As in every other state, the state of Texas has various types of taxes. All of these types of tax are full of exceptions and extremely specific requirements. Below we have gone through the major types of tax that will affect small businesses. Our intent is to give you a general understanding of when the various taxes will apply to you and what they will mean to your business.
- Franchise tax is required from most corporations, including S corporations, and limited liability companies doing business in Texas.
- Income tax on business income computed based upon profitability is not imposed in Texas.
- Personal income tax based on a person's income is not imposed in Texas.
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The fact that Texas doesn't impose a personal income tax can make your choice of entity for operating your business more important than ever. If it is possible to set up your business as a sole proprietorship or partnership, you will not have to pay Texas tax on your income. Of course, business considerations other than state tax implications must be taken into account when making a decision as to how to best operate your business. You may want to consult with your financial professional when making this important decision.
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