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A Guide to Tax Filing for Small Businesses in Texas

by | Jan 12, 2024

Running a small business in Texas comes with its unique set of challenges, and tax filing is undoubtedly one of them. Navigating the complex landscape of tax regulations, deductions, and deadlines can be overwhelming, but with the right knowledge and strategies, you can ensure a smooth and compliant tax filing process. 

This guide aims to provide small business owners in Texas with the essential information, tips, and best practices for effective tax filing. 

Understanding Texas Business Taxes 

Before diving into the specifics of tax filing, it’s crucial to identify your business structure. Texas recognizes various business structures, including sole proprietorships, partnerships, LLCs, S corporations, and C corporations. Each structure has its own implications on taxation, so understanding the nuances is vital. 

Note: Every business entity, except for sole proprietors without employees, should obtain an Employer Identification Number (EIN) from the IRS. The EIN is a unique identifier for your business and is necessary for various tax-related transactions, including opening a business bank account and filing federal taxes. 

Types of Business Taxes 

1. Franchise Tax

The Texas Franchise Tax is a privilege tax imposed on entities doing business in the state. Limited partnerships, corporations, LLCs, and other similar entities are subject to this tax. The franchise tax is based on the greater of net income or the taxable capital of the business. 

2. Sales and Use Tax

Texas imposes a state sales tax on the retail sale, lease, or rental of most goods and taxable services. Additionally, local jurisdictions may impose additional sales taxes. Understanding your sales tax obligations is crucial to avoid penalties and ensure compliance. 

3. Employer Taxes

If your business has employees, you’ll be responsible for payroll taxes, including federal income tax withholding, Social Security, and Medicare taxes. Texas does not have state income tax, but federal tax regulations still apply. 

4. Property Taxes

In addition to franchise and sales taxes, small businesses in Texas may also be subject to property taxes. Property tax rates vary by location, and businesses owning real property or tangible personal property may be assessed annually. Familiarize yourself with local appraisal districts and deadlines for property tax assessments to avoid penalties. 

Tax Forms and Filing Deadlines 

Now that you have an overview of the different types of taxes, let’s have a look at the essential forms and filing deadlines for small businesses in Texas: 

Texas Franchise Tax Report (Form 05-102)  

  • Deadline: May 15th (or the 15th day of the fifth month after the close of your fiscal year) 
  • Use this form to report and calculate your franchise tax liability. Small businesses with gross receipts under $1.18 million are exempt but must file a No Tax Due Report. 

Texas Sales and Use Tax Return (Form 01-114) 

  • Deadline: 20th of each month (or the next business day if the 20th falls on a weekend or holiday) 
  • This form is crucial for businesses engaged in retail or taxable services to report and remit sales tax. Timely filing is essential to avoid penalties and interest. 

Federal Tax Forms 

Depending on your business structure: 

Sole Proprietorship: 

  • Utilize Schedule C (Form 1040) to meticulously report income and losses. 
  • Incorporate Schedule SE (Form 1040) to account for self-employment taxes. 

Partnership: 

  • Lodge Form 1065, U.S. Return of Partnership Income. 
  • Furnish each partner with a comprehensive Schedule K-1 (Form 1065), delineating their share of income, deductions, and credits. 

LLC (Limited Liability Company): 

  • For single-member LLCs, file as a sole proprietor using Schedule C. 
  • For multi-member LLCs, adopt Form 1065 for partnership filing. 

S Corporation: 

  • Complete Form 1120S, U.S. Income Tax Return for an S Corporation. 
  • Distribute detailed Schedule K-1 (Form 1120S) to shareholders. 

C Corporation: 

  • Navigate the complexities of Form 1120, U.S. Corporation Income Tax Return. 

Tips for Maximizing Deductions and Savings 

Keep Detailed Records: 

Beyond basic bookkeeping, maintain an organized system for documenting expenses, invoices, and receipts. Digital tools can streamline this process and facilitate comprehensive record-keeping. 

Take Advantage of Deductions 

Explore often-overlooked deductions, such as home office expenses, business-related education, and qualified business equipment purchases. A thorough understanding of the tax code can uncover opportunities for significant savings. 

Section 179 Deduction: 

Dive into the details of the Section 179 deduction to capitalize on the immediate expensing of qualifying business equipment. This can positively impact your bottom line by reducing taxable income. 

Hire a Professional: 

Collaborate with a qualified tax professional who understands the intricacies of Texas tax laws. Their expertise can help you navigate complex regulations, identify additional deductions, and ensure accurate and compliant tax filings. 

Ready to tackle your small business taxes in Texas with confidence? Our experts are here to help! For personalized assistance and to explore more tax-saving opportunities, reach out to us today.