IRS Regulation

So, you’ve packed your bags, set up shop in a new state, and are ready for a fresh start. But before you get too cozy, let’s talk business taxes. Because moving isn’t just about updating your mailing address.

A lot of entrepreneurs make the mistake of assuming their business will just “follow them” when they move. Spoiler alert: it doesn’t work that way. Failing to update your LLC registration, ignoring multi-state tax obligations, or assuming your old state will just “let you go” can lead to double taxation, surprise penalties, and unnecessary fees.

Not exactly what you had in mind when you moved, huh? Don’t worry, we’ve got your back. At Insogna CPA, a top Austin, Texas CPA, we help business owners navigate state tax laws, stay compliant, and keep more of their hard-earned money. Let’s break it down.

First Things First: Do You Have Tax Nexus in Multiple States?

Before we even get into moving your LLC, let’s talk about tax nexus because this is what determines where you owe business taxes.

What is Tax Nexus?

Nexus is just a fancy word for “connection”—if your business has nexus in a state, you may be required to register, file, and pay taxes there. You might have nexus in multiple states if:

 ✔ You operate a physical office, store, or warehouse in a state.
 ✔ You hire employees or contractors in a state.
 ✔ You store inventory in a fulfillment center (Amazon FBA, for example).
 ✔ You sell products in a state and hit the economic nexus threshold (like $100,000 in sales).

Why This Matters: If you ignore tax nexus, you could be hit with back taxes, penalties, or compliance issues down the road. The best move? Get ahead of it now with an experienced Austin tax accountant who can review your business’s tax obligations.

What Happens If You Move But Keep Your LLC in Another State?

Let’s say you formed an LLC in California, but now you’ve moved to Texas (hello, zero state income tax!). You might be tempted to leave your LLC in California and just run your business from Texas.

Here’s why that could be a problem:

• Your old state may still require you to file business taxes
• Your new state might require you to register as a foreign LLC (translation: more fees).
• If you don’t properly update your registration, you could end up paying annual fees and taxes in both states.

What to Do Instead: Talk to a CPA in Austin, Texas who can help you decide whether to keep, transfer, or dissolve your LLC in the most tax-efficient way possible.

Moving? Here’s How Your Business Taxes Might Change

When you relocate, your tax filing requirements don’t just automatically update—they change based on state rules. Here’s what you need to know:

1. Do You Need to Register Your Business in the New State?

If you’ve moved but still run your business under an LLC from your old state, you might need to:

• Register as a Foreign LLC in your new state.
• Move (Domesticate) Your LLC to your new state (not all states allow this).
• Dissolve your old LLC and start fresh in your new state.

Tip: Every state has different rules. Consult with a tax advisor in Austin to figure out the best approach.

2. Do You Owe Taxes in Two States Now?

If your business still earns income from your old state, you may need to file taxes in both.

Example:

• You moved from New York to Texas, but your business still generates revenue from New York clients.
• New York may still require business tax filings, even though Texas doesn’t have state income tax.

Fix It: Work with an Austin accounting firm to determine if multi-state tax filings apply to you and how to avoid double taxation.

3. What About Sales Tax?

If you sell products and move your inventory to another state, your sales tax obligations could change.

Mistake to Avoid: Forgetting to update sales tax registrations in states where you now have inventory or economic nexus.

Solution: Let a small business CPA in Austin review your sales tax compliance so you don’t collect the wrong amount or worse, fail to collect it at all.

How to Move Your LLC to a New State (Without the Mess)

If you’ve decided to officially move your LLC, here’s the right way to do it:

Step 1: Choose How to Move Your Business

There are 3 main ways to move an LLC to a new state:
 1️. Register as a Foreign LLC – Keep your current LLC but legally operate in your new state.
 2️. Domesticate Your LLC – Transfer your LLC to the new state (if allowed).
 3️. Dissolve & Re-Form Your LLC – Close your old LLC and start fresh in your new state.

Tip: The right option depends on your business model, tax situation, and state laws—a CPA firm in Austin, Texas can help you choose wisely.

Step 2: Update Business Licenses & Tax Registrations

• Apply for a new state tax ID (if required).
• Update your business licenses, sales tax permits, and payroll registrations.

Step 3: Notify the IRS & Financial Institutions

• Update your business address with the IRS and state tax agencies.
• Update bank accounts, payment processors, and merchant accounts (PayPal, Stripe, Shopify, etc.).

Why It Matters: If your business address doesn’t match IRS records, it can delay tax refunds or cause compliance issues.

Final Thoughts: Don’t Let Multi-State Tax Compliance Become a Nightmare

Relocating is exciting—but ignoring state tax laws can lead to double taxation, IRS penalties, and unnecessary business fees.

At Insogna CPA, we help entrepreneurs navigate LLC relocations, tax nexus rules, and multi-state tax compliance so they can focus on running their businesses—not dealing with tax nightmares..

If you’ve recently moved states, let’s make sure your business taxes are in order! Schedule a tax strategy session with Insogna CPA, the go-to Austin small business accountant, today! 🚀

 

Hey there, startup founder! Let’s talk about something that’s probably been on your mind: tax compliance. We get it, it’s not the most exciting part of running a business, but ignoring it can quickly become overwhelming. Multi-state registrations, complicated nexus rules, and missed tax credits? It’s a lot, especially when you’re busy trying to grow your business.

Here’s the good news: tax compliance doesn’t have to be a headache. With the right plan in place and the right support, you can take control of the process, avoid penalties, and even save money. Let’s break it down.

Why Is Tax Compliance So Overwhelming?

If you’re feeling lost, you’re not alone. Many startups face the same challenges:

1. Multi-State Tax Rules: Expanding into new markets or selling in multiple states often triggers tax obligations you didn’t even know existed.
2. Nexus Confusion: Did you know hiring a remote employee or using an out-of-state warehouse can require you to register and file taxes in that state?
3. Missed Tax Savings: Valuable opportunities like the R&D Tax Credit or state incentives often go unnoticed.
4. Disorganized Books: Without clear records, it’s hard to track income, expenses, and deductions, leading to missed deadlines and costly mistakes.

Sound familiar? Don’t worry—you’re not alone, and there’s a way to simplify all of this.

How to Simplify Your Startup’s Tax Compliance

Here’s a step-by-step guide to help you get ahead of tax compliance without feeling overwhelmed:

1. Understand Where You Have Nexus

Nexus is a fancy term for “connection.” If your startup has a connection to a state—like hiring a remote employee, storing inventory, or selling products there—you’re likely required to register and pay taxes in that state.

How to Make It Easy:

• Start by reviewing your operations: Where are your employees? Where are your customers?
• Partner with an Austin, Texas CPA to analyze your business and make sure you’re registered where you need to be.

2. Manage Multi-State Tax Filings

If your business is operating in multiple states, you might need to file tax returns in each one. Each state has its own deadlines and rules, which can be hard to keep up with.

How to Make It Easy:

• Work with an Austin tax accountant who knows the ins and outs of state tax filings. They’ll handle the details so you can focus on running your business.

3. Don’t Miss Out on Tax Credits and Deductions

Many startups leave money on the table by not claiming tax credits or deductions they qualify for. For example:

• The R&D Tax Credit rewards you for developing new products, processes, or software.
• Some states offer tax breaks for hiring employees or making capital investments.

How to Make It Easy:

• A tax advisor in Austin can help you identify every credit and deduction your business is eligible for, putting more money back in your pocket.

4. Plan for Quarterly Tax Payments

One common mistake startups make is forgetting about quarterly estimated taxes. If you’re not making these payments, you could face penalties and unexpected bills come tax season.

How to Make It Easy:

• Let an Austin small business accountant calculate your quarterly tax payments and set up a system to stay on track.

5. Keep Your Books in Order

Let’s face it—disorganized records are a recipe for stress. Without accurate income and expense tracking, it’s easy to miss deadlines or deductions.

How to Make It Easy:

• Use accounting software to track your finances year-round.
• Better yet, let an Austin accounting service handle your bookkeeping so you never have to worry about missing a detail.

Why Work with Insogna CPA?

Here’s the thing: tax compliance doesn’t have to take up all your time or keep you awake at night. At Insogna CPA, we specialize in helping startups like yours simplify tax compliance and focus on growth.

Here’s how we help:

• Nexus Analysis: We’ll determine where your business needs to register and file taxes.
• Multi-State Filing Management: We’ll handle all the state-specific filings so you don’t have to.
• Tax Savings: From credits to deductions, we’ll make sure you’re taking advantage of every opportunity.
• Year-Round Support: We don’t just show up at tax season—we’re here to guide you every step of the way.

Let’s Take the Stress Out of Tax Compliance

You’ve worked hard to grow your startup, and tax compliance shouldn’t hold you back. With expert guidance from one of the top CPA firms in Austin, Texas, you can simplify your taxes, avoid penalties, and uncover savings you didn’t even know were possible.

Summary of What This Blog Covers:

• Explains IRS Classification for Short-Term Rentals (Schedule C vs. Schedule E)
  Breaks down how the IRS determines whether your short-term rental activity qualifies as a business (Schedule C) or a passive investment (Schedule E), based on services offered, guest stay duration, and your level of involvement in operations.
  
  
• Clarifies Tax Implications of Each Classification
  Highlights how classification impacts self-employment tax obligations, allowable deductions, required IRS forms (like Form 1099 NEC, Form 1040, and Schedule K-1), and whether you need to make quarterly estimated payments.
  
  
• Provides Real-World Scenarios and Tools for Compliance
  Offers real examples comparing different property setups, and recommends accounting software like QuickBooks Self-Employed, WaveApps, and ZohoBooks to track expenses, stay organized, and support your classification.
  
  
• Emphasizes the Importance of Working with a Tax Professional
  Stresses how a CPA in Austin, Texas or a certified tax advisor near you can help ensure proper filing, optimize deductions, assist with FBAR and 1031 exchange planning, and simplify the complexities of short-term rental taxation.

Let’s get real for a minute. You’ve got a great short-term rental property (or a few), and business is booming. Maybe it’s a cozy bungalow in East Austin, a chic downtown condo on Airbnb, or a family-friendly Hill Country retreat that books out six months in advance. Guests love it, your reviews are glowing, and income is steady. Life is good until tax season hits and the IRS comes knocking with a deceptively simple question:
 Is this a business or an investment?

That single question changes everything. It determines how much tax you owe, which deductions you can take, whether you need to pay self-employment tax, and how you report that income.

As your trusted Austin tax advisor, we’re here to help you make sense of it all. No jargon, no guesswork, just straight-up clarity.

Why IRS Classification of Your Rental Property Matters

If you’ve ever filed Schedule C or Schedule E, you know that those aren’t just forms. They’re signposts for how the IRS views your activity. The distinction matters for three reasons:

1. Self-employment tax liability
   
   
2. Deduction eligibility
   
   
3. Audit risk and compliance
   
   

Misclassifying your rental could mean overpaying taxes or raising a red flag with the IRS.

Two Primary Classifications: Schedule C vs. Schedule E

Let’s walk through both.

Schedule C: Your Rental Is a Business

If you’re treating your property like a hospitality business—providing concierge services, coordinating bookings, managing guest communication, and offering more than just a place to sleep—your rental likely falls under Schedule C.

What the IRS Looks At:

• You offer substantial services (e.g., cleaning between stays, stocked kitchens, laundry, guest check-ins).
  
  
• The average stay is seven days or fewer.
  
  
• You’re actively managing the rental or using contracted services.
  
  

Tax Implications:

• Income is reported on Schedule C of your Form 1040.
  
  
• You’re responsible for self-employment tax (15.3% on top of income tax).
  
  
• You may need to file quarterly estimated taxes using a self-employment tax calculator or with guidance from your tax preparer.
  
  
• You can deduct a wider range of business expenses, including:
  
  
  • Marketing and advertising
    
    
  • Utilities
    
    
  • Repairs and maintenance
    
    
  • Property management software (e.g., QuickBooks Self-Employed)
    
    
  • Cleaning and laundry services
    
    
  • Airbnb and Vrbo fees
    
    
  • Travel expenses (if incurred for managing the rental)
    
    

If you’re running multiple units or working full-time on your rental business, the IRS will almost certainly expect you to file under Schedule C.

Schedule E: Your Rental Is a Passive Investment

If your rental approach is more hands-off, the IRS likely sees your property as an investment and your income is considered passive.

You’re probably Schedule E if:

• You lease to long-term tenants or vacation renters with stays longer than 7 days.
  
  
• You provide no significant services. Only basic upkeep like occasional cleaning or property maintenance..
  
  
• You’re using a property manager or are otherwise not engaged in day-to-day operations.
  
  

Tax Implications:

• Income is reported on Schedule E of your Form 1040.
  
  
• You avoid self-employment tax—a big advantage.
  
  
• You still deduct key expenses such as:
  
  
  • Mortgage interest
    
    
  • Property taxes
    
    
  • Insurance
    
    
  • Maintenance and utilities
    
    
  • Depreciation
    
    
  • Management fees
    
    

But your deductions are slightly more limited than Schedule C, and passive losses may be limited unless you qualify as a real estate professional.

Borderline Situations: When It’s Not Clear-Cut

Plenty of rental owners operate somewhere between a full-scale hospitality business and a hands-off investment. Maybe you:

• Provide mid-stay cleanings
  
  
• Occasionally deliver groceries
  
  
• Allow short and long stays
  
  
• Only rent part-time throughout the year
  
  

This is where things get complicated and where an experienced Austin, TX accountant or CPA certified public accountant can make a huge difference.

Remember: the IRS looks at facts and circumstances, not just labels.

IRS Forms You Need to Know

Depending on your classification and setup, here are the forms commonly involved:

• Schedule C – For active rental businesses
  
  
• Schedule E – For passive rentals
  
  
• Form 1040 – Individual income tax return
  
  
• Form 1099 NEC – For paying contractors like cleaners
  
  
• Form 1099-K – If you collect rent through third-party platforms (Airbnb, Stripe, etc.)
  
  
• W9 form – For vendor and contractor compliance
  
  
• FBAR filing – If you have foreign bank accounts connected to your rental business
  
  

Need help coordinating all of this? Our tax services near you are designed to simplify complex filing situations.

Don’t Forget Self-Employment Tax and Quarterly Payments

If you’re filing on Schedule C, your rental income is subject to self-employment tax in addition to regular income tax. This is where many hosts get surprised.

To avoid penalties, you may need to pay estimated quarterly taxes. These are typically due:

• April 15
  
  
• June 15
  
  
• September 15
  
  
• January 15 (of the following year)
  
  

Using a self-employment tax calculator or working with a licensed CPA can help you budget accurately.

Bookkeeping and Expense Tracking: Tools You Should Be Using

If you’re managing multiple properties or even just one with a steady booking rate, keeping accurate records is essential.

Recommended tools:

• QuickBooks Self-Employed – Great for Schedule C filers tracking income and expenses
  
  
• WaveApps – Free option for managing income and vendor payments
  
  
• FreshBooks – Invoicing and light bookkeeping
  
  
• ZohoBooks – Affordable cloud accounting for property owners
  
  

And of course, a certified accountant near you can ensure that your financial data is tax-ready by year-end.

What a Tax Professional Can Do for You

Working with an experienced CPA in Austin, Texas or enrolled agent isn’t just about filing forms. It’s about strategic planning that keeps your rental compliant and profitable.

At Insogna CPA, we help you:

• Determine the correct classification (Schedule C vs. Schedule E)
  
  
• Optimize deductions and track every eligible expense
  
  
• Minimize self-employment tax
  
  
• Stay compliant with 1099 and W9 reporting requirements
  
  
• Coordinate multi-state filings
  
  
• Assist with FBAR filing, if applicable
  
  
• Plan for 1031 exchanges, if you sell and reinvest in new property
  
  

Whether you’re Googling “CPA near me” or looking for an Austin tax accountant, our goal is to provide comprehensive tax preparation services for rental property owners.

Still Not Sure? Here’s a Quick Comparison

Factor	Schedule C	Schedule E
Classification	Business	Investment
Tax Forms	Schedule C, 1040	Schedule E, 1040
Subject to Self-Employment Tax?	Yes	No
Deductions	More flexible (operational and business)	Standard property-related expenses
Best For	Active rental operations	Passive rentals or long-term stays

Common Google Searches That Bring People to Us

If you found this blog while searching for:

• tax advisor near me for Airbnb income
  
  
• CPA in Austin, Texas for short-term rentals
  
  
• tax places near me for investment property
  
  
• FBAR filing for foreign-owned rentals
  
  
• 1099 NEC form help for rental expenses
  
  
• how to file rental income on Schedule C or E
  
  
• tax accountant near me for Airbnb hosts
  
  
• QuickBooks for short-term rental owners
  
  
• tax preparation services near me for vacation rentals
  
  

You’re not alone. These are the exact topics we help clients with every day.

Why Work With Insogna CPA

We’re more than just a tax preparer. We’re your strategic partner in managing your rental income, reducing tax exposure, and planning for sustainable, long-term growth. As one of the top-rated CPA firms in Austin, Texas, we understand short-term rental tax law and the tools to optimize it.

We provide:

• Dedicated support from a certified public accountant or chartered professional accountant
  
  
• A client portal for all your tax documents, 1099 forms, and financials
  
  
• Ongoing tax help, not just seasonal services
  
  
• Insight into advanced strategies, including 1031 exchange rules and depreciation planning
  
  

Let’s Simplify Your Rental Taxes Together

You didn’t buy or build your short-term rental property to spend your time deciphering IRS code. That’s our job. Whether you’re filing Schedule C or E, we’ll help you do it right on time, with clarity, and with your best financial interest in mind.

Contact Insogna CPA today to schedule your personalized consultation. We’ll take the guesswork out of short-term rental taxes so you can focus on hosting, investing, and growing your income the smart way.

Hi there, business owner! If you’ve come across the terms “composite filing” and “pass-through entity filing” while managing your business taxes, you might be wondering: “What’s the difference, and which one is right for me?”

These terms might sound complicated, but understanding them can help you make smarter tax decisions. As your trusted Austin, Texas CPA, we’re here to break it all down, using real-world examples to help you see how these options impact your bottom line. Let’s get started!

What Is Composite Filing?

Think of composite filing as a group effort. Your business files one tax return on behalf of all its non-resident owners, simplifying the process for everyone. Instead of requiring each non-resident owner to file a state tax return, the business takes care of it for them.

How It Works:

• Your business collects the state taxes owed from non-resident owners.
• Then, it files one consolidated composite return and pays the total tax bill.

Why You Might Like It:

• Simplifies Filing: Non-resident owners don’t have to deal with state tax filings.
• Reduces Hassle: Great for businesses with many non-resident owners.

What to Watch Out For:

• Some states, like Alabama, use higher tax rates for composite returns, which can increase your tax liability.

Pro Tip: Composite filing can be a time-saver, but it’s not always the most cost-effective option. That’s where an Austin tax accountant like me can help you weigh the pros and cons.

What Is Pass-Through Filing?

Pass-through filing is the go-to method for partnerships, S corporations, and LLCs. Instead of the business paying taxes, income and deductions “pass through” to the individual owners, who report them on their personal tax returns.

How It Works:

• Each owner gets a Schedule K-1 showing their share of the business’s income and expenses.
• Owners then file their own federal and state tax returns, including the K-1 info.

Why You Might Like It:

• More Control: Each owner handles their taxes individually.
• Tailored Rates: Non-resident owners might benefit from lower individual tax rates compared to composite filings.

What to Watch Out For:

• More Paperwork: Non-resident owners need to file state returns, which can add to their workload.
• Admin Complexity: Your business will need to prepare and distribute K-1s to all owners.

Pro Tip: If your business has just a few owners, pass-through filing is often a better fit. A CPA in Austin, Texas can help you navigate the details.

Composite vs. Pass-Through: Which Should You Choose?

The right choice depends on your business structure, your owners’ residency status, and where your business operates. Let’s look at an example:

Real-Life Example:
 A partnership in Alabama has five owners—two live in Alabama, and three are non-residents.

• Composite Filing: The business files one return for the three non-resident owners, saving them the trouble of filing individual state returns. This simplifies things but may result in higher taxes due to Alabama’s composite rate.
• Pass-Through Filing: Each owner gets a K-1 and files their own state returns. This offers flexibility but adds extra steps for the non-residents.

What to Consider:

• Number of Non-Resident Owners: Composite filing works well for businesses with lots of non-resident owners.
• Tax Rates: Check whether the composite rate is higher than individual rates in your state.
• Administrative Ease: Composite filing makes life easier for owners but adds some complexity for the business.

How Insogna CPA Can Help

You don’t have to figure this out on your own. At Insogna CPA, we specialize in helping small businesses like yours make smart tax decisions. Here’s how we can support you:

• State-Specific Expertise: Whether you’re filing in Alabama, Texas, or beyond, we’ll explain how the rules apply to your business.
• Personalized Recommendations: Every business is unique. We’ll analyze your ownership structure and state tax laws to find the best option for you.
• Full-Service Support: From filing composite returns to managing K-1s, we’ll handle the details so you can focus on growing your business.

Let’s Simplify Your Tax Filing Strategy

Deciding between composite and pass-through filing doesn’t have to be overwhelming. With expert guidance from an Austin small business accountant, you can make the best choice for your business and avoid unnecessary headaches.

Call to Action: Not sure which tax filing strategy is right for your business? Contact Insogna CPA today. Let’s work together to simplify your taxes and set you up for success!

Hey there, startup owner! If you’re running a business in Austin, Texas, you know there’s always something new to learn—especially when it comes to taxes. Franchise tax filings might seem complicated, but with the right plan, they don’t have to be stressful. As a trusted Austin, Texas CPA, we’re here to guide you through the process step by step so you can stay compliant and focused on growing your business.

Let’s break it down into six simple steps to help you prepare for your franchise tax filings with confidence.

1. Start with the Franchise Tax Questionnaire

When you register your business in Texas, you’ll receive a Franchise Tax Accountability Questionnaire. This form is important because it determines whether your business needs to file franchise taxes.

• What You Should Do: Fill out the questionnaire carefully and submit it on time. Not sure where to start? A CPA in Austin, Texas can help you get it right the first time.

2. Know Your Filing Deadlines

Missing deadlines can lead to penalties and unnecessary stress, and no one wants that. In Texas, franchise tax reports are usually due on May 15, unless that date falls on a weekend or holiday.

• What You Should Do: Mark your calendar now. Better yet, let an Austin accounting service track deadlines for you so nothing slips through the cracks.

3. Understand Your Taxable Margin

Your taxable margin is the basis for calculating franchise taxes in Texas. You can calculate it in different ways, such as total revenue minus the cost of goods sold, compensation, or a flat 70% of revenue. Picking the right method can save you money.

• What You Should Do: Work with an Austin small business accountant to figure out which calculation works best for your business.

4. Organize Your Financial Records

Accurate financial records are the backbone of your franchise tax filing. From income statements and payroll records to balance sheets, having everything in order will make the process so much smoother.

• What You Should Do: Stay organized all year long. A small business CPA in Austin can help you keep your records neat and ready for tax season.

5. File Using the Right Form

The type of franchise tax form you need depends on your business’s revenue:

• No Tax Due Report: For businesses with revenue below the no-tax-due threshold.
• EZ Computation Report: For businesses with revenue under $20 million that qualify for simplified filing.
• Long Form Report: For businesses above the simplified filing threshold.
• What You Should Do: Not sure which form to use? An experienced Austin tax accountant can help you choose the right one and ensure it’s completed accurately.

6. Plan for the Future

Franchise taxes aren’t a one-and-done deal. As your business grows, your tax obligations might change, so planning ahead is key.

• What You Should Do: Work with a proactive tax advisor in Austin to create a long-term strategy that keeps your business prepared for the future.

Why Choose Insogna CPA?

We get it—franchise tax filings can feel overwhelming, especially when you’re focused on running your business. At Insogna CPA, we’ve helped startups and small businesses across Austin, Texas, simplify their taxes and avoid costly mistakes. Whether it’s meeting deadlines, organizing records, or calculating your taxable margin, we’ve got your back.

Let’s Simplify Your Franchise Tax Filings

You don’t have to navigate franchise tax filings alone. With Insogna CPA by your side, you’ll have expert guidance every step of the way.

Ready to simplify your franchise tax filings? Contact Insogna CPA today and work with one of the top CPA firms in Austin, Texas. Let us handle the details so you can focus on growing your business!

Summary of What This Blog Covers:

• Clarifies What Texas Franchise Tax Is and Who It Affects
  Explains that franchise tax is a “privilege tax” applied to most registered businesses in Texas—including LLCs, corporations, and multi-state startups—and highlights which business entities are exempt.
• Breaks Down How Franchise Tax Is Calculated and When It’s Due
  Walks through the taxable margin calculation methods, applicable tax rates, and outlines key filing deadlines, including the annual May 15 due date and the importance of the No Tax Due report.
• Outlines Compliance Requirements for In-State and Out-of-State Businesses
  Details how businesses with Texas nexus—such as having employees, inventory, or significant sales—must file, even if they’re formed in another state, and explains apportionment and reporting requirements.
• Provides Strategic Tips to Stay Compliant and Avoid Penalties
  Offers practical guidance on using tools like QuickBooks and ZohoBooks, tracking revenue thresholds, coordinating with federal forms like 1065 and 1120, and working with a CPA firm in Austin to ensure accuracy and avoid costly mistakes.

Let’s be honest. Starting a business in Texas is exciting, rewarding, and fast-paced. Between launching your product, pitching investors, and building a team, you’ve got your hands full. Taxes? They’re usually the last thing on your mind until they become a problem.

And when it comes to Texas-specific tax requirements, franchise tax tends to catch business owners off guard. Contrary to its name, franchise tax isn’t just for fast-food chains or licensed business models. It applies to most registered business entities operating in the state, even small startups.

At Insogna CPA, we’ve guided hundreds of business owners across Austin, Round Rock, and beyond through franchise tax compliance. Whether you’re operating as an LLC, S corporation, or multi-state partnership, this guide will walk you through what Texas franchise tax is, who needs to file, how it’s calculated, common mistakes to avoid, and why compliance is critical to your business success.

What Is Texas Franchise Tax, Really?

Texas franchise tax is a “privilege tax”. A required payment for the privilege of doing business in the state. It’s administered by the Texas Comptroller of Public Accounts, and every eligible entity must file a report annually, whether or not tax is owed.

Unlike federal income tax, franchise tax is based on a business’s taxable margin, not its net income. This means even businesses that aren’t yet profitable may still have a filing obligation.

Who Must File:

• Texas-based LLCs (single- and multi-member)
• C corporations and S corporations
• Limited partnerships (LPs) and limited liability partnerships (LLPs)
• Professional associations
• Business trusts
• Out-of-state businesses with economic nexus in Texas

Who’s Exempt:

• Sole proprietorships
• General partnerships with no liability protection
• Certain nonprofits (though many still have to file an information report)

If you’ve registered an entity in Texas (whether or not it’s generating significant revenue), you likely need to file a franchise tax report annually.

How Is Franchise Tax Calculated?

The franchise tax formula is unique and somewhat flexible. It’s based on your business’s taxable margin, which you can calculate in one of four ways:

1. Total revenue minus cost of goods sold (COGS)
2. Total revenue minus compensation (payroll, benefits, etc.)
3. Total revenue times 70%
4. Total revenue minus $1 million (EZ computation method for eligible businesses)

Once your margin is calculated, you apply the applicable rate:

• 75% for most business types
• 375% for retailers and wholesalers
• 0% if your total revenue is below the no-tax-due threshold

No-Tax-Due Threshold (2024):

If your total annual revenue is less than $1.23 million, you’re not required to pay franchise tax. However, you still have to file a “No Tax Due” report. Failing to do so can result in penalties and possible forfeiture of your entity’s status.

Does Franchise Tax Apply to Startups?

Absolutely. In fact, it applies to the majority of startups registered as legal entities in Texas, even if they’re not yet profitable or generating substantial revenue.

Key Scenarios:

• You’ve formed a Texas LLC to protect your personal liability but haven’t launched yet. You still have to file.
• You’re a bootstrapped tech startup with $200,000 in early revenue. No tax is due, but the No Tax Due Report must be filed.
• You operate a multi-state business and have Texas clients. If your revenue from Texas exceeds $500,000 or you have employees, inventory, or a physical presence in the state, you likely have nexus and must file.

Don’t let the simplicity of your operation fool you into thinking franchise tax doesn’t apply. It does and the state of Texas doesn’t accept “I didn’t know” as a defense.

What If You’re Out of State but Selling into Texas?

Texas enforces economic nexus rules. This means that even if your company is formed in another state (Delaware, Wyoming, or anywhere else), you must still comply with Texas franchise tax requirements if you:

• Have remote employees working in Texas
• Store inventory or lease office space in Texas
• Earn over $500,000 in annual gross receipts from customers based in Texas
• Own or lease property located in Texas

Out-of-state companies must register with the Texas Comptroller, calculate taxable margin from Texas revenue, and file the appropriate franchise tax return and Public Information Report.

This scenario is especially common for eCommerce businesses, online service providers, and SaaS companies. We often help founders apportion multi-state revenue to ensure they remain compliant without overpaying.

What Happens If You Don’t File?

Non-compliance comes with real consequences.

Penalties for Late Filing:

• 5% penalty on tax not paid by the due date (within 30 days)
• 10% penalty if payment is more than 30 days late
• Daily accruing interest
• Potential revocation of your right to transact business in Texas

Additionally, failure to file the Public Information Report can result in your entity being marked as forfeited. Once that happens, banks may freeze accounts, contracts can become unenforceable, and your business loses its limited liability protection.

Important Franchise Tax Deadlines to Know

• May 15 – Annual Franchise Tax Report and payment due
• November 15 – Extended due date (only if a valid extension was filed)
• One-year anniversary of formation – New businesses must file an Initial Franchise Tax Report and Public Information Report

Note: Even if you’re under the no-tax-due threshold, the annual report must still be submitted by May 15 to avoid penalties.

Working with a certified CPA or chartered public accountant helps ensure these deadlines don’t slip through the cracks.

Let’s Look at Two Startup Examples

Example 1: Texas-Based Startup Under the Revenue Threshold

• Entity: Single-member LLC
• Location: Austin, Texas
• Revenue: $600,000

Because total revenue is below the $1.23 million threshold, no tax is owed but the business must file a No Tax Due report. We handle this seamlessly as part of our annual filing package.

Example 2: Multi-State eCommerce Seller

• Entity: Delaware C corporation
• Texas Sales: $700,000 (25% of total revenue)

Because this business has economic nexus in Texas, they must register with the state, apportion revenue for franchise tax purposes, and file both a franchise tax report and Public Information Report.

Our team prepares these filings, leveraging accounting software’s like QuickBooks Online, WaveApps, and ZohoBooks to track Texas-sourced revenue and minimize risk.

What About Federal Tax Forms and Coordination?

Although franchise tax is a state-level tax, coordination with federal tax filings is key. Your business may also be required to file:

• Form 1040 (Schedule C) for sole proprietors
• Form 1065 for partnerships
• Form 1120 or 1120-S for C-corporations and S-corporations
• Form 2553 to elect S-corporation status
• 1099 NEC, 1099 R, 1099 K, and 1095 A/C for contractors and benefits
• FBAR filing if you hold foreign financial accounts

Filing franchise tax correctly ensures your business remains in good standing with the state, which is often required when dealing with banks, lenders, investors, and even contractors who request documentation like your W9 tax form or proof of good standing.

How to Stay Compliant Year-Round

1. Track Revenue Accurately

• Use cloud tools like QuickBooks Self-Employed, ZohoBooks, or FreshBooks
• Monitor gross receipts by state to avoid nexus issues

1. Keep an Eye on Thresholds

• If your business approaches the $1.23 million threshold, consult a CPA certified public accountant to plan ahead

1. Know Your Nexus Exposure

• If you sell into Texas from another state, evaluate whether you need to register and file

1. Don’t Rely on TurboTax Free or DIY Software

• These tools often don’t support franchise tax or multi-state compliance. Seek expert help through an Austin CPA firm or bookkeeping services near me

1. Use the Texas Comptroller’s WebFile system

• Register, file, and pay online—but only if you know exactly what to enter. One error can trigger costly corrections

1. Hire a CPA Who Knows Texas

• Someone who understands state apportionment, form 05-102, and compliance across industries can save you time, stress, and money

Final Thoughts: Make Franchise Tax a Strategic Advantage

Texas franchise tax doesn’t have to be a confusing roadblock. With proactive planning, accurate record-keeping, and expert guidance, it becomes a straightforward process and a crucial part of your growth foundation.

Stop searching for tax preparation services near me, and start building a relationship with a team that truly gets what it means to be in your shoes.

Contact Insogna CPA today for personalized, proactive support. Let’s protect your business, file on time, and build a smarter tax strategy for the long haul.

Franchise tax doesn’t have to be complicated, but it does have to be done right. We’re here to help you do just that.