For the past decade, Texas has been leading the charge in the United States in terms of job creation, economic development, and business formations. Around 3 million small businesses have been established in The Lone Star State, making it a hotspot for entrepreneurial talent and new business establishments.
With so many entrepreneurs moving to Texas from states such as New York or California to reestablish their current business or to start an entirely new venture, it is useful to get a better understanding of the business laws associated with Texas. Different states have different laws relating to taxes and other regulations. Here is a simple breakdown of Texas tax laws and what is required of entrepreneurs when they establish a new business there.
Why Choose Texas
Many factors come together to make Texas one of the best business climates in the United States. Having the 2nd largest economy in the country gives so many new business owners hope that Texas could lead to a world of success.
The state allows for anybody in or out of the country to establish a physical or digital business through limited liability corporations (LLCs). Citizens and non-citizens alike have the opportunity to enter the booming market. LLCs come with their own advantage of having a simple formation process and giving members and owners more protection and flexibility.
By having fairly low corporate rent costs and tax expenses, Texas allows for entrepreneurs and their businesses to succeed with more income. The location is also perfect, as the state is ripe with many job opportunities and job industries. Starting any type of business there means that entrepreneurs need to have an understanding of the Texas limited liability act and the tax laws created by the state.
Texas Tax Laws
The nature of businesses in Texas can heavily influence the type of tax and amount of tax that will have to be paid, so it is crucial to take these separate factors into account when looking at the tax regulations imposed by the state.
Sales Tax
Simply put, this is the tax on certain goods and services sold by the business. If a business transaction involves the selling of a physical product, the business will need to have a seller’s permit, allowing one to obtain sales tax.
Employer Tax
By hiring employees, entrepreneurs must ensure they register their business for Unemployment Insurance Tax on behalf of the employees working for the specific Texas business.
Annual Report and Franchise Tax
In Texas, businesses must file an annual report and franchise tax online at the Texas Comptroller website. The amount of tax paid depends on the income of the Texas LLC.
Those that earn less than $1,130,000 will not pay tax and must therefore file a “no tax due report”. Revenue that is greater than $1,130,000 means that graduated tax must be paid, which differs depending on the final income amount.
The due date for these reports is May 15 every year. Late filings lead to a $50 penalty, late tax payments result in a 5% penalty fee. It is always best to file and pay on time to avoid any type of penalty which could harm the business.
Corporations Tax
Texas is loved by many for its tax laws, and the fact that income tax is not imposed on corporations is a large benefit. S corporations are also not taxed. With these corporate tax benefits, Texas seals the deal with many established and upcoming businesses, making it a central hub for development and growth.
Conclusion
With the current tax laws and regulations in Texas, the nation will continue to grow and flourish. After going through this simple breakdown, entrepreneurs can have a clearer mind when establishing their business, as a good understanding will be created. Paying the right taxes on time is crucial for maintaining a good business image, whether it’s for an LLC, S Corp, or any other type of corporation.
Many websites such as TRUiC are available to educate entrepreneurs about tax regulations and types of business entities. Going through all of these resources will ensure one is fully equipped to establish and maintain a potentially successful business that follows rules and regulations. Tax rules and laws can be tricky to understand, but it doesn’t have to be that way, especially in Texas.
