A Step-by-Step Guide on How to File Business Taxes in Texas

Filing business taxes in Texas can be a daunting task, but with the right guidance, you'll be on your way to a stress-free tax season. First, you'll need to determine the type of tax return you'll need to file, which depends on the type of business you have.

As a sole proprietor, you'll report your business income on a Schedule C, which is part of your personal tax return. However, if you have a partnership or corporation, you'll need to file a separate business tax return, such as Form 1120 or Form 1065.

To get started, gather all necessary tax documents, including your business's financial records, invoices, and receipts. This will help you accurately calculate your business income and expenses.

You'll also need to determine which tax credits and deductions you're eligible for, such as the Texas small business tax credit or the home office deduction.

In Texas, not all business entities are required to file the same forms for tax purposes. Sole proprietorships, for example, are excluded, except for single-member LLCs.

A few other types of entities are also exempt, including general partnerships owned directly by a single natural person and certain unincorporated passive entities.

Here are some examples of excluded entities:

On the other hand, certain types of business entities are required to file, such as corporations, LLCs, and limited partnerships.

If you're a business owner in Texas, it's essential to understand which entities are excluded from certain requirements. Sole Proprietorships, except for Single Member LLCs, are excluded.

General Partnerships owned directly by a single natural person are also exempt. This means that if you're a sole owner of a partnership, you're not required to file certain forms.

Entities exempt under Tax Code Chapter 171, Subchapter B are also excluded. This includes certain unincorporated passive entities, grantor trusts, estates of natural persons, and escrows.

Real Estate Mortgage Investment Conduits and Certain Qualified Real Estate Investment Trusts are also excluded. Non Profit Self-Insurance Trusts and Trusts Qualified Under IRS Code Section 401(a) are exempt as well.

Here's a list of excluded entities:

On the other hand, certain business entities are not excluded and must file the required forms. These include corporations, LLCs and Series LLCs, Limited Partnerships, Professional Associations, and Financial Institutions.

Nexus is a critical concept in determining whether your small business must pay a franchise tax in Texas. If your business has a physical presence within the state, you'll be considered to have nexus.

Businesses with nexus in Texas must file two reports: the Franchise Tax Report and the Information Report. The Franchise Tax Report comes in three forms: EZ Computation, Long Form, or No Tax Due form. The Information Report has two options: Ownership Information Report or Public Information Report.

Texas imposes nexus as early as January 1, 2019, if the entity obtained a use tax permit before that date. Alternatively, nexus is established on the date the entity has a physical presence, obtains a Texas tax permit, or meets the $500,000 gross receipts threshold from business in Texas.

Calculating the Franchise Tax is a straightforward process, but it's essential to understand the different methods used to calculate the margin. The margin is the key to determining the franchise tax.

There are four ways to calculate the margin: by multiplying total revenue by 70 percent, by subtracting the cost of goods sold, by subtracting compensation, or by subtracting $1 million. Each method has its own unique benefits and drawbacks.

Businesses with revenues above $2,470,000 are required to calculate the margin using one of these methods. The threshold for this requirement is subject to change each year.

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

The margin is a critical component of the franchise tax, and understanding how it's calculated can help businesses navigate the tax filing process with ease.

You can file the Texas Franchise Tax Report using the EZ Computation or 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.

To file, download the Franchise Tax, PIR, or OIR form from the Comptroller and submit it by mail to the following address: Texas Comptroller of Public Accounts, PO Box 149348, Austin, TX 78714-9348.

You can pay all your business taxes with the Texas Comptroller, except for unemployment insurance tax, which you can pay online or by mail through the Texas Workforce Commission.

A good way to keep track of your business taxes is to keep complete and thorough business records, including customer accounts receivable, vendor accounts payable, and expense receipts.

Here are some examples of records you should keep:

In Texas, the franchise tax rates vary depending on the type of business. For retail or wholesale businesses, the tax rate is a relatively low 0.375%.

To qualify for this lower rate, your business must meet certain thresholds. For example, if your business has a report year of 2022 or 2023, you won't have to pay tax if your total tax liability is less than $1,230,000.

Here's a quick rundown of the tax rates and deductions you should know:

In Texas, the Franchise Tax rates and deduction limits vary by report year. For 2022 and 2023, the No Tax Due Threshold is $1,230,000.

The Tax Rate for retail or wholesale businesses is 0.375%, while other businesses are taxed at 0.75%. This means that if your business falls under the retail or wholesale category, you'll pay a lower tax rate.

The Compensation Deduction Limit is $400,000, which is a crucial factor in calculating your Franchise Tax.

Here's a breakdown of the tax rates and deduction limits for 2022 and 2023:

If you're looking to reduce your tax liability in Texas, there are several tax credits you can take advantage of.

The Temporary Credit for Business Loss Carryforwards under TX Tax Code Section 171.111 can provide relief for businesses that have experienced losses in previous years. This credit can help offset those losses and reduce your tax burden.

Research and Development Activities Credit under TX Tax Code Chapter 171, Subchapter M is another valuable credit for businesses that invest in research and development. This credit can help encourage innovation and growth in the state.

Certified Historic Structures Rehabilitation Credit under TX Tax Code Chapter 171, Subchapter S can be claimed by property owners who restore historic buildings. This credit can help preserve the state's rich history and cultural heritage.

Here are some of the available tax credits in Texas:

To prepare to file your business taxes in Texas, you'll want to determine which type of form you need to file. If your business has revenue below the $2,470,000 limit, you may not owe franchise tax, but you'll still need to file a Public Information Report or Ownership Information Report.

You can choose between the EZ Computation form and the Long Form, depending on your business's needs. The EZ Computation form is a simpler option, while the Long Form provides more detailed information.

To get started, download the necessary form from the Texas Comptroller's website and submit it by mail to the address listed: Texas Comptroller of Public Accounts, PO Box 149348, Austin, TX 78714-9348.

You can also establish an online account with the Texas Comptroller to make paying your business taxes easier. To pay your unemployment insurance tax, you'll need to create an account with the Texas Workforce Commission and pay online or by mail.

To keep accurate records, make sure to keep track of the following business documents:

There are two ways to file the Texas Franchise Tax Report: EZ Computation and 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.

To pay your taxes, you can create an online account with the Texas Comptroller. You can also pay by mail, but setting up an online account is a good idea to ensure timely compliance with your business's tax obligations.

Good record keeping is essential to properly file and pay your Texas small business taxes. Keep complete and thorough business records, including customer accounts receivable, vendor accounts payable, expense receipts, rent or mortgage payments, insurance premiums, and payroll.

Here are some key records to keep:

The Annual Franchise Tax Report and Final Franchise Tax Reports are due on May 15th, unless May 15 falls on a weekend or holiday, in which case the due date will be the next business day.

If you need more time to file your Franchise Tax Report, you can submit a Franchise Tax Extension with the Comptroller.

The Comptroller will generally only accept an extension if 90 to 100 percent of the tax owed is paid by May 15.

There are four different types of Franchise Tax Extensions, depending upon your situation.

In Texas, getting organized ahead of time is key to being prepared for tax time. You'll need to start by defining your business entity type, which will determine your tax bracket.

Filing your tax returns accurately is crucial, and if you're unsure about specific stipulations, you can check in with the Texas comptroller or reach out to an expert, like a Wave Advisor.

In Texas, businesses are required to file their taxes annually by April 15th, just like the rest of the country.

The Texas Comptroller's office is responsible for collecting state taxes, including franchise taxes, sales taxes, and property taxes.

If you're a small business owner, you can file your taxes electronically or by mail, and the Comptroller's office offers free e-file options to make the process easier and faster.

Texas has a state sales tax rate of 6.25%, which can be adjusted upward by local municipalities to a maximum combined rate of 8.25%.

You'll need to apply for a tax registration permit if you run a Texas business, sell or lease tangible personal property, or sell taxable services. This permit is usually received within 2-3 weeks, and you can use it via Texas's eSystem.

Businesses in Texas are required to collect and report their earnings, which are determined by the amount of taxes paid in the preceding state fiscal year (Sept. 1 – Aug. 31). There are four tiers: less than $10,000, $10,000 – $49,999, $50,000 – $499,999, and $500,000 or more.

Here are the different reporting and payment methods to use, based on your business's tier:

You'll be notified by letter after your application for a sales tax permit has been approved whether you'll file monthly or quarterly taxes. If a due date falls on a Saturday, Sunday, or legal holiday, the next working day is the due date.

Some services are considered taxable in Texas, including storage services, event hosting, computer services, laundry and cleaning services, appliance repair, refurbishment, and broadcasting.

Multistate businesses operating in Texas may be subject to taxes, even if they were created in a different state.

If your business has a significant presence in Texas, it's likely considered to have a nexus in the state, which means taxes are required.

Multistate taxes can be complex and challenging to navigate on your own, so it's a good idea to seek the help of a certified tax expert.

If your business operates in multiple locations in different states, you could be considered a multistate business and subject to taxes in Texas.