Franchise taxes are a critical aspect of doing business in Austin, Texas, and the nuances of these taxes can help businesses stay compliant while minimizing their tax burden. This article provides an in-depth look into franchise taxes for Austin businesses, including the legal framework, filing requirements, deadlines and strategies for reducing tax liability.
The Texas franchise tax is a privilege tax imposed on every taxable entity that is either organized in Texas or conducts business in the state. This tax is governed by Chapter 171 of the Texas Tax Code and is applicable to a broad range of business entities, including corporations, limited liability companies (LLCs), partnerships, and more. The franchise tax is calculated based on a business's margin, which can be computed in one of several ways, such as total revenue minus cost of goods sold (COGS) or total revenue minus compensation.
Businesses liable for the franchise tax include:
Certain entities are exempt from the franchise tax, including sole proprietorships (unless they are single-member LLCs), certain nonprofit organizations, and specific passive entities.
For the 2024 report year, significant changes have been made to the Texas franchise tax. Notably, the "No Tax Due" threshold has been raised to $2,470,000 in annualized total revenue. This change means that entities with total revenues below this threshold are not required to pay franchise tax, although they may still need to file information or ownership reports.
Additionally, the compensation limit, which is part of the calculation for the taxable margin, has been increased to $450,000 per person. These changes are designed to ease the tax compliance burden on smaller businesses and simplify the filing process.
The annual franchise tax report is due on May 15th each year. If this date falls on a weekend or holiday, the deadline is extended to the next business day. Businesses that cannot meet this deadline can request an extension, which moves the final due date to November 15th. It's important to note that even if a business qualifies for the "No Tax Due" threshold, it may still be required to submit specific reports, such as the Information Report or the Ownership Information Report.
Filing methods include online submissions through the Texas Comptroller's WebFile system or approved tax preparation software. Businesses can also file paper forms by downloading them from the Texas Comptroller's website and mailing them in. Penalties for late filings can be substantial, starting at $50 or 10% of the tax due, whichever is greater.
There are several strategies that businesses in Austin can employ to minimize their franchise tax liability:
The franchise taxes in Austin require a thorough understanding of Texas tax laws, diligent record-keeping and strategic planning. With recent changes in the law, many businesses may find opportunities to reduce their tax burden while staying compliant. Businesses are encouraged to consult with a qualified CPA or tax advisor to ensure they are taking full advantage of available deductions and credits and to avoid potential penalties for non-compliance. By staying informed and proactive, Austin businesses can successfully manage their franchise tax obligations and focus on growth and success.
