Taxes for Small Businesses in Texas: A Guide

The adage that “everything is bigger in Texas” is accurate. It also applies to your tax burden if you don’t know how to handle the peculiar tax laws and regulations of Lone Star State. Use this blog as your go-to resource for information on small businesses and taxes in Texas whether you own and operate in the state or are considering it. If you follow this guidance and maintain your business running smoothly, you’ll be on top of things.

What You Should Know About Texas Small Business Taxes

Texas’ small business taxes are different from those in most other states and influence a variety of entities. You will have a better knowledge of the challenges you will face while you run your small business in Texas if you are aware of each one’s advantages and disadvantages.

1) Franchise Tax in Texas

Texas levies franchise taxes on small businesses. Because it is different from a corporate income tax, this tax is distinctive. Small enterprises with annual revenue under a specific threshold—$1,230,000 for 2022–2023—pay no franchise taxes.

2) Maximum Franchise Tax

The maximum amount of 1% for all business organizations in the state is another distinctive feature of the franchise tax rate. The rate might go down based on how much a small business makes.

Sales Tax in Texas

All retail sales, leases, and rents of the majority of items in Texas, as well as many taxable services, are subject to 6.25% state sales and use tax. Local governments may increase the sales and use tax by up to 2%, for a combined maximum rate of 8.25%.

A tax registration permit must be requested if you operate a small business in Texas, or sell or lease tangible personal property. Or provide taxable services. In two to three weeks, successful applicants obtain their permits. Apply through the Texas eSystem.

Your earnings, which are based on the amount of taxes you paid in the previous state fiscal year (from September 1 to August 31), must also be collected and reported. Four layers are present:

  • Less than $10,000
  • $10,000 – $49,999
  • $50,000 – $499,999
  • $500,000 or more

Texas Payroll Taxes

Texas does not have an income tax, but you are still responsible for various payroll taxes, such as the weekly state unemployment insurance fees. These reports can be submitted online by small enterprises.

Texas C Corp Taxes

There are a few things to keep in mind if your company is a C corp. C corporations will be responsible for paying the franchise tax as well as federal income taxes on behalf of their shareholders.

Texas S Corp Taxes

S corporations are liable to the franchise tax in Texas. S corporations are pass-through organizations. Therefore, stockholders won’t have to pay individual franchise taxes or state taxes on their portion of the corporation’s earnings.

An S Corps won’t have to pay taxes in Texas as long as its revenue stays below the No Tax Due limit.

Texas LLC Taxes

Even though LLCs are pass-through entities, you still have to pay a franchise tax if you run your small business in Texas as an LLC. LLC owners and members won’t be subject to state income tax on their earnings.

You also have to register and pay a franchise tax if you run a one-member LLC.

Texas Partnership Taxes

In Texas, you must pay a franchise tax if you run your small business as a partnership. This comprises limited partnerships and partnerships with limited liability.

Sole Proprietorship Taxes in Texas

In Texas, sole proprietorships are exempt from filing or paying franchise taxes. Sole owners will be responsible for paying their federal income tax.

Regarding taxes in Texas, the organization of partnerships and sole proprietorships may require clarification. Individuals who own businesses and distribute their business income to themselves are exempt from the franchise tax.

Obtain Business Tax Solutions from Tax Experts

Taxes can be frightening for small businesses. We have the answer you need at a cost that works for you, whether it’s entity creation, small business taxes, or any of our expert business services. To find out how we might assist you, schedule a brief appointment that usually lasts no more than 30 minutes with Your Part Time Accountant.