Texas LLC Tax Guide — Complete Overview

Texas is one of the most tax-friendly states in the country for LLC owners. There is no state personal income tax, no corporate income tax, and the franchise tax exemption threshold means most small LLCs owe nothing to the state. This guide covers every tax obligation for your Texas LLC — state and federal. For formation basics, see our Texas LLC guide.

Table of Contents

1. No State Income Tax
2. Texas Franchise Tax (Margin Tax)
3. Federal Tax Obligations
4. Sales and Use Tax
5. Tax Elections (S-Corp)
6. Quarterly Estimated Taxes
7. FAQ

No State Income Tax

Texas is one of nine states with no personal income tax (alongside Florida, Nevada, Wyoming, Washington, Alaska, South Dakota, Tennessee, and New Hampshire — the latter two with limited exceptions). This means:

• Single-member LLCs: All net business income passes through to you personally. You owe no state income tax on it. Period.
• Multi-member LLCs: Each member's share of LLC income passes through to their personal return. No state tax due.
• Non-resident members: Even if your LLC members live in other states, they do not owe Texas income tax on Texas-sourced LLC income (because it does not exist).

This is the single biggest advantage of forming an LLC in Texas versus states like California (up to 13.3% state income tax) or New York (up to 10.9% plus NYC tax).

Texas Franchise Tax (Margin Tax)

While Texas has no income tax, it does have a franchise tax — officially called the "Texas Franchise Tax" or "Margin Tax." This applies to most business entities including LLCs. However, the high exemption threshold means most small LLCs owe nothing.

Key thresholds and rates:

• No-tax-due threshold: $2.47 million in annualized total revenue (for 2024-2025 reports). LLCs below this threshold file a "No Tax Due" report and pay $0.
• Rates above threshold: 0.375% for retail/wholesale businesses, 0.75% for all other businesses
• Applied to "taxable margin" — the lowest of: 70% of total revenue, total revenue minus COGS, total revenue minus compensation, or $1 million
• EZ computation: Businesses with revenue under $20 million may use a simplified 0.331% rate on total revenue

Filing requirement: ALL Texas LLCs must file a Franchise Tax Report with the Texas Comptroller by May 15 each year — even if you owe $0. Failure to file results in penalties and eventual loss of your right to transact business.

For a deep dive, see our franchise tax guide.

Federal Tax Obligations

Texas LLCs have the same federal tax obligations as LLCs in every other state. The difference is that without a state income tax layer, federal taxes are your only income tax burden.

Default federal treatment:

• Single-member LLC: Disregarded entity — report income/expenses on Schedule C of your personal Form 1040
• Multi-member LLC: Partnership — file Form 1065 (informational return) and issue K-1s to each member

Elective federal treatment:

• S-corporation: File Form 2553 to elect. Income passes through but you can split income between salary (subject to payroll tax) and distributions (not subject to self-employment tax). See our S-corp election guide.
• C-corporation: File Form 8832 to elect. LLC pays corporate tax at 21% flat rate. Not common for small LLCs.

See our federal taxes page for complete details.

Sales and Use Tax

Texas imposes a sales and use tax on most tangible goods and certain services:

• State rate: 6.25%
• Local additions: Up to 2% (city, county, transit, special purpose districts)
• Maximum combined rate: 8.25%

If your LLC sells taxable goods or services, you must obtain a Texas Sales and Use Tax Permit from the Comptroller (free) and collect/remit sales tax. See our sales tax guide.

Quarterly Estimated Taxes

Since LLC income passes through to members, and there is no Texas income tax withholding, LLC members typically owe federal quarterly estimated taxes:

• Due dates: April 15, June 15, September 15, January 15
• Who must pay: Anyone expecting to owe $1,000+ in federal income tax for the year
• How to pay: IRS Direct Pay (irs.gov) or EFTPS

See our quarterly estimated taxes guide.

Tax Comparison: Texas LLC vs. Other States

FAQ

Does my Texas LLC pay any state taxes at all?

Most small Texas LLCs pay zero state taxes. If your annualized revenue is under $2.47 million, you file a No Tax Due franchise tax report and owe $0. You still must file the report by May 15 each year. Above the threshold, you pay the margin tax.

What is the difference between the franchise tax and a state income tax?

A state income tax applies to net income (profit). The Texas franchise tax is a margin tax applied to gross revenue minus certain deductions (COGS, compensation, or a 30% automatic deduction). Texas explicitly chose this structure to avoid calling it an income tax while still generating revenue from larger businesses.

Do I need to file anything with the Texas Comptroller even if I owe $0?

Yes. Every LLC must file a Franchise Tax Report and Public Information Report by May 15 annually with the Texas Comptroller. Even if you owe nothing, failure to file results in penalties and forfeiture of your LLC's authority to do business in Texas.

If I live in another state but have a Texas LLC, do I owe Texas taxes?

No Texas income tax ever, regardless of where you live. If your LLC earns revenue in Texas exceeding the franchise tax threshold, you owe franchise tax on the Texas-sourced portion. But there is no personal income tax for non-resident members.

How does the S-corp election affect Texas taxes?

S-corp election affects federal taxes (splitting income between salary and distributions to reduce self-employment tax). For Texas franchise tax purposes, the LLC is still subject to franchise tax based on total revenue — the S-corp election does not change your state filing obligation or rate.