Texas is renowned for having a welcoming business environment, which draws business owners and investors to the state. In light of this, it’s crucial to comprehend the tax obligations that come with operating a corporation in Texas, especially for single-member LLCs. Does a single-member LLC have to pay franchise tax in Texas?
Yes, it is the answer. Like any other business entity doing business in Texas, a single-member LLC must pay franchise tax to the state. Businesses that operate in Texas or are chartered in the state are subject to the franchise tax, which is a privilege tax. The amount by which the total revenue of the business exceeds its permitted deductions determines the tax due, which is known as the taxable margin.
It’s important to remember that if a single-member LLC satisfies certain requirements, franchise tax may not be due. For instance, the LLC is exempt from paying franchise tax if it has no Texas gross receipts or if its total revenue is less than or equal to the state’s no-tax-due level, which is set at $1,180,000 for 2021.
What does zero Texas gross receipts mean, and how does it influence the franchise tax owed by a single-member LLC? The LLC has not generated any income in Texas during the tax year if there are no Texas gross receipts. In this scenario, the LLC is not required to submit a franchise tax return and is therefore exempt from paying franchise tax. The LLC might still be liable for other state taxes, though, if it receives income from sources outside than Texas.
For most firms in Texas in 2021, the franchise tax will be 0.375%; for wholesale and retail trade businesses, it will be 0.75%. The business’s taxable margin, which is determined by deducting the permissible expenses from total revenue, is used to determine the tax rate. The cost of items sold, remuneration, and other costs incurred in producing revenue are among the eligible deductions.
A single-member LLC operating in Texas is needed to register its business name with the Secretary of State in addition to paying franchise tax. Upon submitting the registration application, a $300 registration fee is due. This cost is extra to the franchise tax and is paid just once. It’s important to remember, though, that registering a business name does not grant the LLC sole authority to use the name. Customers may become confused if other firms continue to use names that are the same as or similar to these.
In Texas, a single-member LLC is liable to franchise tax the same as any other type of business. If the LLC satisfies certain criteria, such as having no Texas gross revenues or earning less than the state’s no-tax-due level, it can be exempt from paying franchise tax. The LLC must also pay a $300 one-time charge to the Secretary of State in order to register its business name.
In Texas, obtaining an EIN (Employer Identification Number) is free. You can apply for an EIN by phone, mail, fax, or online through the IRS website. An EIN can be obtained without paying any fees.