When Do You Need to File Texas Franchise Tax Forms?

Business owner reviewing documents to file Texas franchise tax forms by caudell cpa in houston, texas.

Although the name may lead you to think otherwise, completing the Texas franchise tax forms is required by the Texas Comptroller of Public Accounts for taxable entities in Texas that are not franchises. The most common entities that must file include LLC, PLLC, Corporation, Professional Corporation, or a Professional Association. (View the full list of entities.)

Every limited liability entity must file a franchise tax return. However, some types of businesses are excluded. Sole proprietorships, some general partnerships, and certain exempt entities are not subject to the tax and don’t need to file. (View the full list of exempt entities.)

In this article, we will focus on entities that are subject to the franchise tax. The key for these businesses is understanding the timeline and key requirements governing this tax.

When Do You Pay Texas Franchise Tax?

While every limited liability entity must file a franchise tax return, the franchise tax is not due until revenue exceeds the No Tax Due Threshold. In 2020 and 2021, the threshold is $1,180,000.

If your total annual revenue is less than the no tax due margin, then you must file a No Tax Due Report indicating that you don’t owe, and you must file an Information Report that lists your location and identifies your managers or owners.

Completing these Texas franchise tax forms is important to avoid a penalty. Franchise tax reports are due on May 15th of each year. If you do not file the reports — even if you do not owe tax — you will be assessed a $50 penalty.

Calculating Tax if Revenue Exceeds No Tax Due Margin

If your total revenue exceeds the no tax due margin, then your franchise tax is assessed based on your entity’s taxable revenue. There are four ways to calculate your taxable margin:

  • Total revenue times 70 percent.
  • Total revenue minus cost of goods sold (COGS).
  • Total revenue minus compensation.
  • Total revenue minus $1 million.

Fortunately, you are allowed to select the most favorable margin from these four options. This way, you can pay the least amount of tax while still meeting your obligation to pay the Texas franchise tax.

Frequently, if you fail to file the required returns, the Comptroller sends a letter advising that they have calculated your tax for you.

For example, new businesses are typically unaware of the filing requirement. Most new businesses don’t achieve the tax due revenue threshold discussed above, and, generally, no tax is due for the first year. However, if you receive a letter from the Comptroller stating you have tax due when you did not file the tax form, you should call your CPA immediately.

– For healthcare providers whose business is formed as a limited liability entity, you can exclude certain revenues in the calculation. This includes payments received from Medicare, Medicaid, CHiP, and worker’s compensation.

– For other types of businesses with unique revenue or cost situations, there are allowances, credits, and deductions that could lower your taxable margin. Talk to our CPA firm about these options for your business.

Contact Caudell & Associates for Assistance

Every business is different. If you are doing business in Texas, we want to help you meet the requirements of the Texas franchise tax. We can review your entity set-up, review your annual revenue to determine whether you owe Texas franchise tax, and review which taxable margin is the best option for your business.

As a local CPA based in Houston, we have a great understanding of how to help your business with the Texas franchise tax forms. Give us a call today.