Texas LLC Taxes
FAQ: Three Essential Texas LLC Tax Questions
Q1: Does My Texas LLC Pay State Income Tax?
No. Texas imposes no state income tax on LLC members' personal income or on business entities. However, your LLC must pay Texas franchise tax if annual revenue exceeds $2,650,000 (2026 threshold). You'll also owe federal self-employment tax on your share of LLC profits. Texas's lack of income tax is a significant advantage, but the franchise tax requirement still applies to most established LLCs.
Franchise Tax Requirements
Your LLC owes franchise tax based on taxable margin, calculated from federal tax forms. The standard rate is 0.75% of taxable margin; retail/wholesale businesses pay 0.375%; the EZ computation rate is 0.331% (Tex. Tax Code § 171.101).
| Business Type | Tax Rate | Threshold |
|---|---|---|
| Standard | 0.75% of taxable margin | Revenue > $2,650,000 |
| Retail/Wholesale | 0.375% of taxable margin | Revenue > $2,650,000 |
| EZ Computation | 0.331% of taxable margin | Revenue > $2,650,000 |
Filing Deadline and Location
File your franchise tax report by May 15 annually with the Texas Comptroller of Public Accounts (not the Secretary of State). Your first report is due May 15 of the year following formation. File online at https://comptroller.texas.gov.
Late Payment Penalties
Missing the May 15 deadline triggers a $50 penalty per late report. Payments 1-30 days late incur a 5% penalty; over 30 days late incur 10%. Interest accrues after 61 days. Failure to file can result in the Comptroller forfeiting your right to transact business, followed by involuntary termination by the Secretary of State.
Q2: What's the Difference Between Federal Tax Elections for Single-Member vs. Multi-Member LLCs?
A single-member LLC is treated as a disregarded entity by default, meaning you report business income on your personal Schedule C (Form 1040). A multi-member LLC is treated as a partnership by default, requiring you to file Form 1065. Both structures subject you to self-employment tax on your share of profits. You can elect S-corp or C-corp taxation for either structure to potentially reduce self-employment tax.
Default Federal Tax Treatment
Single-member LLCs file Schedule C with your personal 1040 return. Multi-member LLCs file Form 1065 (partnership return) and distribute Schedule K-1s to each member. Both default elections are automatic—you don't need to file anything with the IRS unless you want to change your tax classification.
Self-Employment Tax Impact
Under default treatment, all LLC profits are subject to self-employment tax (15.3% combined rate). If you elect S-corp taxation, you can reduce self-employment tax by paying yourself a reasonable W-2 salary and taking the remainder as distributions, which avoid self-employment tax. This election requires filing Form 2553 with the IRS.
Election Options
You can elect C-corp or S-corp taxation for your Texas LLC. An S-corp election (Form 2553) is most common for reducing self-employment tax. A C-corp election (Form 8832) subjects the LLC to corporate-level taxation but may benefit certain business structures. Both elections are federal only—Texas recognizes your federal classification for franchise tax purposes.
Q3: What Annual Reporting Must I File with Texas, and What Happens If I Miss the Deadline?
Your Texas LLC must file an annual Public Information Report (PIR) or Ownership Information Report (OIR) by May 15 with the Texas Comptroller of Public Accounts. The report is free to file but carries a $50 penalty if late, plus 5% penalty for 1-30 days late and 10% for over 30 days. Missing the deadline can result in forfeiture of your right to do business and involuntary dissolution.
Report Contents and Filing
Your annual report must include your principal office address, principal place of business, names and addresses of all managers or members, your SOS file number, and registered agent information. File online at https://comptroller.texas.gov. The first report is due May 15 of the year following your LLC's formation.
Penalty Structure for Late Filing
A $50 penalty applies per late report. If you pay 1-30 days late, add a 5% penalty on the tax owed. If you pay over 30 days late, add a 10% penalty. Interest accrues after 61 days. These penalties compound quickly, so timely filing is critical.
Consequences of Non-Filing
The Texas Comptroller may forfeit your LLC's right to transact business if you don't file. Once forfeited, the Secretary of State can involuntarily terminate your entity. To reinstate, you must file all delinquent reports, pay all taxes, penalties, and interest, obtain a tax clearance from the Comptroller, then file a reinstatement with the Secretary of State ($75 reinstatement fee).
How Your Texas LLC Is Taxed Federally
Your Texas LLC's federal tax treatment depends on how many members you have and your election status. By default, single-member LLCs are disregarded entities taxed as sole proprietorships on Schedule C, while multi-member LLCs are taxed as partnerships on Form 1065. You can elect to be taxed as an S corporation or C corporation instead. Texas imposes no state income tax, but you'll owe federal self-employment tax and must file estimated quarterly payments.
Default Federal Tax Classification
Your LLC's default federal tax status depends on membership structure. A single-member LLC is automatically treated as a disregarded entity and taxed on your personal Form 1040, Schedule C, as a sole proprietorship. A multi-member LLC is automatically classified as a partnership and files Form 1065. Neither classification requires an election—this is the IRS default unless you affirmatively elect otherwise.
Single-Member LLC: Schedule C Taxation
Single-member LLCs file Schedule C (Profit or Loss from Business) with your personal Form 1040. You report all business income and expenses on this schedule, and the net profit flows to your personal tax return. Self-employment tax applies to your net earnings, calculated on Schedule SE. You pay federal income tax at your individual rate, which ranges from 10% to 37% depending on your tax bracket.
Multi-Member LLC: Form 1065 Partnership Taxation
Multi-member LLCs file Form 1065 (U.S. Return of Partnership Income) with the IRS. The LLC itself pays no federal income tax; instead, profits and losses pass through to each member's personal return via Schedule K-1. Each member reports their allocable share of income on their Form 1040. Self-employment tax applies to your distributive share of partnership income, calculated on Schedule SE.
Electing S Corporation Taxation
You can elect to have your LLC taxed as an S corporation by filing Form 2553 (Election by a Small Business Corporation) with the IRS. This election is available to both single-member and multi-member LLCs. As an S corp, you file Form 1120-S instead of Schedule C or Form 1065. You must pay yourself a reasonable salary subject to payroll taxes, with remaining profits distributed as dividends, potentially reducing self-employment tax liability.
Electing C Corporation Taxation
You can elect C corporation taxation by filing Form 8832 (Entity Classification Election) with the IRS. Your LLC then files Form 1120 (U.S. Corporation Income Tax Return) and pays federal corporate income tax at a flat 21% rate on net income. Dividends distributed to members are taxed again at the individual level, creating double taxation. This election is rarely advantageous for small LLCs but may benefit certain business structures.
Federal Tax Rate Comparison
| Tax Classification | Federal Rate | Form Filed | Self-Employment Tax |
|---|---|---|---|
| Disregarded Entity (Single-Member) | 10–37% (individual brackets) | Schedule C | Yes, on net profit |
| Partnership (Multi-Member) | 10–37% (individual brackets) | Form 1065 | Yes, on distributive share |
| S Corporation | 10–37% (individual brackets) | Form 1120-S | Only on W-2 wages |
| C Corporation | 21% (flat corporate rate) | Form 1120 | No corporate-level tax; dividends taxed individually |
Self-Employment Tax Obligations
Self-employment tax applies to your LLC income unless you elect S corporation status. The combined self-employment tax rate is 15.3% (12.4% Social Security + 2.9% Medicare) on net earnings. For 2024, you pay Social Security tax on earnings up to $168,600; Medicare tax applies to all earnings with an additional 0.9% on income over $200,000 (single) or $250,000 (married filing jointly). You calculate this on Schedule SE and claim half as a deduction on Form 1040.
Estimated Quarterly Tax Payments
You must make federal estimated tax payments if you expect to owe $1,000 or more in federal income tax for the year. Payments are due on April 15, June 15, September 15, and January 15 of the following year. Calculate estimated tax using Form 1040-ES (Estimated Income Tax for Individuals). Underpayment penalties apply if you don't pay enough throughout the year, even if you ultimately owe a refund.
Texas Franchise Tax and Federal Deductibility
Texas imposes a franchise tax at 0.75% of taxable margin (standard rate), 0.375% for retail/wholesale, or 0.331% using the EZ computation method. No franchise tax is due if your annualized total revenue is ≤ $2,650,000 (2026 threshold). This Texas tax is deductible on your federal return as a state and local tax (SALT), subject to the $10,000 annual cap. The franchise tax is calculated based on your federal taxable income with specific adjustments under Tex. Tax Code § 171.101.
No Texas State Income Tax Benefit
Texas imposes no state income tax on individuals or business entities. This means your LLC's profits are not subject to Texas income tax at any rate. You pay only federal income tax on your distributive share of LLC income. This zero-tax-rate advantage makes Texas an attractive state for LLC formation, though you must still file the annual Public Information Report with the Texas Comptroller by May 15.
Statute Citation
Your LLC's federal tax treatment is governed by Internal Revenue Code sections 701–761 (partnerships), 1361–1379 (S corporations), and 1201–1288 (C corporations). Texas franchise tax is calculated under Tex. Tax Code § 171.101, which references specific IRS forms (Form 1120 for corporations, Form 1065 for partnerships, Schedule C for sole proprietorships) to determine taxable margin. The statute requires you to use the same accounting methods and income amounts reported on your federal return.
Texas State Income Tax for LLCs
Texas does not impose a state income tax on LLCs or any other business entity. Instead, Texas taxes business entities through the franchise tax, a margin-based tax calculated on taxable revenue. Your LLC's federal tax classification determines how you calculate your Texas franchise tax obligation.
No State Income Tax in Texas
Texas has no state income tax, meaning your LLC pays no tax on profits to the state. This applies regardless of whether you're taxed as a sole proprietorship, partnership, S-corporation, or C-corporation at the federal level. You'll owe federal self-employment tax on your distributive share of LLC income, but Texas imposes no corresponding state income tax.
Texas Franchise Tax: The Primary State Tax for LLCs
Your LLC owes Texas franchise tax if your annualized total revenue exceeds $2,650,000 (2026 threshold). The tax rate depends on your business type: 0.75% of taxable margin (standard rate), 0.375% for retail/wholesale businesses, or 0.331% using the EZ computation method. You file your franchise tax report with the Texas Comptroller of Public Accounts by May 15 annually under Tex. Tax Code Ch. 171.
Franchise Tax Rates and Thresholds
| Business Type | Tax Rate | Revenue Threshold |
|---|---|---|
| Standard rate | 0.75% of taxable margin | >$2,650,000 |
| Retail/wholesale | 0.375% of taxable margin | >$2,650,000 |
| EZ computation | 0.331% of taxable margin | >$2,650,000 |
| No tax due | — | ≤$2,650,000 |
How Your LLC's Federal Tax Classification Affects Texas Franchise Tax
Your LLC's federal tax treatment determines which revenue calculation method you use for Texas franchise tax. Single-member LLCs taxed as disregarded entities (Schedule C) and multi-member LLCs taxed as partnerships (Form 1065) each use different total revenue formulas under Tex. Tax Code § 171.101(c). If you've elected S-corporation or C-corporation treatment, you use the corporation revenue calculation method.
For partnership-taxed LLCs, you add income from Form 1065 lines 1c, 4, 6, 7, and Schedule K lines 3a and 5-11, then subtract specific deductions like bad debt and foreign income. For corporation-taxed LLCs, you use Form 1120 lines 1c and 4-10, applying similar subtractions. The statute provides detailed line-item instructions to ensure accurate margin calculation.
Calculating Taxable Margin
Taxable margin equals total revenue minus allowable deductions. You subtract bad debt, foreign royalties and dividends, distributive income from partnerships or S-corporations, and items from disregarded entities. Tex. Tax Code § 171.101(c) permits additional exclusions for specific business types: health care providers exclude Medicaid and Medicare payments, legal service providers exclude client damages and reimbursements, and certain transportation companies exclude subcontracting payments.
Your LLC can also subtract cost of goods sold if you sell tangible personal property or produce goods. Under Tex. Tax Code § 171.1012, cost of goods sold includes direct labor, materials, handling, storage, depreciation, equipment rental, and research costs. However, you cannot subtract selling costs, distribution costs, advertising, interest, income taxes, or officers' compensation.
Filing Requirements and Deadlines
You file your franchise tax report (Public Information Report or Ownership Information Report) with the Texas Comptroller of Public Accounts by May 15 each year. Your first report is due May 15 of the year following your LLC's formation. File online at https://comptroller.texas.gov. The filing fee is $0.00, but late penalties apply: $50 per late report plus 5% penalty if paid 1-30 days late, or 10% if over 30 days late, with interest accruing after 61 days.
Missing the May 15 deadline has serious consequences. The Comptroller may forfeit your LLC's right to transact business in Texas, and the Secretary of State may involuntarily terminate your entity. To reinstate, you must file all delinquent reports, pay all taxes, penalties, and interest, obtain a tax clearance from the Comptroller, then file reinstatement with the Secretary of State for a $75 fee.
Self-Employment Tax on LLC Income
Although Texas has no state income tax, you owe federal self-employment tax on your LLC's net income. Single-member LLCs report self-employment income on Schedule C (Form 1040), and you pay self-employment tax on Schedule SE. Multi-member LLCs taxed as partnerships report each member's distributive share on Schedule K-1 (Form 1065), and members pay self-employment tax on their share of net earnings. Estimated federal tax payments are due April 15, June 15, September 15, and January 15.
Sales Tax Registration
If your LLC sells taxable goods or services in Texas, you must register for sales tax with the Texas Comptroller. Texas imposes a 6.25% state sales tax plus up to 2% local sales tax (maximum 8.25% combined). Register online at https://comptroller.texas.gov/taxes/sales/. Sales tax is separate from franchise tax and income tax—you collect it from customers and remit it to the state.