Texas LLC taxes are lighter than in most states, because Texas has no personal income tax. Your LLC’s profits still face federal income tax and self-employment tax, though, and every LLC deals with the Texas franchise tax, even if most small ones owe $0 of it.
What taxes does a Texas LLC pay?
| Tax | Who it applies to | Rate |
|---|---|---|
| Texas state income tax | Nobody | None (0%) |
| Federal income tax | All LLCs | 10%-37% (individual rates) |
| Self-employment tax | Active members | 15.3% |
| Texas franchise tax | LLCs over $2.47M revenue | 0.375%-0.75% |
| Federal payroll taxes | LLCs with employees | Varies |
| Sales tax | Taxable goods and services | 6.25% state + local |
For most small LLCs, the real bill is federal tax. The state side is close to zero.
Does Texas tax LLC income at all?
No. Texas doesn’t tax LLC profits, member distributions or paychecks. An owner who’d face California’s 13.3% top rate or New York’s 10.9% pays 0% here, the same as in Florida.
How is a Texas LLC taxed federally?
A single-member LLC is a disregarded entity by default. The profit goes on your personal return on Schedule C (Form 1040), taxed at individual rates of 10%-37%. There’s no separate business return.
A multi-member LLC is taxed as a partnership by default. The LLC files Form 1065, an information return, and gives each member a Schedule K-1. Members report that income on their own returns, and the LLC itself pays no federal income tax.
Either type can elect S-Corp treatment. The LLC then files Form 1120-S, members who work in the business get W-2 wages, and the rest of the profit passes through as distributions. That’s the main way owners cut self-employment tax.
An LLC can also elect C-Corp treatment, file Form 1120 and pay the 21% corporate rate. Dividends then get taxed again on members’ returns, which rarely makes sense for a small LLC.
How much is self-employment tax?
If you actively work in your LLC, you pay self-employment tax on your share of the profit. It’s Social Security and Medicare for people without an employer:
- Social Security: 12.4% on the first $168,600 (2024)
- Medicare: 2.9% on all earnings
- Additional Medicare: 0.9% on earnings over $200,000
Together that’s 15.3% up to the Social Security wage base. It’s the tax new owners most often forget, because it sits on top of income tax. Single-member owners and active members pay it. Passive investors generally don’t, and under an S-Corp election, distributions aren’t subject to it.
Can an S-Corp election lower it?
For a profitable LLC, yes. Take $150,000 of profit. Taxed as a regular LLC, the self-employment tax comes to about $21,195.
With an S-Corp election and a $75,000 salary, payroll taxes on the salary are $11,475 and the other $75,000 comes out as distributions with no SE tax. That’s roughly $9,720 saved.
The catch is that the IRS requires a “reasonable salary,” and you’ll need to run payroll and file a corporate return. We’d only look at it once profits are clearly above what a reasonable salary for your role would be, and we’d run the numbers with a tax professional first.
What is the Texas franchise tax?
Texas skips the income tax but charges a franchise tax on businesses. Every LLC doing business in Texas is subject to it. Most small businesses owe nothing.
For 2024, an LLC with annualized total revenue under $2,470,000 owes no franchise tax. It still has to file by May 15 every year.
If you’re over the threshold, here are the rates:
| Business type | Rate |
|---|---|
| Retail/wholesale | 0.375% |
| Other businesses | 0.75% |
| EZ Computation | 0.331% |
The rate applies to your “margin,” which you get by subtracting one of these from total revenue: cost of goods sold, compensation, 70% of revenue, or $1 million. You pick whichever gives the lowest tax.
| Revenue | What you file (due May 15) |
|---|---|
| Under $2.47M | Public Information Report (the No Tax Due Report is no longer filed for 2024 reports onward) |
| $2.47M – $20M | EZ Computation or Long Form |
| Over $20M | Long Form |
Do you need to collect Texas sales tax?
Only if you sell taxable goods or services. The state rate is 6.25%, and local rates add up to 2%, for a total of up to 8.25%.
Most tangible goods are taxable, plus some services such as data processing and real property repair. Most other services are exempt, as are groceries (unprepared food), prescription medications and some manufacturing equipment. Sellers register with the Texas Comptroller for a sales tax permit, which is free.
What changes when you hire employees?
You take on payroll taxes:
| Tax | Rate | Who pays |
|---|---|---|
| Social Security | 6.2% | Employer 6.2%, employee 6.2% |
| Medicare | 1.45% | Employer 1.45%, employee 1.45% |
| Federal unemployment (FUTA) | 0.6% after the state unemployment credit | Employer |
| Texas unemployment | Varies | Employer |
There’s no state income tax to withhold. You only withhold federal income tax and FICA.
When are estimated tax payments due?
Nobody withholds tax from LLC profits, so members usually pay the IRS quarterly with Form 1040-ES. These are the federal deadlines, plus the one Texas date:
| Date | What’s due |
|---|---|
| January 15 | Q4 estimated federal tax |
| April 15 | Q1 estimated tax + prior year return |
| May 15 | Texas franchise tax report |
| June 15 | Q2 estimated federal tax |
| September 15 | Q3 estimated federal tax |
If you owe more than $1,000 when you file and didn’t pay enough during the year, you may owe a penalty. You avoid it by paying at least 90% of this year’s tax, or 100% of last year’s (110% if your AGI was over $150,000).
In your first profitable year, the prior-year safe harbor is the easy one to hit, since last year’s tax bill was probably small.
What can a Texas LLC deduct?
The usual business expenses: supplies, software and subscriptions, a dedicated home office (a share of home costs), business miles or actual vehicle expenses, equipment, accounting and legal fees, business liability insurance and self-employed health insurance, marketing, and business travel (not commuting). Contributions to a SEP-IRA, SIMPLE IRA or Solo 401(k) reduce taxable income too.
On top of those, the qualified business income (QBI) deduction lets eligible owners deduct up to 20% of qualified business income. Limits apply based on income and the type of business.
Where do Texas LLC owners get tax wrong?
Mostly by forgetting the 15.3% SE tax, skipping the May 15 franchise filing because they owe $0 (that still brings penalties), or paying a whole year’s tax in April. Mixing personal and business money is the other common one, since it makes deductions harder to defend.
Our rule of thumb: put 25-35% of profits aside for taxes as they come in, and look at the S-Corp question again every year.
When should you hire a CPA?
We’d get one once revenue passes $100,000, you’re weighing an S-Corp election, you hire employees, or the business gets complicated with multiple states or outside investors.
Start your Texas LLC
Plan for federal income tax and the 15.3% SE tax from your first month, and the Texas side mostly takes care of itself.
IncCraft forms your Texas LLC and helps you understand your ongoing tax requirements, so you can get on with building the business.
Form your Texas LLC with IncCraft today.