Texas Corporate Taxes 101: A Beginner's Guide for Business Owners

As a business owner in Texas, understanding the state's corporate tax laws is crucial for your company's financial health. Texas has a relatively low corporate tax rate of 8.25%.

Businesses in Texas are considered taxable entities, meaning they must file a tax return with the state. This includes corporations, limited liability companies (LLCs), and partnerships.

To determine if you need to file a corporate tax return, your business must meet certain criteria, such as having a gross receipts tax liability of at least $1,000. This is a crucial step to avoid any potential penalties or fines.

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Entities subject to Texas corporate taxes are quite extensive, but don't worry, I've got the scoop. Corporations are among the entities required to file and pay franchise tax in Texas.

Businesses rather than individuals are liable for franchise tax, so it's not just individuals who have to worry about this tax.

Limited liability companies, including single member LLCs and series LLCs, are also subject to franchise tax, just like corporations.

Banks and state limited banking associations are another type of entity required to file and pay franchise tax in Texas.

Joint ventures, professional associations, and partnerships (general, limited, and limited liability) are also subject to this tax.

S corporations, savings and loan associations, and trusts are also among the entities liable for franchise tax in Texas.

Here's a list of taxable entities in Texas:

If you're still unsure whether you're liable for Texas franchise tax, check with a trusted tax advisor to get the help you need.

Texas corporate taxes can be complex, but understanding the basics can help you navigate the process. The Texas franchise tax rates vary depending on your business's annual revenue and how you report it.

Franchise tax rates in Texas are not straightforward and may change by report year. You'll need to check the current rates, thresholds, and deduction limits to ensure you're in compliance.

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Calculating franchise tax in Texas is based on your margins, and there are different methods to compute it. If you don't file the EZ computation report, your franchise tax will be computed using one of the following methods: total revenue times 70%, total revenue minus cost of goods sold (COGS), total revenue minus compensation, or total revenue minus $1 million (effective January 1, 2014).

You can choose to file the EZ computation report, but you'll need to qualify for it. The Texas Comptroller offers more guidance on how to determine your compensation, COGS, and total revenue.

Here are the four methods for computing franchise tax in Texas:

Franchise tax reports are due on May 15 each year, unless it falls on a Saturday, Sunday, or legal holiday, in which case the next business day becomes the due date.

You can file your franchise tax report online, and it's generally preferable to do so through the Texas Comptroller WebFile.

A $50 penalty applies for a franchise tax report filed after the due date, even if no tax is due.

If you're unable to file online, you can find Texas franchise tax report information and instructions on the Texas Comptroller website.

Taxable entities with total revenue at or below the no tax due threshold are no longer required to file a Franchise Tax Report, but must continue to file an information report each year.

The Comptroller's office will grant an extension of time to file a franchise tax report upon timely receipt of the appropriate form, which means the request must be received or postmarked on or before the due date of the original report.

There is a specific franchise tax report for EZ computation, for the long form, and for no tax due.

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If you're a business owner in Texas, you'll be happy to know that there are several tax credits available to help reduce your corporate tax liability.

The Temporary Credit for Business Loss Carryforwards under Texas Tax Code Section 171.111 is available for reports originally due on or after January 1, 2008.

This credit can be a game-changer for businesses that have experienced losses in previous years.

The Research and Development Activities Credit under Texas Tax Code Chapter 171, Subchapter M is available for reports originally due on or after January 1, 2014.

This credit can help incentivize businesses to invest in research and development activities.

Certified Historic Structures Rehabilitation Credit under Texas Tax Code Chapter 171, Subchapter S is available for reports originally due on or after January 1, 2015.

This credit can be used to rehabilitate historic structures and bring new life to old buildings.

Certified Historic Structures Rehabilitation Credit under Texas Tax Code Chapter 172 is also available for reports originally due on or after January 1, 2015.

Here are the available franchise tax credits in a list:

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 for Texas franchise tax, but only if they do a certain amount of business in the state.

As of January 1, 2020, a remote online seller is liable for Texas franchise tax if it has $500,000 or more in annual gross receipts from business in Texas.

Like other business entities, a marketplace facilitator would need to register for and pay Texas franchise tax if it has a physical presence in the state or economic nexus with the state.

The same goes for marketplace sellers, who would also need to register for and pay Texas franchise tax if they meet the same criteria.

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Other states have franchise taxes, including Arkansas, California, Delaware, Louisiana, Mississippi, New York, North Carolina, Tennessee, and Washington D.C. Some states even lump franchise taxes and income taxes together on the same pages.

Oklahoma is eliminating franchise tax, with tax year 2023 being the last year they will require franchise tax returns. A tax professional can help you sort out your franchise tax obligations in Texas and other states.

Avalara solutions can help ensure you collect, remit, and report sales tax properly.

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Texas corporate taxes can be a bit complex, but let's break down the key concepts and definitions to make it easier to understand.

Texas doesn't have a business income tax, which is a relief for many businesses.

Businesses with revenues under $2.47 million pay no tax, which is a significant advantage for small businesses.

In Texas, businesses are taxed based on their franchise tax, not their income tax.

Here's a breakdown of the franchise tax rates in Texas:

Larger businesses pay either 0.375% or 0.75%, depending on the type of business, which can be a significant expense.

In Texas, partnerships are treated like sole proprietorships if the business is directly owned by individuals and income is distributed directly to those individuals, avoiding the franchise tax.

Most partnerships in Texas, including limited partnerships (LPs) and limited liability partnerships (LLPs), are subject to the franchise tax.

Sole proprietorships do not pay the franchise tax in Texas, but business owners must pay federal income tax on their income.

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Limited liability companies (LLCs) are subject to the franchise tax in Texas, with the same rules applying to other business types.

In Texas, LLCs are not pass-through entities like in most other states, and individual members do not owe state tax on their portion of the company's net income.

The franchise tax in Texas does not apply to businesses with annualized total revenue below the no-tax due threshold, currently set at $1,230,000 in 2022 and 2023.

In Texas, partnerships are subject to the franchise tax, with the exception of a general partnership directly and solely owned by natural persons. This means that most partnerships, including limited liability partnerships (LLPs), will owe the franchise tax.

If your partnership's annualized total revenue is less than the no-tax due threshold ($1,230,000 in 2022 and 2023), you won't owe any franchise tax. Additionally, individual partners will not owe state tax on their respective portions of the partnership's net income.

For example, if your limited liability partnership had annualized total revenue of $500,000, you won't owe any franchise tax, and individual partners won't owe state tax on their share of the partnership's net income.

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Partnerships are a type of business structure that can be beneficial for entrepreneurs, but understanding how they work with income taxes is crucial.

In Texas, most partnerships are subject to the franchise tax, which means they have to pay a certain amount of tax each year. The only exception is a general partnership directly and solely owned by natural persons.

There are different types of partnerships, such as general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs), each with its own tax implications.

Individual partners in a partnership do not personally owe state tax on partnership income distributed to them, which is a significant advantage of being a partner.

If your partnership has annualized total revenue of $500,000 or less, you won't owe any franchise tax, and individual partners won't owe state tax on their share of the partnership's net income.

In Texas, partnerships are subject to a state tax on personal income, just like S corporations, LLCs, and sole proprietorships. This means that any remaining income after the franchise tax passes through to the partners personally, it will be subject to further taxation on their personal state tax return.

The tax rates for personal income in Texas range from 0% for small amounts of taxable income to around 9% or more in some cases. This is a significant difference from corporations, which are subject to a flat corporate income tax rate of 4% to 10%.

Partnerships in Texas are not subject to the franchise tax, but they are still required to file a franchise tax return. This is because the franchise tax is a tax on the privilege of doing business in the state, and partnerships are considered businesses.

Here's a breakdown of the tax implications for partnerships in Texas:

Keep in mind that these tax implications can vary depending on the specific circumstances of your business, so it's always a good idea to consult with a tax professional.