We’ve previously written on 5 Things You Should Know About Houston Taxes (and Texas). We wanted to continue the discussion as Houston is in the state of Texas, and a few things have changed since then. Read on to get our 5 Things You Should Know About Small Business Taxes in Texas. <!—more—>
1. No Corporate Tax
While other states greedily peck at your hard-earned dollars, Texas is not one of them. Only five other states forego the charging of a state corporate tax. They include Washington, Nevada, Wyoming, South Dakota, and Ohio. The state with the highest tax bracket in 2023 was New Jersey at 11.5%, according to The Tax Foundation.
Did you know that Texas ranks among the best states for small businesses to begin, low regulations, tax code, and licensing? Source: Thumbtack
2. The Texas Franchise Tax
Other states can ruin businesses with excessive taxes on franchises. However, Texas is not one of them. In fact, we have one of the friendliest franchise taxes in the nation. The difference between franchise and standard corporate tax is that income taxes apply to profit while franchise taxes do not. In short, the franchise tax is a fee you pay for the privilege of doing business in a state. However, Texas does have favorable rules such as:
- You must earn $1.18 million per year to pay the franchise tax.
- Businesses that earn over $1.18 million to $10 million per year to pay a franchise tax of 0.375%.
- No business pays more than 0.75% in franchise taxes in Texas.
3. S Corporation Taxes in Texas
The S Corporation provides many of the benefits of incorporating but are not subject to separate federal or state income tax or. Shareholders are taxed on their equity in the company, even if it is only owned by one person. An S Corporation is still subject to the Texas franchise tax as shown above, although many do not reach the minimum to pay the tax.
Texas ranked 13th in the State Business Tax Climate Index in 2023, which included criteria such as individual income tax, corporate tax, franchise tax, and sales tax. – Source: The Tax Foundation
4. Sole Proprietorship and Partnership Taxes in Texas
Partnerships usually end up paying the franchise tax, while sole proprietorships do not. While they still pay federal taxes, they may avoid the franchise tax. A professional in your state can tell you which is best for your business.
5. LLC Taxes in Texas
LLC is also used for certain small businesses because they protect business owners from legal liabilities. They also pass incomes to owners, and they pay the individual income tax on those. They are also subject to the Texas franchise tax.
Click here to learn more about which type of business you should have in Texas.
More Things You Should Know About Small Business Taxes in Texas
Many business owners can find the task of keeping up with all tax rules a daunting task, even here in Texas. We encourage you to contact us if your business is located in the state and you need help understanding taxes, setting up a corporation, and more.
