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After you start a Texas LLC, you have to file the Texas Franchise Tax Report each year, and register for additional taxes.
Paying taxes is an important part of running a business, but figuring out which taxes you need to pay can be a pain.
This lesson will provide you with general resources and the basics of Texas LLC tax filing requirements.
What taxes does a Limited Liability Company pay in Texas?
Each LLC has a different tax situation, so the taxes paid for a Texas LLC varies.
The amount of taxes owed for your LLC depends on rules like:
- how your LLC is taxed
- state and local tax rules
- any sales and use tax requirements, or
- whether you have employees
Additionally, some business types are required to register for industry-specific taxes.
Pro Tip: We recommend hiring an accountant to ensure your LLC meets all of its tax obligations.We also recommend getting an EIN Number for your LLC. An EIN is also called a Federal Tax Identification Number. They mean the same thing.
Not only will an EIN number be used to open an LLC bank account, but it will also be used for filing taxes with the local, state, and federal governments.
LLC pass-through taxation (Who pays the taxes?)
By default, LLCs don’t pay taxes.
Instead, the LLC Members are responsible for reporting the income (or losses) on their personal 1040 tax return. The Members pay taxes on any LLC profits. This is because of LLC pass-through taxation.
Simply put, pass-through taxation means the responsibility for reporting tax information from an LLC “passes through” the LLC to the LLC Members.
How are LLCs taxed in Texas?
By default, a Texas LLC is taxed by the Internal Revenue Service (IRS) based on the number of Members the LLC has. Then the Texas Comptroller honors this and taxes your LLC the same way at the state level.
An LLC with 1 owner (Single-Member LLC) is taxed like a Sole Proprietorship.
An LLC with 2 or more owners (Multi-Member LLC) is taxed like a Partnership.
The above are referred to as the “default status“. Meaning, they are automatically applied based on the number of LLC Members.
Alternatively, you have the option of requesting an “elective status” for your LLC. This is done by filing an extra form with the IRS. Once granted, this elective status means the IRS will treat your LLC as a Corporation (either an S-Corporation or C-Corporation) for tax purposes.
Note: Your Texas LLC Operating Agreement should also include information about how your LLC is taxed.
Federal Income Taxes
There are several different options for how the IRS can treat your LLC for tax purposes.
Single-Member LLC taxes (default status)
The IRS treats all Single-Member LLCs as Disregarded Entities for tax purposes. This just means that the IRS doesn’t expect the LLC to file its own federal income tax return.
Instead, the owner of the Single-Member LLC files the return (and pays the federal income taxes).
How the LLC pays federal income tax is determined by who owns the LLC:
- If the LLC is owned by an individual, the LLC is taxed like a Sole Proprietorship.
- If the LLC is owned by another company, the LLC is taxed as a branch/division of the parent company.
Multi-Member LLC taxes (default status)
If an LLC has two or more owners, the LLC is taxed like a Partnership.
The LLC needs to file a 1065 Partnership Return and issue a Schedule K-1 to the LLC owners.
The K-1s report each owner’s distributive share of profits. And the K-1 income “flows through” to the owners. The income taxes are then paid by each owner on their personal income tax return (Form 1040).
Husband and Wife LLC taxes
In community property states like Texas, a husband and wife LLC has the option to file taxes as a Single-Member LLC (aka Qualified Joint Venture) instead of a Multi-Member LLC.
On your EIN Application, you can choose to have your husband and wife Texas LLC taxed as a Qualified Joint Venture. If you already have an EIN for your LLC, you can send a letter to the IRS requesting that your LLC be taxed as a Qualified Joint Venture.
Otherwise, a husband and wife Texas LLC will be taxed in the default status as a Partnership.
Electing to have your LLC taxed as a Corporation
Instead of the default statuses above, a Limited Liability Company (LLC) can be taxed like a Corporation.
Note: We recommend speaking with an accountant before making a corporate election.
There are two types of corporate elections:
- S-Corporation
- C-Corporation
LLC taxed as an S-Corporation (elective status)
By filing Form 2553 with the IRS, your LLC can request to be taxed like an S-Corporation.
Being taxed as an S-Corp can help businesses (with established profits) save money on self-employment taxes.
Tip: There are additional expenses to having your LLC taxed as an S-Corporation Most new business owners shouldn’t make this tax election until their business is established and revenue is consistent. Once there is at least $70,000 in annual net income per LLC Member, we recommend speaking to your accountant about this option.
LLC taxed as an C-Corporation (elective status)
By filing Form 8832 with the IRS, your LLC can request to be taxed like a C-Corporation.
Being taxed as a C-Corp can help large employers save money on healthcare fringe benefits.
Note: This election is not common. Most of our readers don’t choose to have their LLC taxed as a C-Corporation.
Texas State Income Tax for Texas LLCs
Good news! Texas doesn’t have state-level income tax. This means you don’t have to file a state-level personal income tax return for your Texas LLC.
That said, there are other types of Texas business tax that apply to certain industries and types of businesses.
We recommend hiring an accountant to prepare and file your state income taxes.
You can also contact the Texas Comptroller for more information about Texas state taxes.
Local Income Tax for Texas LLCs
You and/or your LLC may need to file and pay income taxes with your local municipality (town, city, county, etc.).
We recommend hiring an accountant to prepare and file your local income taxes.
You can also contact your municipality to check on their requirements.
Texas Sales Tax
If you sell products to consumers in Texas, you may need to collect sales tax and get a Seller’s Permit. You can get a Seller’s Permit from the Texas Comptroller.
A Seller’s Permit is the license that allows you to collect sales tax on retail sales in the state where you do business. It’s sometimes also called a:
- resale license
- wholesale license
- sales tax permit/license
- reseller permit
They all mean the same thing and we may use these terms interchangeably.
You can register your Texas LLC for a Seller’s Permit with the Texas Comptroller via WebFile. And if you need a Sales Tax Resale Certificate, you can download the form from the Texas Comptroller’s website.
You can read more information about Texas sales tax from these Texas Comptroller resources:
For more information on permits, read Texas Business Licenses and Permits.
And if you have any questions about whether you need a Seller’s Permit, you can contact the Texas Comptroller at 888-334-4112. Their hours are Monday through Friday, from 8am to 5pm Central Time.
Tip: Save time by hiring an expert. We recommend using TaxJar. They'll help you register for, collect, and pay sales tax.
Texas LLC Payroll Taxes
If your Texas LLC will have employees, you must submit payroll taxes. Payroll taxes are essentially a group of taxes and filings, including:
- Federal income tax withholding
- State income tax withholding
- Social Security tax
- Medicare tax
- Federal unemployment taxes (FUTA)
- State unemployment taxes (SUTA)
- Local/county deductions
- Employee deductions
As an employer in Texas, you need to set up payroll, withhold payroll taxes from employees’ paychecks, and then submit those filings and taxes to various state and government agencies.
Although you can file payroll taxes yourself, the calculations can be burdensome and very complex. And if done improperly can lead to penalties and fines. Most people hire a payroll company or ask their accountant for help.
Our favorite payroll company is Gusto Payroll. They’ll automate and take care of your payroll taxes.
For more Texas payroll tax resources, please see the references section at the bottom of this page.
Managing your books & staying organized
You can keep track of income and expenses using Microsoft Excel or Google Sheets. Or you can use software to help automate things and save time.
The accounting software we recommend is Quickbooks Online.
Working with an accountant
As you can see, figuring out the different types of taxes you owe can be complicated, let alone how to properly fill out all the forms. And doing taxes improperly or missing deadlines can be harmful to your business
We strongly recommend working with an experienced accountant in Texas to help make sure you file your federal, state, and local taxes correctly.
Check out our guide on how to find an accountant.
Texas Comptroller Contact Information
There are other types of Texas business tax that apply to certain industries and types of businesses.
You can contact the Texas Comptroller at 888-334-4112 for more information about Texas state taxes. Their hours are Monday through Friday, from 8am to 5pm Central Time.
Texas LLC Taxes FAQs
Do I have to pay an annual fee for my LLC in Texas?
Maybe. All Texas LLCs are required to file the Texas LLC Franchise Tax and Public Information Report every year with the Texas Comptroller. This is separate from the federal, state, and local taxes that you pay.
The Franchise Tax and Public Information Report used to be two forms, but have been combined in the online tax portal.
The Franchise Tax is a privilege tax, meaning it’s a tax LLCs pay for the privilege of doing business in the state of Texas.
The Public Information Report keeps your LLC information up-to-date with the Texas Comptroller.
The Franchise Tax and Public Information Report is filed every year for the life of your LLC.
That said, about 90% of Texas LLCs don’t have to pay the Franchise Tax.
Your Texas LLC won’t have to pay the Franchise Tax if either of the following are true:
- your LLC’s annualized total revenue for the tax year is below the “No Tax Due Threshold“, or
- your LLC’s calculated tax liability is less than $1,000
For the 2022 and 2023 Report Year, the No Tax Due Threshold is $1,230,000. This means that if your LLC made less than $1,233,000 for that tax year, you don’t have to pay anything for the Franchise Tax that year.
Remember, even if your LLC isn’t required to pay the Franchise Tax, you still must file a No Tax Due Report (Form 05-163) and a Public Information Report (Form 05-102).
They are due by May 15th each year. And the first reports are not due until the year after your LLC was formed.
Veteran LLCs: If you have a veteran-owned Texas LLC, you are exempt from your first 5 years of franchise tax.
That said, you still have to file a No Tax Due Report (Form 05-163) every year. But you don’t have to file the Public Information Report.
We have a whole page about how to register for Franchise Tax, the penalties if you don’t file, who has to pay, and more. You can find that here: Franchise Tax for a Texas LLC.
How much is an LLC in Texas?
Texas LLC Costs include:
$300 to form your Texas LLC (to file your LLC Certificate of Formation). That said, if you’re a veteran, you can get a Texas LLC for free!
$25 in annual fees (to file your LLC Annual Report).
Do I need to file a Texas state tax return for my LLC?
No, you don’t need to file a Texas state tax return for LLCs. Texas does not have state-level personal income tax or corporate income tax.
That said, there are other tax forms you may need to file annually, like the Texas LLC Franchise Tax.
Check with your accountant to make sure you file all the correct documents.
How do I know my LLC tax classification?
You can tell your LLC’s tax classification by looking at how many Members are in your LLC.
This is because LLCs receive their tax classification from the IRS based on the number of Members (owners) your LLC has.
If you have one Member, your LLC is taxed as a Sole Proprietorship.
If your LLC has more than one Member, your LLC is taxed as a Partnership.
This is called being taxed in your default status. Meaning, you don’t have to file any paperwork to let the IRS know that’s how your LLC will be taxed because they tax LLCs that way by default.
However, in order for your LLC to be taxed as a Corporation, you or your accountant would have to file paperwork with the IRS letting them know you’ve chosen to be taxed as a Corporation.
And then the IRS would mail you an Approval Letter to confirm you’ve chosen the Corporate tax election for your LLC.
Note: Being taxed as a Corporation is rare for LLCs, so most people don’t need to worry about this.
And if you’re still unsure about how your LLC is taxed, we recommend calling your accountant or the IRS (1-800-829-4933). To speak to a live person at the IRS, press option 1, option 1 again, and then option 3.
How to start an LLC in Texas?
Here are the steps for starting an LLC in Texas:
- Choose an LLC name and make sure it’s available
- Choose who will be your Texas Registered Agent
- File the Texas LLC Certificate of Formation
- Complete and sign an LLC Operating Agreement
- Get a Tax ID Number (EIN) from the IRS
- Open an LLC bank account
- Check whether you need a business or sales tax license in Texas
References
IRS: Tax Information for Businesses
Texas Comptroller: Video Library
Texas Comptroller: Texas Tax Forms
Texas Comptroller: Texas Taxes and Fees
Texas Comptroller: Tax Payment Deadlines
Texas Comptroller: A History of State Taxes and Fees
Texas Workforce Commission: Unemployment Tax
Texas Workforce Commission: Unemployment Tax Services
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.
what are the steps to sell a single member LLC filing as S-corporation?
Hi Mathew, we have that info here: LLC taxed as an S-Corporation.
Hi have a question. I am a freelance graphic designer and opened an LLC to be able to do business. I am confused as to where I fall with the amount of tax I need to pay coming tax season.
I am the sole owner of the LLC with no partners, I am currently not selling anything I am just doing freelance work for an income.
Thank you
Hi Marina, we recommend speaking with an accountant to make sure you file your federal taxes and pay any necessary estimates.
Hi Matt,
Thanks for this awesome post. I am a non-us resident and I want to open an LLC in Texas. For me is possible to travel back and forth from there. My question is: If I am a non-us resident and my LLC is located in Texas, can I still do business with people from other states like California?
Thank you again,
Daniel
Hi Daniel, you’re very welcome. Yes, your LLC can do business with people in any state you’d like. Also, we have more information for non-US residents here: