Business Taxes in Dallas TX

What Texas Business Owners Need to Know About Taxes

Any Texas business owner needs to understand the importance of keeping up with business tax responsibilities. Failing to properly file for or pay business taxes can have some seriously negative consequences for business owners.

It’s true that Texas is considered by many to be an ideal state to do business in, thanks to the state’s healthy economy. Texas is also popular for business owners because business taxes tend to be comparatively quite low in the Lone Star state. That being said, business owners need to know the basics about their tax obligations to remain in business for the long run.

The following are a few of the most important things that Texas business owners need to know about taxes:

Business taxes in the state are known as a “franchise” tax

One unique thing about business taxes in the state of Texas is that they are called franchise taxes. The franchise tax for most companies will be a 1 percent tax on any taxable margins that the company in question has.

These margins can be calculated in any one of three different ways. Margins could be 70 percent of the total revenue that the company brings in. Margins could also be the revenue the company brings in with the cost of goods sold subtracted out. Lastly, margins could be considered all of the company’s revenue, with the total compensation for the company subtracted out. The amount of a company’s margins is usually the
smallest of these three figures.

Most Texas businesses will need to pay the franchise tax. However, there is an exception when it comes to both sole proprietorships and partnerships. These types of business setups don’t have to worry about the franchise tax.

The franchise tax is smaller for certain types of business. For example, a company that is either a retail or wholesale operation only has to pay a 0.5 percent franchise tax.

Taxes on corporations and S-corporations

Both corporations and S-corporations are subject to the franchise tax. Although the company itself must pay the franchise tax for S-corporations, it’s important to note that individual shareholders for S-corporations don’t have to pay any taxes on the income they bring in through their ownership in the company.

There is a huge tax benefit in place in Texas for S-corporations that don’t earn at least $1.08 million in revenue each year. This is the state’s “no tax due” threshold. An S-corporation that doesn’t earn at least this much doesn’t have to pay the franchise tax, and at the same time, shareholders don’t have to pay any state taxes so that the S-corporation operates basically tax-free in the state.

Taxes on Limited Liability Companies

Business owners with LLCs will need to pay the franchise tax on their company’s earnings. However, one benefit for LLCs in Texas is that any income from the company that is reported as personal income does not require any state income tax as it would in many other states.

Taxes on sole proprietorships and partnerships

Those who run sole proprietorships do not have to pay any franchise tax or business tax in Texas. Those who run partnerships do have to pay the franchise tax. However, Texas looks at a partnership the same way as a sole proprietorship if the business is owned by partners who receive all the income from the business directly.

Staying out of trouble with the IRS

The number one thing for Texas business owners to keep in mind is avoiding audits and other cumbersome scenarios with the IRS and the state tax authority. Business owners can minimize taxes in several ways. They can first minimize their taxable income so that they pay lower tax rates. The tax rate a business has to pay is typically impacted by how much income the business brings in.

Business owners also need to do research on tax credits. Companies may be eligible for various tax credits that will help bring down their taxable income. Business income can also be reduced by subtracting various expenses. Expenses for entertainment and meals can often be deducted. Also, deductions can be taken for business automobiles. Many different types of business require the use of a company vehicle, and the IRS
accepts mileage deductions on taxes for company vehicles.

Part of running a successful business is keeping up with your obligations to the tax authorities and avoiding audits, so be sure you keep your books in order and make those timely tax payments!

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