Texas LLC Taxes

Texas’ booming economy and vast expanse make it a popular spot for new businesses. Yet, as more business owners choose to start their ventures in the state, many may find it challenging to understand the business taxes involved. 

Regardless of the size of your business, if you operate a limited liability company (LLC) in Texas, you will need to ensure you stay up to date on your finances and pay federal, state, and local taxes. Our guide will help you understand which taxes you will need to pay for your Texas LLC.

Recommended: Schedule a free consultation with an accountant to stay on top of their taxes.

Texas Franchise Tax and Public Information Report

In order for LLCs to operate in Texas, they must file a Public Information Report (Form 05-102) and either a Franchise Tax Report or a No Tax Due report with the Texas Comptroller of Public Accounts every year. 

Texas Public Information Report

A Public Information Report ensures the names and addresses of an LLCs members are updated annually. Failure to submit this form each year by May 15 could result in fees and loss of corporate privileges.

Texas Franchise Tax

LLCs that generate an annualized total revenue of or higher than a certain amount—$1.23 million in 2023 — or whose tax liability is less than $1,000 must also file a Franchise Tax Report and pay a franchise tax. This annual tax allows them to run their business in the state of Texas and offers privileges like liability protections. Depending on the type of company, the franchise tax rate ranges from 0.331% to 0.75%. 

No Tax Due Report

The vast majority of LLCs in Texas do not reach the threshold that requires franchise tax to be paid. So each year, they instead file a No Tax Due Report (Form 05-163). LLCs owned by veterans are offered a five-year exemption from the franchise tax. These businesses must still file a No Tax Due Report.

Franchise Tax Reports and No Tax Due Reports are both due by May 15 each year. Your first Franchise Tax Report is due the year after your LLC is established, meaning if your LLC was approved on January 15, 2023, your first report will be due on May 15, 2024. Filing these forms late will result in penalties, and not filing at all could lead to the forfeiture of your LLC.

For more information and resources, such as a state Franchise Tax calculator, visit the Texas Comptroller of Public Accounts website.

Texas LLC Taxes Owed

LLCs benefit from pass-through taxation, meaning the business’s profits pass-through to the members’ individual tax returns. In other words, the LLC itself doesn’t pay income tax. Instead, LLC owners must pay taxes on their portion of the income made from the LLC. In Texas, LLC owners can expect to pay the following taxes:

Federal Taxes

Regardless of where your business is located, if you have an LLC within the United States, you will have to pay federal income taxes and federal self-employment taxes. These taxes are reported on your Form 1040.

Federal Self-Employment Taxes

It doesn’t matter if your LLC is a single-member LLC or a multi-member LLC; all LLC members must pay self-employment taxes on their share of the LLC’s profits. The self-employment tax rate is 15.3%. 

Federal Income Taxes

Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets, as well as the percent owed, will change each year.

Texas State Taxes

Each state has its own laws dictating how individuals and businesses are taxed. Texas does not have an income tax, which is often seen as an advantage to business owners in the state. 

Texas Franchise Tax (If Applicable)

LLC owners must file an Annual Franchise Tax Return and will owe tax each year if their annualized total revenue is $1,230,000 or more. If your business does not meet or exceed this threshold, you will file a No Tax Due Report and will not be required to pay a franchise tax. 

Visit the Texas Comptroller of Public Accounts website for more information.

Texas Income Taxes

Texas has no state income tax, meaning that while business owners in Texas still have to pay federal income taxes, they do not owe additional taxes on their income to the state. This makes Texas one of only seven states with a 0% income tax rate. (For comparison, many states have an income tax rate higher than 5%, and some states can have income tax rates upwards of 10%.)

Texas’ 0% tax rate is seen as a business-friendly policy, and this has likely contributed to Texas’s position as an economic hub in the United States.

Texas Sales and Use Tax

Texas has a state sales and use tax rate of 6.25%. In addition to this, local jurisdictions like cities and counties can add their own tax rate. The maximum additional local tax is 2%, meaning sales tax in some areas of Texas is 8.25%. To find your local sales tax rate, visit the Texas Comptroller of Public Accounts website.

Taxes can be paid online, and your filing frequency is based on how much you collect in annual taxes. 

Apply for a Sales and Use Tax Permit in Texas

If your business sells taxable goods or services, you must apply for a sales and use tax permit with the Texas Comptroller of Public Accounts. 

Visit the Texas Comptroller of Public Accounts website for more information.

Employer Taxes

If you have employees in Texas, you’ll need to pay unemployment insurance tax on the first $9,000 in wages paid to each employee. At first, the unemployment insurance tax rate is 2.7%. 

However, if the NAICS national average rate is higher, you’ll be required to pay that. Established employers’ tax rate is determined by factors such as the amount of wages paid and the amount of unemployment claims connected to your business.

For more information, visit the Texas Workforce Commission website.

Additional State Taxes

The Texas Comptroller of Public Accounts imposes additional taxes on some industries, such as:

  • Boat and boat motor
  • Hotel
  • Mixed beverage
  • Oyster sales
  • Tobacco, cigarette, and ecigarette

To see the full list of industries and learn more, check out the Texas Comptroller of Public Accounts website.

Texas Local Taxes

The local laws and ordinances in Austin may differ greatly from those in Amarillo. Additional taxes can also be imposed on certain industries on a local level. Regardless of where you live in Texas, we recommend you check with your local jurisdiction and ensure that your business obtains the proper local permits and follows any local regulations that may impact your business’s operation.

Texas LLC Compliance

You must be sure to obey Texas state and local laws to keep your business compliant and in good standing. Texas businesses must file an annual report each year with the state.

Texas LLC Annual Report

All Texas LLCs must file an annual report with the Texas Comptroller of Public Accounts consisting of both the Public Information Report and the Franchise Tax Report. It ensures that the state has updated information on your business and your business’s finances. Even if nothing changes from one year to the next, you are still required to file both reports each year for your LLC.

Annual reports are due each year by May 15. Late filings will incur fees. Failure to file will result in your business being dissolved. These reports can be filed online or by mail with Texas Comptroller. 

For more information, check out our Texas LLC Annual Report guide.

LLC taxes are complex. While our guide can provide you with important information, we recommend you schedule a free consultation with an accountant to ensure that you handle your business taxes correctly.