensation are included in a deduction:

Note that only W-2 wages and cash compensation are explicitly mentioned in the article section facts.

Available Credits can be a game-changer for businesses in Texas. Temporary Credit for Business Loss Carryforwards under TX Tax Code Section 171.111 is one such credit.

This credit allows businesses to claim a refund for past losses, which can be a huge relief for companies that have experienced financial difficulties. The credit is available for a limited time, so it's essential to act quickly.

Research and Development Activities Credit under TX Tax Code Chapter 171, Subchapter M is another valuable credit that can help businesses offset the costs of innovation. This credit can be claimed for expenses related to research and development, such as equipment, software, and personnel.

Certified Historic Structures Rehabilitation Credit under TX Tax Code Chapter 171, Subchapter S is a great option for businesses that own historic buildings. This credit can be claimed for the costs associated with restoring and rehabilitating these structures.

Here are the available credits in a concise format:

Online sellers formed in Texas are generally required to register for Texas franchise tax. Businesses with no physical presence in the state, also known as remote businesses, may also need to register if they do a certain amount of business in the state.

As of January 1, 2020, remote online sellers with $500,000 or more in annual gross receipts from business in Texas are liable for Texas franchise tax.

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Marketplace facilitators, like other business entities, need to register for and pay Texas franchise tax if they have a physical presence in the state or economic nexus with the state. The same goes for marketplace sellers.

If you have nexus in Texas, you'll need to collect sales tax in Texas. This can be due to either physical or economic nexus, with physical nexus meaning having enough tangible presence or activity in the state, or economic nexus, which means passing the state's economic threshold for total revenue or the number of transactions.

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In Texas, the type of business you have determines what taxes you need to pay and how you file. If you're a corporation, LLC, or limited partnership, you're considered a business entity that makes less than $2.47 million in revenue, and you'll file a Public Information Report.

This report is due by May 15 and can be mailed to the Texas Comptroller. You'll also need to have an Employer Identification Number (EIN) as a business and a Social Security Number (SSN) as a sole proprietor to file taxes in Texas.

Some business types, like trusts, file an Ownership Information Report instead.

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In Texas, a Public Information Report is a filing requirement for many business entities. The report is mandatory for corporations, LLCs, Series LLCs, Limited Partnerships, Professional Associations, and Financial Institutions.

These entities must file the report by May 15, even if they no longer need to file a Franchise Tax Report. This is because they still need to provide public information to the Texas Comptroller.

If you're one of these business types, you'll need to mail the report to the Texas Comptroller by the deadline. Make sure to get it in on time to avoid any issues.

Here are the business types that file a Public Information Report:

In Texas, it's relatively easy to register a new business, but there are several state requirements to fulfill for active status. One such requirement is filing of Texas business tax.

Texas is one of nine states with no personal income tax, which is a big plus for entrepreneurs. The most common forms of taxes in the state are sales tax and franchise tax, along with business-specific taxes like Texas corporation taxes.

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To file taxes in Texas, you'll need an Employer Identification Number (EIN) as a business and a Social Security Number (SSN) as a sole proprietor.

Texas is a highly tax-friendly state, which is why many entrepreneurs favor it for forming new businesses. The state and local tax burden as a percentage of state income in Texas is 8.0%, compared to 8.6% in Indiana, 9.4% in Wisconsin, and 9.2% in Ohio.

If you form an LLC in Texas, you won't pay federal taxes by default, but members will need to file personal tax returns on the income they receive from the business. This is because LLCs are considered pass-through entities, similar to S corporations.

Here are some types of Texas LLC taxes you may need to file:

To determine if you have physical nexus in Texas, check if you have any of the following in the state:

A C corporation, also known as a traditional corporation, is subjected to a standard business tax or the Texas franchise tax.

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The franchise tax is based on the revenue generated by the corporation annually.

If your corporation's total revenue is less than $1,130,000, you won't be required to file any Texas corporation taxes or franchise taxes.

A C corporation in Texas will also be required to file Texas corporation taxes each year using Form 1120-U.S. Corporation Income Tax Return.

If a shareholder receives a dividend from the corporation, they'll be required to pay income tax on that dividend.

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A partnership is a business structure where two or more individuals share ownership and profits. It's a popular choice for entrepreneurs who want to start a business with friends or family.

In Texas, partnerships are subject to the Texas franchise tax, unless you have a general partnership that's solely and directly owned by natural persons.

There are different types of partnerships, including limited partnerships (LPs), general partnerships, and limited liability partnerships (LLPs).

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