What kind of tax will you owe on Texas business income?
Given the complexity of this aspect, you should engage a professional before making any payments or decisions. That will enable you to understand what the state requires of you and what you can do to meet your end of the deal. We will cover the payments extensively but you should work on getting some professional help with this to afford you some protection.
You might not be required to pay these taxes and most businesses in the region don’t need to pay federal income taxes. However, you will have to file a corporate tax return on what you have made. What you make in profits and losses can move to your personal returns, enabling you to avoid making payments twice, thanks to Pass-Through Entities Income Tax. To fully understand how this works, you should understand the tax election to which you are subject. For example, if you are one person owning the organization, you will find that the law treats you like a sole proprietorship. However, this does not affect your protection. You can choose to elect another mode of making payments or you can stick with the default, based on what you deem is best for the organization.
Luckily, the state does not require you to pay an income tax based on your organization, which is a relief for most people. Even so, there are some cases where you may find that you need to fork out some taxes on the Texas Tax website as follows:
- Sales and Use – these are applicable to organizations which provide tangible goods to the market for sale or leasing purposes. They also apply to companies that engage in taxable services. Currently, the rate starts at 6.25% though most authorities add a charge on top of this.
- Employer -these apply to organizations that hire people to carry out the activities of the business. Employers also have to register for the payments below:
- Unemployment Insurance-these go towards helping the state meet some program administration costs and are applicable to employers.
Other taxes may apply to your organization such as tobacco and crude oil tax. Thus, you need to go beyond the standard payments and ask yourself what payments may be necessary based on what you do. For example, if you deal with mixed beverages, there is a tax to this. Engage a professional who can help you sift through the legal complexities and set you on the right track.
Business license in Texas
Before you can start operating in the state, you must be aware of whether you need permits for your activities. These are licenses given to organizations, giving them the right to engage in certain activities in a region. If you require one and do not get one, you can get into a lot of trouble. Please note that the regulations are not standard. Instead, they depend on the city and the industry in which you will operate. As such, you may have to do a lot of research before you understand what applies to your case.
Is a business license required in Texas?
The need for licensing depends on the activities in which you will engage. At present, there is no license required by the state. Instead, you have to look at what each city and industry dictates as pertains to your business activities.
How to Apply for a Texas Business License
The application comes down to if you need the license at all, which you may not. For example, for the municipal level license, you will need to get in touch with the relevant authority. They can tell you if you need some paperwork or if you can go about your operations without such documents. You will likely need one if you will handle food, children or other sensitive goods or services. Generally, you can get this information from the Department of Licensing and Regulation which also handles applications and renewals. Below are some common Texas business licenses issued in the state:
Suppose you sell or lease tangible goods or provide taxable services in the state, you will need to collect a tax on behalf of the authorities. In this case, you will need a permit to allow you to do so while remaining in the bounds of the law. You are not subject to any fee for this and you can get your documentation online.
It applies to you if your organization will buy goods from another entity and offer them to the public for sale, thus creating a resale transaction. Here is a good example of this. If you buy raw materials from another company, you are not liable for the sales tax as you will process these and provide them to the market. Those who buy the processed products will pay the said tax and to avoid paying it on their behalf, you need this permit which you should present to the original seller.
These are but a few of the common permits. Otherwise, they extend to auctioneering, barber, training, air conditioning, midwifery, education, hair removal and breeding services. The list is quite extensive and the only way to know what applies to you is to contact the relevant authorities.
Texas Annual Report
What is Texas annual franchise tax report?
This Annual Report in Texas is a document which you must submit to the state each year in accordance with your compliance with the governing laws. It is seen as a cost of doing business in the state and it affords you some protections if you keep up with the stipulations. Now, here is the thing. You must file one, regardless of how much money you made, your tax class or how active you have been with your operations. It is a requirement and is not optional.
On the upside, most businesses do not pay a tax for this, however, they still need to file. If you are among the majority that get to avoid this payment, you are in luck. For example, if you are a veteran-owned business, you can avoid making payments for the first five years of operation. Even so, you must file the report.
You must file an Annual Franchise Tax Report by May 15 each year. For the first year of registration, you do not need to file. For example, if you start your business in 2021, the first filing will take place in 2022. If you do not meet the deadline, you will be subject to a fee of $50, regardless of whether you owe the state any amount in taxes. Also, you will incur a late payment tax of 5% which increases if you delay by 30 days.
Missing a filing will not only put you at risk of fines but it can also reduce your liability protection. You should thus pay heed to reminders on any upcoming dates and keep up with the Texas franchise tax report instructions.
Does Texas require an annual report?
The good news is that Texas is quite different from other states. You will not need to file an annual report. However, it has an equivalent of this in the form of a franchise tax report. Often, people use these terms interchangeably though they do not refer to the same thing. However, when anyone speaks of these in the state, they refer to what we will cover in the section below:
How do I file Texas Annual Franchise Tax Report (annual report)?
Before filing, you need to understand when the franchise tax report Texas is due and how much you will pay for the same. Also, will you do the filing online or would you rather download the form and fill it manually? From here, you can make the filing and submit it on time.
Here is a breakdown of who owes what:
- For all businesses making $1,180,000 or lower, no tax is payable. Instead, you file the No Tax Due Report (05-163).
- For businesses making $1,180,000 up to $20 million, the state requires a 0.331% share of the total revenue. For this, you file the EZ Computation Report (05-169).
- Retail/wholesale businesses making more than $20 million pay 0.375% of the total revenue and fill this tax report (05-158-A) – Long Form. Other businesses with the same range pay 0.75% and fill this report (05-158-A) – Long Form.
The filing can take place online or via paper, with the former attracting a fee of 1%. The report should include the following details:
- The organization’s name, address and taxpayer number
- The state file number
- The due date and year of the report
- The organization’s financial year which includes when it starts and ends
- The classification code – SIC and NAICS
- The organization’s tax details
For mailing, you should send the complete form to:
PO Box 149348
Austin, TX 78714-9348
For online applications, you should complete the process online and upload the applicable form.
The Public Information Report and Ownership Information Report
What is a Texas Public Information Report?
Many times, people adhere to the above sections and forget this report, also known as a PIR, which is quite crucial in the running of any organization. Failure to file this on time can lead to the loss of the corporate veil you enjoy. In some cases, it can even cause a delay in transactions such as the processing of loans and can thus hold your operations back.
This Franchise Tax Public Information Report includes information about your organization. These details include:
- The name of the entity
- The location of the entity
- Who is in charge of the entity?
Additionally, it should get into who is an owner in the organization. You might figure that since you do not have to pay franchise tax, you can get away with not filing this report but this is not the case. It is essential that you have the PIR with you as your financial institution also relies on it when making decisions that pertain to your business.
Each year, you must file this Texas franchise tax public information report with the comptroller, usually during May. You may wonder why this is important. Here is a simple way to look at it. The authorities need to update their records and keep tabs on your activities each year. This simple filing will do this while enabling you to go about your business knowing that you will enjoy a great deal of protection.
You can get a professional to do it for you. Even so, you must check to ensure that the information provided is in line with any changes you may have made during the year or matches the original documents in your possession.
What happens if you do not comply? You pay a fee of $50 as well as any other fees which are payable at the time. However, this is not the only thing you need to worry about. In truth, the penalty is nothing compared to the consequences that follow a lack of filing. For example, if you fail to file and 120 days go by past the deadline, you can have be subject to a certificate of authority forfeiture. Under these circumstances, you cannot sue or defend in the court system and you can lose your liability protection, leaving you personally liable. It is important to note that all these can happen even if you have paid the taxes outlined in the sections above.
It gets even worse. Once you undergo forfeiture, another business can take up your name and form a business under the same identifier. That means that by the time you get back on your feet and try to register again, you might have to choose another identifier and the other company could ride on your success. You might even have to buy your old name.
Who Must File Texas Public Information Report?
This requirement applies to LLCs like yours, as well as corporations and financial institutions, limited partnerships and professional associations. Other entities abide by a different set of rules and will thus not have to make this filing.
Given the likely consequences of not filing, you are better off keeping up with the requirements to protect your organization.