By default, LLCs themselves do not pay federal income taxes, only their members do. Texas, however, imposes a state franchise tax on most LLCs. The tax is payable to the Texas Comptroller of Public Accounts (CPA).
Do I have to pay franchise tax in Texas for an LLC?
Most LLCs in Texas must pay an annual franchise tax to the Texas Comptroller of Public Accounts (CPA). The tax is based on the LLC’s margin.
- Businesses with less than $1.18 million in annual receipts pay no franchise tax.
- Receipts between $1.18 million and $10 million pay 0.375%, up to a 0.75% maximum rate.
- All taxable entities in Texas must file and pay franchise tax each year by May 15.
The franchise tax falls under privilege taxes – taxes on out-of-state businesses operating in Texas. Steps to paying properly include: determining if your LLC is subject to the tax, choosing a calculation method, computing margin or taxable capital, completing the appropriate forms, and remitting payment on time.
Penalties exist for late filing or payment. Most LLCs need to pay franchise tax, but some exemptions occur.
Additionally, while Texas has no state income tax, LLCs must pay certain other taxes. Local taxes, unemployment insurance taxes, and sales and use taxes still apply. LLC members also pay personal income tax on LLC profits. Forming a Texas LLC has tax implications, but overall taxes remain business-friendly.
What taxes do LLC pay in Texas?
LLCs themselves do not pay federal income taxes in Texas, only their members do. However, Texas imposes a state franchise tax on most LLCs payable to the Texas Comptroller of Public Accounts (CPA).
- The franchise tax rate can be 0% to 0.75% based on annual receipts. Businesses with less than $1.18 million in receipts pay no tax.
- Receipts between $1.18 million and $10 million pay 0.375%, up to a 0.75% maximum rate.
- LLCs must pay the franchise tax each year by May 15.
Paying properly involves determining if subject to the tax, choosing a calculation method, computing margin or taxable capital, completing forms, and remitting payment on time.
Late filing or payment penalties exist. Some LLCs have exemptions.
Additionally, LLCs must pay certain other Texas taxes – local taxes, unemployment insurance taxes, and sales and use taxes. LLC members also pay personal income tax on profits.