Summary of What This Blog Covers:
- 💡 Understand What Texas Franchise Tax Is and Who Needs to File
This blog clarifies that Texas franchise tax isn’t just for franchises but applies to nearly all registered entities doing business in Texas, including LLCs, S corporations, and C corporations. It explains the difference between gross-revenue-based franchise tax and profit-based federal income tax, outlining who must file even if no tax is owed. - 💡 Learn the Filing Requirements, Thresholds, and Penalties
The article breaks down the annual filing process, including the $1.23 million No Tax Due threshold, the different reporting forms (Form 05-163, Form 05-102), and the potential financial and operational consequences of missing the May 15 deadline such as late fees, interest, and entity forfeiture. - 💡 Discover Why DIY Tax Software Isn’t Enough for Franchise Filings
The blog highlights why tools like TurboTax Free, Tax Act, or TurboTax Online aren’t equipped to handle Texas-specific franchise tax nuances. It emphasizes the need for expert guidance in areas like cost of goods sold (COGS), multi-entity combined reporting, and selecting the optimal tax calculation method. - 💡 Explore How Insogna CPA Simplifies Franchise Tax Compliance
This blog showcases Insogna CPA’s strategic, year-round approach to franchise tax. It covers flat-rate pricing, digital integration with platforms like QuickBooks Online and WaveApp, and how our team helps business owners manage federal compliance, multi-entity structures, and related services such as capital gains tax, 1099 NEC form processing, FBAR filing, and S corporation election (Form 2553).
When you hear the term “franchise tax,” your mind might immediately go to fast-food chains or multi-unit brands. But in Texas, franchise tax isn’t limited to franchises. It’s a state-mandated business tax applied to nearly every registered business entity. If you’re operating an LLC, S corporation, partnership, or C corporation in Texas, franchise tax is something you’ll need to address every year regardless of whether you made a profit or not.
At Insogna CPA, we’ve helped hundreds of Texas-based businesses. From solo entrepreneurs to complex multi-entity portfolios, we understand and navigate this unique tax requirement. Whether you’re trying to figure out how QuickBooks Online Accountant aligns with your franchise filings or wondering if TurboTax Free File will do the job, this guide will give you the insight you need to stay compliant and protect your bottom line.
What Is Texas Franchise Tax?
Texas franchise tax is officially known as a privilege tax. That’s right. This is the state’s way of taxing entities for the privilege of doing business within Texas borders. Unlike federal taxes, which are generally based on profit, franchise tax is based on gross revenue. That means even if your business is just breaking even or operating at a loss, you may still owe a tax or, at minimum, need to file paperwork.
This is especially important for those using accounting softwares like Intuit QuickBooks, FreshBooks, Zohobooks, or WaveApp, which may not automatically calculate franchise tax liability.
The Texas Comptroller’s Office oversees this tax, and while the state has no personal income tax, it does rely heavily on this form of business taxation.
Who Needs to File?
If your entity is registered with the Texas Secretary of State, chances are you’re required to file. This includes:
- LLCs (single-member and multi-member)
- Corporations (C Corps and S Corps)
- Limited Partnerships (LPs)
- Professional Associations
- Business Trusts
- Joint Ventures
Even foreign entities that conduct business in Texas or have a nexus here are subject to franchise tax obligations.
It’s important to note that self-employed individuals, sole proprietors, and general partnerships without registration are not required to file franchise tax reports.
However, if you’ve filed paperwork to form or operate as an LLC or corporation, then you’re on the hook for annual franchise tax reporting, even if no tax is due.
The No-Tax-Due Threshold Explained
Every year, the Texas Comptroller sets a revenue threshold under which businesses owe no tax but are still required to file.
As of 2025, the No Tax Due Threshold is $2.47 million in annualized total revenue. This means:
- If your business earns less than $1.23 million, you do not owe tax, but must file a No Tax Due Report (Form 05-163).
- If your revenue is over that threshold, you are required to calculate your tax and file a Franchise Tax Report (Form 05-102).
Even businesses earning only a few hundred dollars in revenue must comply. Missing this filing—regardless of revenue—can result in late penalties and entity forfeiture.
This is one of the most common misconceptions we see among new business owners, especially those operating small LLCs, real estate entities, or holding companies with minimal revenue.
How Is Texas Franchise Tax Calculated?
For businesses earning above the No Tax Due Threshold, there are three primary methods to calculate franchise tax:
- Total Revenue Minus Cost of Goods Sold (COGS)
Ideal for product-based businesses or those with large inventory expenses. - Total Revenue Minus Compensation
Best suited for service-based businesses that carry substantial payroll. - 70% of Total Revenue
The simplest method, typically used by businesses that don’t qualify for COGS or compensation deductions.
There is also a simplified filing method known as the EZ Computation, available to entities with revenue under $20 million. It applies a flat 0.331% rate but disallows deductions.
Otherwise, the standard rates are:
- 375% for businesses classified as wholesalers or retailers
- 75% for all other businesses
Choosing the correct method can significantly affect your tax liability. This is where a certified public accountant, taxation accountant, or CPA certified public accountant can offer meaningful savings.
Filing Deadlines and Penalties
Texas franchise tax reports are due annually on May 15. If May 15 falls on a weekend or holiday, the due date moves to the next business day. This deadline is non-negotiable and applies whether you owe tax or not.
Missing this deadline may result in:
- $50 automatic penalty, even for no-tax-due filings
- 5% late payment penalty, increasing to 10% after 30 days
- Interest accrual on outstanding balances
- Entity forfeiture, preventing your business from operating or signing contracts legally
We’ve seen businesses lose lucrative deals because their entity was marked “Not in Good Standing” due to non-filing. Banks may also freeze business accounts, and the Secretary of State may dissolve your company after prolonged noncompliance.
The Risks of Relying on DIY Software
Platforms like TurboTax Online, Tax Act, or TurboTax Com may be sufficient for simple personal tax returns like the 1040 tax form. However, they do not provide the nuanced support required for franchise tax filings particularly for businesses with:
- Multiple LLCs
- Combined group reporting
- Multi-state income
- Significant cost of goods sold
They also won’t proactively advise on deductions or recommend whether to calculate using compensation, COGS, or 70% revenue methods.
Multi-Entity Business Structures and Franchise Tax
If you operate multiple LLCs, especially under a common ownership structure, you may be subject to combined reporting. This means the state treats your entities as a single taxable unit and requires consolidated filings.
Determining whether combined reporting applies involves analyzing:
- Ownership structures
- Business purpose alignment
- Shared personnel or assets
- Revenue flow between entities
Misclassification can lead to audit triggers, additional penalties, and unintentional tax exposure. This is where consultation with a chartered professional accountant or enrolled agent becomes crucial.
Texas Franchise Tax and Federal Compliance
While franchise tax is unique to Texas, it doesn’t replace your obligation to file federal returns such as:
- Form 1065 for partnerships
- Form 1120 for C corporations
- Form 1120S for S corporations
- Form 1040 with Schedule E for pass-through income
In fact, your franchise tax filing often relies on figures from your federal returns, such as total revenue, cost of goods sold, and officer compensation.
Our firm integrates your federal and state filings to ensure consistency, reduce audit risk, and improve overall tax strategy.
Why Choose Insogna CPA for Texas Franchise Tax?
As a leading accounting firm in Austin, we provide a proactive, strategic approach to franchise tax. Here’s what sets us apart:
- Flat-Rate Pricing: Know your cost upfront—no surprise invoices.
- Multi-Entity Expertise: We handle complex portfolios across industries, from real estate and eCommerce to consulting and professional services.
- Digital Integration: Seamless syncing with QuickBooks Help, QuickBooksonline, and other platforms.
- Year-Round Advisory: We’re not just here in April or May. We help you plan all year.
- Total Compliance: We ensure you meet every deadline with accurate filings and clean documentation.
Let Us Help You Simplify Franchise Tax The Right Way
Franchise tax doesn’t have to be frustrating, confusing, or disruptive to your business goals. With Insogna CPA, you’ll gain a trusted partner who understands Texas franchise law, federal compliance, and strategic tax planning. We take the guesswork and the paperwork off your plate.
Whether you’re a seasoned business owner managing a portfolio of LLCs, a new entrepreneur navigating your first year of compliance, or a non-resident alien investing in Texas, we’re here to support your success.
Schedule your consultation today, and let’s simplify your Texas franchise tax filings with clarity, accuracy, and forward-thinking strategy. Because business taxes should never get in the way of your business. Let’s handle this together.