guide paying taxes texas llc business tx state tax corporation

LLCs In Texas

Limited Liability Companies are recognised as an official, legal entity. The owners of an LLC are referred to as “members.” The main advantage that LLCs offer is private asset protection. Therefore, if your business is facing a legal claim for damages/debt (and if the business cannot afford to pay) the remaining debt will not be settled with the owner’s personal assets.

Read further information on LLCs and how to form one in Texas.

Additional Benefits To Operating An LLC In Texas

LLCs in Texas come with other attractive advantages:

Simple And Cost Effective Registration: The process is designed with easy to follow steps to enable you to form your LLC quickly. The fee will cost you $300.

Minimal Formalities: Texas law does not require your LLC to hold annual meetings or record detailed minutes.

Flexible Membership: There is no limitation to the number of members of an LLC in Texas. However, this will change when you distinguish between S and C corporations. As C corporations allow you to have more than 100 members (unlike in an S corporation) but this comes with certain tax and regulations requirements.

Name And Brand Protection: Upon officially forming an LLC in the state of Texas, your registered name will be protected. This means that no other company or potential company may use your name for their business.

What Taxes Do LLCs In Texas Pay?

LLCs also come with certain tax benefits for your company. You will need to comply with the tax requirements at all three levels: Federal, State, Local.

Federal Income Taxes For Your Texas LLC

The most popular cases with LLCs in Texas is that this entity does not file its own tax return with the IRS. Instead, the profits and losses flow-through to the owners (members) who are then responsible for filing them on their personal income tax return.

For LLCs with only one member, if the owner is an individual the company will be taxed like a Sole Proprietorship. Instead of the LLC filing its own federal taxes, its members are required to report and pay the taxes via their personal income tax return. If the LLC owner is another company, the LLC is taxed like a division of the parent company.

With more than two members, Texas LLCs are taxed like a Partnership. Your LLC will be viewed as a tax-reporting entity and has to file its own federal informational return.

When you apply for your EIN, the IRS will automatically tax your LLC based on the number of members (known as “default” tax elections). However, you can request that the IRS tax your LLC like a Corporation instead. This will of course vary depending on whether it is an S or C Corporation.

State Income Taxes For Your Texas LLC

Fortunately enough, the state of Texas does not have a personal state income tax.

Franchise Tax

You are required to file franchise tax reports by May 15 every year. Should your LLC be a small business, you can predict that you will not pay any tax, but instead file a report called, “No Tax Due Report.”

Sales And Use Tax

You will need to collect sales tax for your Texas LLC if the company:

1. Sells or leases tangible personal property in Texas or

2. Sells taxable services in Texas

The base sales tax that you can expect in the state of Texas is 6.25%. However, it is important to note that most cities will charge an additional sales tax.

Local Income Taxes For Your Texas LLC

Depending on how much money your LLC makes and where it is geographically located, your LLC may have tax filings with your local municipality.

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