Alright, let’s talk Texas LLC taxes. After helping 400+ Texas businesses navigate their tax obligations, I can tell you this: Texas is a tax paradise compared to most states, but that doesn’t mean you’re off the hook entirely.
Here’s the deal—Texas plays by its own rules. No state income tax (hallelujah!), but there’s a franchise tax that trips up plenty of business owners who think they’re home free. Let me walk you through what actually matters for your Texas LLC, minus the legal jargon and bureaucratic nonsense.
Why Texas LLCs Hit Different: The Tax Advantage Nobody Explains Properly
Texas doesn’t tax your personal income or your LLC’s income at the state level. Zero. Zilch. Nada. While your buddies in California are forking over 13.3% to Sacramento, you’re keeping that money in your pocket.
But before you start your victory lap, understand this: Federal taxes still apply, and Texas has its own unique ways of generating revenue. The state’s not running on hopes and dreams—they’re just more creative about where they get their money.
Your Texas LLC faces a different tax puzzle than most states. Instead of income tax, you’re dealing with sales tax (if applicable), franchise tax (maybe), and federal obligations (definitely). Let’s break down each piece so you know exactly what’s coming.
Federal Taxes: The IRS Doesn’t Care About Your Lone Star Pride
No matter how much you love Texas, the federal government wants its cut. Your LLC’s federal tax treatment depends entirely on your ownership structure and any elections you make. Here’s how it shakes out:
Running Solo: Single-Member LLC Tax Treatment
Own your LLC by yourself? Congratulations, you’re what the IRS calls a “disregarded entity.” Sounds insulting, but it’s actually pretty simple—your LLC doesn’t exist for federal tax purposes.
Real talk: Your business income flows straight to Schedule C on your personal return. Made $150,000 from your Houston marketing agency? That’s personal income, taxed at your individual rates plus self-employment tax (15.3% for Social Security and Medicare).
Quick story: I worked with a Dallas software developer who thought forming an LLC would reduce his taxes. Nope. Single-member LLC taxation is identical to sole proprietorship taxation. The LLC protects your personal assets, not your tax bill.
Partnership Taxation: When You’ve Got Company
Multiple owners? Welcome to partnership taxation. Your LLC files Form 1065 (an informational return) and issues K-1s to each member showing their share of profits and losses.
Here’s what this means practically: If you and your partner split $200,000 in profits 50/50, you each get a K-1 for $100,000. You report that on your personal returns and pay tax at your individual rates.
The math gets interesting with unequal ownership. Say you own 75% and your partner owns 25%. Every dollar of profit gets split accordingly—no negotiation, no flexibility (unless your operating agreement specifies special allocations, but that’s advanced stuff).
The Texas Marriage Advantage: Qualified Joint Ventures
Here’s a Texas-specific perk: Since Texas is a community property state, married couples can choose simplified tax treatment. Instead of filing as a partnership, you can elect Qualified Joint Venture status and each report your share on separate Schedule Cs.
Why does this matter? Skip the partnership return entirely. Save on tax prep fees. Simplify your life. I’ve seen couples save $1,000+ annually just on accounting costs with this election.
To qualify: Both spouses must materially participate in the business and file jointly. You can make this election when applying for your EIN or request it later via letter to the IRS.
Corporate Tax Elections: When Default Isn’t Enough
Feel like shaking things up? You can elect to have your LLC taxed as a corporation. Two flavors available:
S-Corporation Election: File Form 2553 and boom—you’re an S-Corp for tax purposes. This makes sense once you’re consistently netting $75,000+ per member annually. Here’s why:
Instead of paying self-employment tax on all profits, you pay yourself a reasonable salary (with payroll taxes) and take remaining profits as distributions (no self-employment tax).
Real numbers: Client with $150,000 net income. As an LLC, self-employment tax = $21,000. As an S-Corp with $75,000 salary, self-employment tax = $11,475. Annual savings: $9,525.
But hold up—S-Corp status means payroll requirements, additional tax returns, and more complexity. Don’t make this move until the math clearly works in your favor.
C-Corporation Election: File Form 8832 for C-Corp treatment. Honestly? Unless you’re planning to go public or have specific employee benefit strategies, skip this. I’ve recommended it maybe three times in 15 years, and two of those clients later reversed the election.
The Texas Franchise Tax: The Sneaky Fee That Catches Big Earners
Everyone says Texas has no business taxes. Everyone’s wrong. Meet the franchise tax—Texas’s way of taxing larger businesses without calling it an income tax.
Here’s the breakdown:
The Threshold: If your LLC’s total revenue exceeds $2.47 million annually, you owe franchise tax. Below that? You still file a No Tax Due Report, but you pay nothing.
The Rate: Most businesses pay 0.375% of taxable margin. Retailers and wholesalers get a break at 0.1875%.
The Calculation: Texas lets you choose your margin calculation:
- Total revenue minus cost of goods sold
- Total revenue minus compensation
- Total revenue times 70%
- Or for businesses under $20 million: EZ computation (total revenue times 0.331%)
Pro tip: Run all four calculations and use whichever gives you the lowest tax. Texas actually encourages this—they built options into the system.
Filing Requirements: Due May 15th annually, with an extension available to November 15th. Even if you owe nothing, file that No Tax Due Report or face penalties.
Sales Tax: The Collection Game
Selling products or taxable services in Texas? Time to become a tax collector for the state. Current rate: 6.25% state, plus up to 2% local, maxing out at 8.25% total.
Getting set up is straightforward:
- Register online through Texas Comptroller’s WebFile system
- Receive your sales tax permit (usually same day)
- Start collecting tax on taxable sales
- File returns monthly, quarterly, or annually based on volume
What’s taxable? Most tangible products and some services. What’s not? Most pure services, food products, and prescription medications. The devil’s in the details—when in doubt, call the Comptroller at 888-334-4112.
Here’s what catches people: Economic nexus rules. Sell more than $500,000 to Texas customers annually (even from out of state)? Congratulations, you’re now a Texas tax collector.
Payroll Taxes: The Complexity Multiplier
Hire your first employee and your tax life gets exponentially more complex. Suddenly you’re handling:
Federal Requirements:
- Income tax withholding
- Social Security and Medicare (you pay half, employee pays half)
- Federal unemployment tax (FUTA)
Texas Requirements:
- State unemployment tax (SUTA) through Texas Workforce Commission
- No state income tax withholding (silver lining!)
- Workers’ compensation insurance (technically not a tax, but mandatory)
My advice after watching hundreds of businesses struggle with DIY payroll? Don’t. A payroll service runs $30-60 monthly base cost and handles calculations, deposits, and filings. The first penalty you avoid pays for years of service.
Property Tax: The Hidden Business Cost
While not technically an LLC tax, property tax impacts many Texas businesses. Commercial property tax rates vary wildly by location—from 1.5% to 3% of assessed value.
Austin commercial property? Expect 2.5%+. Rural Texas? Maybe 1.8%. This matters for real estate LLCs or businesses owning their facilities.
Quick math: $500,000 commercial property in Dallas at 2.8% = $14,000 annual property tax. Factor this into your business planning.
Tax Planning Strategies That Actually Work
After 15 years in this game, here’s what separates successful Texas LLCs from the rest:
The 30% Rule Every dollar that hits your business account, immediately transfer 30% to a separate tax savings account. Federal taxes, self-employment tax, any franchise tax—this covers it all with buffer room.
Quarterly Payments Aren’t Suggestions Owe $1,000+ in federal taxes? Quarterly estimates are mandatory. Mark these dates: April 15, June 15, September 15, January 15. Set calendar reminders now.
Track Expenses Like Your Business Depends On It Because it does. Every legitimate business expense reduces taxable income. That $5 coffee with a client? Deductible. The mileage to meet them? Deductible. But only if you track it.
Maximize Retirement Contributions Solo 401(k) plans let you contribute up to $70,000 annually (2025 limits). That’s immediate tax deduction plus tax-deferred growth. For high-earning single-member LLCs, this is gold.
Strategic Timing Matters Need equipment? Buy it before year-end for immediate deduction (Section 179). Expecting a big payment? Maybe push that invoice to January. Legal? Yes. Smart? Absolutely.
Common Texas LLC Tax Disasters (And How to Avoid Them)
I’ve seen every mistake in the book. Here are the greatest hits:
“Texas Has No Taxes” Syndrome Just because there’s no state income tax doesn’t mean you’re tax-free. Federal taxes, franchise tax, sales tax—they’re all real and have teeth.
Ignoring Franchise Tax Because You’re “Small” Even if you’re under the threshold, file that No Tax Due Report. It takes five minutes online. Skip it and face potential penalties when you eventually exceed the threshold.
Mixing Business and Personal Finances Your LLC provides legal protection only if you respect the separation. Commingled funds = pierced corporate veil = personal liability. Open a business bank account day one.
Forgetting Unemployment Tax Registration Hire an employee without registering with Texas Workforce Commission? That’s penalties plus interest. Register before the first paycheck, not after.
Missing Nexus Triggers Started selling online? Great. Hit nexus thresholds in other states? Now you’re collecting their sales tax too. Modern e-commerce means multi-state tax compliance.
Industry-Specific Tax Considerations
Certain Texas businesses face additional tax obligations:
Oil & Gas: Severance taxes on production
Hotels: Hotel occupancy taxes (state and local)
Alcohol: Mixed beverage gross receipts tax, various permit fees
Tobacco: Cigarette and tobacco products tax
Motor Fuels: Fuel taxes for distributors
Insurance: Premium taxes for insurance companies
Operating in these industries? Budget for specialized tax compliance from day one.
Your Annual Texas LLC Tax Calendar
Here’s your year at a glance:
January 15: Q4 federal estimated taxes due
March 15: Partnership returns due (if applicable)
April 15: Q1 estimates, personal returns, single-member LLC returns
May 15: Texas Franchise Tax due
June 15: Q2 estimates
September 15: Q3 estimates, extended partnership returns
October 15: Extended personal returns
November 15: Extended franchise tax returns
Print this. Post it. Live by it.
The Public Information Report: Your Annual Freebie
Every Texas LLC must file a Public Information Report annually. Good news: It’s free. Bad news: Miss it and your LLC goes inactive.
File between May 1 and May 15 each year (coincides with franchise tax deadline). Takes about three minutes online. Updates your registered agent, officers, and address info. That’s it.
This isn’t a tax, but miss it and you’ll have problems opening bank accounts, signing contracts, and maintaining good standing.
When to Call in the Pros
Look, I built my career on helping business owners navigate this stuff, and I still recommend hiring professionals for complex situations. Here’s when DIY becomes dangerous:
- Multiple state operations
- Foreign ownership structures
- Significant ($250K+) annual revenue
- Employee count exceeding 5
- Industry-specific tax requirements
- S-Corp election considerations
A good Texas CPA costs $2,000-5,000 annually for a typical LLC. One missed deduction or avoided penalty covers that cost.
Interview questions for potential CPAs:
- How many Texas LLCs do you service?
- What’s your franchise tax calculation strategy?
- How do you handle multi-state nexus issues?
- What’s your communication frequency during tax season?
- Can you provide references from similar businesses?
Your Texas LLC Tax Action Checklist
Stop reading, start doing:
Today:
- [ ] Get your EIN if you haven’t already
- [ ] Open a business bank account
- [ ] Set up that 30% tax savings transfer
This Week:
- [ ] Register for sales tax permit (if selling products)
- [ ] Choose accounting software (QuickBooks, FreshBooks, Wave)
- [ ] Calendar all tax deadlines
This Month:
- [ ] Calculate and pay quarterly estimates
- [ ] Register with TWC if hiring employees
- [ ] Interview CPAs if revenue exceeds $100K
This Quarter:
- [ ] Review franchise tax threshold status
- [ ] Evaluate S-Corp election benefits
- [ ] Audit expense tracking systems
The Real Bottom Line
Texas LLC taxes aren’t complicated—they’re just different. No state income tax saves you thousands annually compared to other states. The franchise tax only hits bigger players. Sales tax is straightforward if you stay organized.
Your biggest risk isn’t Texas taxes—it’s federal obligations and multi-state compliance as you grow. Master the basics, track everything, make quarterly payments, and bring in professional help when the complexity justifies the cost.
Remember: The IRS doesn’t care that you didn’t know. The Texas Comptroller doesn’t accept “I forgot” as an excuse. But now you know what’s required, so execute the plan and focus on growing your business.
One last thing—that no state income tax advantage? It’s real money in your pocket. While entrepreneurs in other states hand over 5-13% to their state government, you’re reinvesting in your business or padding your retirement. Don’t waste that advantage.
Jake Lawson has guided over 1,200 entrepreneurs through LLC formation across all 50 states, with a special focus on Texas business structures. When he’s not explaining why Delaware isn’t always the answer, he’s probably reminding someone that “no state income tax” doesn’t mean “no taxes at all.”