Texas Business Taxes Explained: What Every LLC Owner Should Know

Starting and running a business in Texas offers many advantages — a strong economy, business-friendly regulations, and no personal state income tax. However, that doesn't mean your business is free from all tax obligations. Every Texas LLC owner needs to understand how state business taxes work to stay compliant and avoid unnecessary penalties.

At Luna CPA, LLC, we specialize in helping entrepreneurs and business owners in Laredo, TX navigate the state's unique tax system with confidence and accuracy. Here's what every LLC owner should know about Texas business taxes.

1. The Texas Franchise Tax
   The Texas Franchise Tax is the primary business tax in the state. Often referred to as a "margin tax," it's imposed on most taxable entities, including LLCs, corporations, and certain partnerships.
   
   Who Must File
   Almost all business entities in Texas are required to file a franchise tax report annually, even if no tax is owed. Sole proprietors and general partnerships owned entirely by natural persons are exempt.
   
   Tax Rates
   As of 2025, the standard franchise tax rate is:

• 0.375% for retail and wholesale businesses
• 0.75% for all other businesses
  
  The tax applies to a business's taxable margin, which is calculated using one of several methods:
• Total revenue minus cost of goods sold (COGS)
• Total revenue minus compensation
• Total revenue multiplied by 70%
  
  The business pays whichever method results in the lowest tax.
  
  No-Tax-Due Threshold
  For 2025, businesses with annual total revenue under $2.47 million are not required to pay the franchise tax but must still file a No Tax Due Report. Missing this filing can still result in penalties or the forfeiture of your business's right to operate in Texas.
  

2. Annual Franchise Tax Reports
   Every Texas LLC must file its annual franchise tax report with the Texas Comptroller of Public Accounts. Reports and payments are due by May 15th each year.
   
   Even if your LLC did not conduct business or generate revenue during the year, a zero or no-tax-due report is still required. Filing late can lead to monetary penalties and the loss of your business's "active" status with the Texas Secretary of State.
   
   At Luna CPA, LLC, we help ensure your filings are accurate, timely, and in full compliance with the Comptroller's requirements.
   
3. Federal Taxes Still Apply
   While Texas doesn't levy a state income tax, your LLC still has federal tax obligations. Depending on how your business is structured, your reporting requirements may vary:

• Single-Member LLC: Generally treated as a disregarded entity; income reported on your personal Form 1040 (Schedule C).
• Multi-Member LLC: Taxed as a partnership; must file Form 1065 with the IRS.
• LLC Electing S-Corp or C-Corp Status: Additional filings required, such as Form 1120S or Form 1120.
  
  A CPA can help determine the most advantageous federal tax election for your business to minimize total liability.
  

4. Sales and Use Tax in Texas
   If your business sells tangible goods or certain taxable services, you must collect and remit Texas sales tax, currently set at 6.25%, with additional local rates that may bring the total to 8.25% in some areas.
   
   Businesses in Laredo, TX, for example, must register for a Sales and Use Tax Permit and submit returns periodically (monthly, quarterly, or annually) depending on their sales volume.
   
5. Payroll Taxes and Employment Obligations
   If your LLC has employees, you're responsible for withholding and remitting federal employment taxes, including Social Security, Medicare, and federal income tax.
   
   While Texas does not have a state income tax, employers must still comply with state unemployment tax (SUTA) requirements through the Texas Workforce Commission.
   
   At Luna CPA, LLC, we handle payroll setup and compliance for businesses of all sizes, ensuring all filings are accurate and on time.
   
6. Recordkeeping and Compliance
   Accurate recordkeeping is essential to maintaining good standing with the Texas Comptroller and the IRS. Keep organized financial statements, receipts, and tax documents for at least four years.
   
   Our CPA firm in Laredo provides ongoing bookkeeping and compliance reviews to ensure your records are audit-ready and aligned with tax reporting requirements.
   
7. Penalties for Non-Compliance
   Failing to file or pay Texas franchise tax can lead to:

• A 5% penalty for missing the due date
• An additional 10% penalty after 30 days
• Possible forfeiture of your business's right to transact under the Secretary of State
  
  Working with a CPA ensures you never miss critical deadlines or filings.
  
  Final Thoughts
  While Texas offers a favorable environment for small businesses, understanding and managing your tax obligations is key to long-term success.
  
  Whether you're filing your first franchise tax report or restructuring your LLC, Luna CPA, LLC provides professional tax preparation, compliance, and advisory services tailored to your business's unique needs.
  
  Luna CPA, LLC
  Certified Public Accountants in Laredo, Texas — helping LLC owners stay compliant, avoid penalties, and grow with confidence.