Texas small business taxes: Types, rates, deadlines, and how to file in 2025

If you’re building or thinking about building a small business in Texas, you’ll be glad to know that Texas has a reputation as a business-friendly tax state. Corporate taxes are low, and it’s one of only seven states with no state personal income tax. This is great for optimizing profitability and attracting good workers. But it’s still important to understand the unique nature of business taxes in Texas and how they can impact your bottom line. 

Use our guide to help you navigate the ins and outs of Texas business taxes, from understanding key tax types, such as payroll, to taking advantage of exemptions, credits, and incentives that can save your business money. Whether you're just starting a business or looking to optimize your tax strategy, this guide has you covered. If you’re still in the early stages, see our guide for how to start a business in Texas.

Refer to the table of contents below to quickly find the information that matters most to you:

• Taxes in Texas overview
• Key Texas business tax adjustments for 2025
• Texas state income taxes
• Types of business taxes in Texas
• Texas business tax deductions, credits, and exemptions
• Types of Texas taxes for different business entity types
• What is the “no-tax-due” threshold in Texas?
• Texas sales taxes
• How to file business taxes in Texas
• Year-end business tax checklist
• Commonly missed tax deductions and credits
• Common mistakes to avoid when filing business taxes in Texas
• Find an accountant to help prepare your Texas business taxes
• Frequently asked questions

Taxes in Texas overview

• No personal state income tax
• No corporate income taxes, but a “franchise tax” is levied on some businesses
• No franchise tax on businesses with revenues under $2.47 million 
• 6.25% state sales and use tax plus local taxes in some jurisdictions 
• Other business taxes may include unemployment taxes, excise taxes, and property taxes

Key Texas business tax adjustments for 2025

Staying informed about the latest tax changes is essential for businesses to maintain compliance, optimize their tax strategies, and plan ahead. Here are some important adjustments and updates for 2025 that could impact your business:

Franchise tax changes

• No-tax-due threshold: Starting January 1, 2025, entities with annualized total revenue of $2.47 million or less are no longer required to file a No Tax Due Report, although they must still file a Public Information Report or Ownership Information Report.

City sales and use tax changes

• Sales and use tax rates are changing in several areas. In McCamey (Upton County) and Woodsboro (Refugio County), rates will increase to 8.25% to fund street maintenance and repair. Meanwhile, Cumby (Hopkins County) and Millsap (Parker County) are reducing their local rates, lowering the total to 8% and 7.75%, respectively.

Elimination of certain reporting requirements

• Entities that meet the new no tax due threshold, combined groups with annualized total revenue at or below $2.47 million, and qualifying new veteran-owned businesses are no longer required to file a No Tax Due Report, an Affiliate Schedule, or a Common Owner Information Report.

Texas state income taxes

Texas does not have a personal income tax. It’s one of only seven states that doesn’t tax any type of personal income, including wages. There are also no local personal income taxes levied by cities or counties in the state.

There are payroll taxes in Texas, which include federal income tax withholding and taxes assessed for Social Security, Medicare, and unemployment compensation. 

Does Texas have a state income tax?

Texas has no individual income tax, making it a tax-friendly state for residents.

Types of business taxes in Texas

As an employer in Texas, you may be responsible for reporting and paying other business taxes in addition to withholding payroll taxes from your employees' paychecks. From federal to state and local levels, understanding the different tax programs and their impact on your business’s finances is important.

Federal taxes

You'll be responsible for federal taxes in whatever state you open a business in. There are dozens of federal tax forms with unique due dates and requirements, so using an accountant or small business accounting software can help you avoid mistakes that could lead to overpayment or penalties. 

As a business owner, you have both personal and business tax filing obligations. Here’s what you need to know:

Personal tax filing

Federal income tax returns:

Every individual is required to file and pay federal personal income tax. This forms the foundation of your overall tax responsibility.

Business tax filing

Business owners have additional filing requirements, depending on the business structure:

• Sole proprietorship: Income and expenses are reported on your personal tax return using Schedule C (Form 1040).
• Partnership: A partnership must file an information return (Form 1065) to report income, deductions, and other relevant details, while each partner reports their share of income on their personal return.
• Corporation: A corporation files a corporate tax return (Form 1120), paying taxes on its profits.
• S Corporation: An S corporation files an informational return (Form 1120S). Its income, losses, and deductions pass through to shareholders, who report them on their personal returns.
• Limited Liability Companies (LLCs): LLCs are not classified separately for federal tax purposes and are taxed based on their ownership structure. Single-member LLCs default to sole proprietorship taxation or may elect corporate taxation, while multi-member LLCs default to partnership taxation or may elect corporate taxation.

Self-employment tax

If you work for yourself and earn more than $400 a year, you pay toward Social Security and Medicare programs through a self-employment tax. The Social Security system provides retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.

Employment taxes

As an employer, you are responsible for withholding and depositing federal income tax and the employee contribution to Social Security and Medicare taxes. You must also pay the employer portion of Medicare and Social Security and pay federal unemployment tax (FUTA). 

State taxes

There is no state income tax, but it does collect several types of taxes to fund its government, such as excise taxes, franchise taxes, property taxes, and others. 

Texas franchise tax

Texas’ franchise tax is the state’s alternative to a corporate income tax. The franchise tax is considered a “privilege tax,” or a tax companies pay for the privilege of doing business in Texas. One difference between corporate income taxes and Texas’ franchise tax is that the former is based on a business’ profits while the franchise tax is based on gross receipts (total revenue). 

What is the franchise tax rate?

The franchise tax rate in Texas depends on the type of business and its revenue. Here’s the breakdown for 2024:

• No-tax-due threshold: Businesses with total revenue under $2.47 million owe no franchise tax.
• EZ Computation Method: Businesses with total revenue between $2.47 million and $20 million can use the EZ Computation method, which applies a tax rate of 0.331% to taxable revenue.
• Standard Franchise Tax Rates:
• 0.375% for retail or wholesale businesses.
• 0.75% for all other businesses.

For more information and updates, visit the Texas Comptroller's website. 

How is the franchise tax calculated? 

The tax is applied to what Texas calls a company’s “taxable margin.” Margin can be calculated in several ways, including:

• 70% of total revenue
• 100% of revenue minus cost of goods sold
• 100% of revenue minus total compensation
• Total revenue minus $1 million

Who may be liable for a franchise tax?

Your franchise tax obligation depends on establishing "nexus," which is a connection or link between your business and the state. A company establishes nexus in Texas if it has:

• A physical presence in the state, such as an office, store, or warehouse.
• Over $500,000 in gross receipts from business activities conducted in Texas.

If your business meets either of these criteria, it likely has nexus in Texas and may be required to pay the franchise tax if its revenue is above the no-tax-due threshold.

Most taxable types of businesses are liable for the franchise tax, except for individual proprietors and certain general partnerships. 

No-tax-due threshold

As of January 1, 2024, the threshold for being exempt from paying franchise tax (known as the no-tax-due threshold) has increased to $2.47 million. This means:

• If your business's total revenue is $2.47 million or less, you will not owe any franchise tax and will not need to file a traditional no-tax-due report.
• However, even if you fall below this threshold, you still need to file either a Public Information Report (Form 05-102) or an Ownership Information Report (Form 05-167). Visit the Texas Comptroller website for more information and forms. 

Excise taxes

Excise taxes are special taxes imposed on specific goods or services. In Texas, these taxes apply to a wide range of products and activities, including:

• Alcoholic beverages: Liquor, beer, malt liquor, wine, and mixed beverages are taxed at varying rates. For example, distilled spirits have an excise tax rate of $2.40 per gallon. 
• Tobacco: Cigarettes, cigars, and other tobacco products are subject to excise taxes, often based on quantity or weight, making these items more expensive for consumers. Currently, in Texas, the tax rate for a 20 pack of cigarettes is $1.41.
• Motor fuel: Texas levies a flat 20 cent per gallon tax on gasoline and diesel fuels. This helps fund transportation projects and public education.

It’s important to review which special taxes or fees may apply to your Texas business.

Unemployment tax

As in all states, employers must pay federal unemployment insurance (UI) taxes. In Texas, employers also fully fund state unemployment insurance. State UI tax is paid on each employee's wages up to a maximum annual amount. That amount is known as the "taxable wage base" or "taxable wage limit." 

For 2025, the taxable wage limit for Texas UI tax is $9,000. Rates range from .25% to 6.25%, depending on the business’ experience rating.

Local taxes

There are no local personal income taxes in Texas. However, many cities, counties, and other jurisdictions in Texas levy other kinds of local taxes to fund essential services and infrastructure such as schools, roads, police, and fire protection.

Sales and use taxes 

The state imposes a sales tax rate of 6.25% on most taxable goods and services. In addition to this state rate, local taxing jurisdictions—including cities, counties, special purpose districts, and transit authorities—can levy an additional sales and use tax of up to 2%. This means that the total combined sales tax rate in some areas can reach as high as 8.25%. You can use the state’s Sales Tax Rate Locator to find local rates.

Remote seller tax considerations

Remote sellers are out-of-state sellers whose only activity in Texas is the remote solicitation of sales (through internet, mail, phone, etc). In 2018, states were given permission to collect tax from businesses that have an economic presence in the state, even when they don’t have a physical presence there. Remote sellers must report their sales and pay Texas sales and use taxes if their total annual revenue from Texas-based sales reaches or exceeds $500,000.

Property taxes

Texas has no state property tax, but local jurisdictions use property taxes to help pay for local services. 

If your business owns property in Texas, you will receive a bill from the local jurisdiction based on the appraised property value and local tax rate. Tax rates vary by county from 0.64% to 2.48%. 

Local jurisdictions can also tax personal property, which, in the case of a business, may include office furniture, machinery, or even inventory.

Texas business tax deductions, credits, and exemptions

Texas offers a range of business tax deductions, credits, and exemptions aimed at reducing taxable income and incentivizing specific economic activities. These state-level incentives can significantly lower a business's overall tax burden.

Credits and exemptions for Texas franchise tax

To encourage business growth and certain business activities in the state, Texas offers franchise tax incentives such as the following for specific businesses and activities. 

• Texas Enterprise Fund (TEF): The TEF offers performance-based incentives to businesses that bring significant capital investment and job creation to Texas. Companies evaluating Texas alongside out-of-state locations for new facilities or expansions may receive competitive grants to support capital and workforce investments, helping to launch their projects successfully.
• Franchise tax credit for clean energy projects: Texas offers a franchise tax credit for up to three clean energy projects, capped at $100 million or 10% of the project’s total capital cost. The credit can be carried forward for up to 20 years and may be assigned to other taxable entities but cannot be reassigned further. Eligibility is tied to compliance with Chapter 313 agreements under the Texas Economic Development Act.
• Sales tax exemption or franchise tax credit for qualified research: Texas encourages research and development by offering a choice between a sales tax exemption on tangible property used in qualified research or a franchise tax credit based on research expenses. Businesses can claim only one option per period, and the choice is flexible. Qualified research must meet specific IRS criteria, focusing on technological experimentation to develop or improve business components.
• Historic structure rehabilitation tax credit: Texas offers a tax credit of up to 25% of eligible costs for rehabilitating certified historic structures placed in service after September 1, 2013. To qualify, ownership during the rehabilitation year is required, and expenses must exceed $5,000. Contact the Texas Historical Commission for certification details.
• New veteran-owned businesses: Qualifying veteran-owned businesses formed in Texas between January 1, 2022, and January 1, 2026, are exempt from the franchise tax and state registration fees for their first five years. To qualify, they must be 100% owned by honorably discharged U.S. veterans, provide verification from the Texas Veterans Commission, and certify eligibility with the Comptroller.

Some kinds of nonprofit organizations may also be able to claim exemption from franchise tax.

Reduced rate for qualifying wholesalers and retailers

For companies with revenues over $20 million, qualifying wholesalers and retailers may pay a lower rate for franchise taxes than other types of businesses. Qualifying businesses must generate the majority of their revenue from retail or wholesale activities, and the majority of their retail/wholesale revenue must be from products NOT produced by themselves or affiliated companies.

No franchise tax if under $1,000

If your company franchise tax bill for the year comes to less than $1,000, you owe no tax. However, you still have to file the proper forms to report your information. 

Credits and exemptions for Texas sales tax

In Texas, certain businesses and activities qualify for sales tax exemptions or credits, offering significant savings on purchases directly tied to their operations.

Nonprofit organizations

Nonprofit organizations are generally exempt from Texas franchise tax and sales tax. Examples of exempt nonprofits include chambers of commerce, religious groups, tourist promotional agencies, schools, volunteer fire departments, youth sports leagues, and federally exempt 501(c)(3), (4), (8), (10), or (19) organizations.

Some nonprofit organizations may also be eligible for property tax exemptions. Not all organizations qualify for exemption in every category. More information about exemptions is available on the Texas Comptroller’s office website.

Manufacturing sales tax exemption 

Texas offers a sales tax exemption for manufacturers who produce tangible personal property for sale. This includes machinery, equipment, and materials that become part of the finished product, as well as certain services that enhance marketability.

Sales tax exemption for qualified research and development

Texas offers a sales tax exemption for depreciable tangible personal property directly used in qualified research. To qualify, businesses must engage in eligible research activities, register with the Comptroller's office, and not claim a franchise tax credit for the same period. This exemption supports innovation by reducing costs for research-related property purchases, leases, or rentals.

Types of Texas taxes for different business entity types

It’s important to understand the implications of your business structure on your tax liability. Different types of business entities in Texas may be subject to different taxes. If you haven’t set up your business yet and are considering options for structuring it, knowing the tax rules can help you make a decision. 

Of course, all types of businesses will need to pay federal personal or corporate income tax, depending on their structure, plus unemployment insurance and any sales and use, property, or excise taxes that apply to their specific business.

What is the “no-tax-due” threshold in Texas?

Texas does have a generous “no tax due” threshold—the revenue level below which a business pays no franchise tax. That threshold is $2.47 million for 2024 and 2025. This means that many small businesses in Texas pay no franchise tax at all. In fact, according to the Texas Comptroller, of the millions of businesses across the state, only about 160,000 filers usually owe any franchise tax.

What’s the “no tax due” threshold in Texas?

$2.47 million

Texas businesses that earn less than this in taxable revenue pay $0 in state franchise taxes.

Texas sales taxes

Texas collects 6.25% sales and use tax on sales, leases, and rentals of goods as well as on certain taxable services. (There are also local sales taxes in many jurisdictions.)

The types of services that are generally taxable are:

• Amusement services
• Cable television and bundled cable services 
• Credit reporting 
• Data processing 
• Debt collection 
• Information services: newsletters, market reports, multiple listing services, mailing lists, GPS access, etc.
• Insurance 
• Internet access 
• Laundry and garment cleaning
• Motor vehicle parking and storage 
• Nonresidential real property repair, restoration, and remodeling 
• Personal property maintenance, remodeling, and repair
• Real property services: pest control, waste collection, landscaping, lawn maintenance, etc. 
• Security services
• Telecommunications 
• Telephone answering 
• Utility transmission and distribution 
• Taxable labor: photographers, draftsmen, artists, tailors, etc.

Do you need a sales tax permit?

If you conduct business in Texas (on-site or remotely) and you sell or lease tangible goods or taxable services in the state, you will need to apply for a sales tax permit. Texas has an online tax registration system to make this easy. New applicants can fill out an online form and receive their permit in 2-3 weeks.

How to file business taxes in Texas

To file business taxes in Texas, first determine your business structure and complete the appropriate federal tax forms. At the state level, register for a Texas Taxpayer Number and the necessary tax accounts, such as Sales and Use Tax and Franchise Tax, through the Texas Comptroller of Public Accounts' online portal.

Ensure you understand your tax obligations and filing requirements to remain compliant with Texas state laws. 

When are business taxes due in Texas?

Due dates depend on the type of tax. Sales and use taxes need to be paid monthly, around the 15th of the following month. Your annual franchise tax report is due May 15th. Consult the Texas Comptroller’s website for other due dates.

Estimated taxes

Texas does not require estimated tax payments for its state franchise tax, but business owners in Texas, like those in other states, may need to pay estimated federal taxes if they expect to owe at least $1,000 in federal taxes for the year after subtracting withholding and refundable credits. Corporations typically have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.

This typically applies to self-employed individuals, sole proprietors, partners, and S corporation shareholders who receive income that is not subject to withholding.

Due dates for estimated taxes for businesses

For 2025, due dates for federal estimated tax payments are as follows:

• 1st Quarter Payment: Due on April 15 (for income earned January 1 - March 31).
• 2nd Quarter Payment: Due on June 16 (for income earned April 1 - May 31).
• 3rd Quarter Payment: Due on September 15 (for income earned June 1 - August 31).
• 4th Quarter Payment: Due on January 15, 2026, of the following year (for income earned September 1 - December 31).

If any due date falls on a weekend or holiday, the payment is due the next business day.

Year-end business tax checklist

Stress less during tax season. Use this small business tax checklist to ensure you have everything you need to stay organized throughout the year and file your taxes accurately and on time:

Year-round business tax preparation

• Maintain accurate records: Keep detailed records of all income and expenses throughout the year.
• Categorize expenses: Organize your expenses into relevant categories for easier tax preparation.
• Reconcile bank accounts: Regularly reconcile your bank accounts to ensure accuracy and identify any discrepancies.
• Track mileage: If you use your vehicle for business purposes, keep a detailed mileage log.
• Stay informed: Keep up-to-date on federal and state tax laws and regulations that might affect your business.

Pre-filing checklist

• Gather necessary forms and documents:
• Previous year's tax returns (up to three years prior for both state and federal)
• Accounting journals and ledgers
• Balance sheet and income statement
• Transactional supporting documents (bank deposit slips, bank statements, invoices, checkbook, credit card statements)
• Vehicle and mileage logs
• Expense receipts
• Employee tax forms (W-9, I-9, W-2, 1099)
• Non-employee tax forms (1099-MISC)
• State tax forms
• List of home office deductions (if applicable)
• Understand which tax forms to file: Determine the specific tax forms required for your business structure and tax obligations.
• Review and verify information: Double-check all information for accuracy before filing.
• Consider estimated taxes: If required, calculate and pay estimated taxes throughout the year.

Filing and beyond

• File your tax returns: Submit your tax returns electronically or by mail before the deadline.
• Request filing extensions (if needed): If you need more time to file, request an extension before the deadline.
• Keep copies of your tax returns: Store copies of your filed tax returns for future reference.
• Plan for next year: Start organizing your records and planning for the next tax season.

Commonly missed tax deductions and credits

Take advantage of valuable tax breaks. Many small businesses overlook possible deductions and credits that could significantly reduce their tax liability. Be sure you claim all the deductions and credits you qualify for.

Common business tax deductions

• Advertising
• Depreciation of assets
• Employee salaries and benefits
• General business expenses
• Home office expenses
• Insurance
• Business loan interest
• Internet and phone services
• Legal services
• Licenses
• Meals and entertainment (for business purposes)
• Business-related travel and mileage expenses
• Commercial property rent 
• Training and education
• Cost of goods sold (COGS)
• Business banking fees

Proper documentation and recordkeeping are essential to justify deductions in case of an audit. Consulting a tax professional can help ensure compliance with tax laws and maximize your eligible deductions.

Small business tax credits

Take time to familiarize yourself with the variety of business tax credits that may be available to you. Here are some common ones: 

• Alternative Motor Vehicle Credit for electric cars and hybrids used for business
• Disabled Access Credit for expenses related to improving accessibility
• Investment Credit, including credits for energy, reforestation, and rehabilitation projects
• Paid Family and Medical Leave Credit for eligible employers providing paid leave
• Small Employer Health Insurance Premiums Credit for employers with fewer than 25 employees contributing to health insurance premiums
• Work Opportunity Credit for businesses hiring individuals from targeted groups

For a complete list of federal tax credits and detailed eligibility requirements, visit the IRS website.

In addition to the federal tax incentives, consider if you could qualify for ones specifically for Texas businesses, such as:

• Media Production Development Zone Program: This is a sales and use tax exemption for the construction or renovation of permanent moving image production sites in the state. 
• Texas Enterprise Zone Program (EZP): This is a state sales and use tax refund program that encourages job creation and private investment in economically distressed areas.

Where do I send my Texas tax reports and payments?

In Texas, the State Comptroller collects a variety of state and local taxes, ranging from the sales and use tax to oil and natural gas production taxes. In addition to its website, the agency has offices throughout the state where taxpayers can obtain tax information and file and pay their tax reports. 

Should I file and pay by paper or electronically?

Texas requires some businesses to file and/or pay their Texas taxes electronically. You need to file electronically if you:

• Pay more than $50,000 in sales/use tax or some excise taxes

You need to make your payment electronically if you:

• Pay $10,000 or more in sales/use tax, franchise tax, or certain excise taxes 
• Pay more than $500,000 in any specific tax

Common mistakes to avoid when filing business taxes in Texas

Tax season can be a bit like navigating a Texas-sized maze, but with a little preparation, you can avoid costly mistakes and keep your business on the right track. Here are some common pitfalls to watch out for.

Misclassifying workers

Make sure you're correctly classifying your workers as employees or independent contractors. Misclassification can lead to hefty penalties and back taxes.

Missing deductions

Don't leave money on the table. Explore all eligible deductions, such as those for home office expenses, business travel, and equipment purchases.

Forgetting about the franchise tax

Remember that Texas has a franchise tax, which is a tax on gross receipts, not profits. Make sure you understand the filing requirements and deadlines.

Overlooking sales tax

If your business sells taxable goods or services, ensure you're collecting and remitting sales tax correctly. Texas has a complex sales tax system with varying local rates, so stay informed.

Failing to pay estimated taxes

If you expect to owe a significant amount in taxes, make sure you're paying estimated taxes throughout the year to avoid penalties.

By staying organized, understanding the tax laws, and seeking professional advice when needed, you can navigate the Texas tax landscape with confidence and keep your business on the path to success.

Find an accountant to help prepare your Texas business taxes

While Texas lacks state income and corporate taxes, managing business tax filings can still be complex. Because of the importance of correct filing to avoid overpayments or fines, consider hiring an experienced accountant or bookkeeper who’s knowledgeable about tax issues and Texas tax laws. 

In Texas, there are no state-specific licensing requirements for tax preparers. However, you should ensure your chosen professional: 

• Meets IRS requirements
• Has a Preparer Tax Identification Number (PTIN) and an Electronic Filing Identification Number (EFIN)
• Completed the Annual Filing Season Program (AFSP), which covers topics such as new tax laws, filing requirements, ethics, and professional conduct

Find an accountant in Texas here, and consider using the right small business accounting software to streamline your finances and ensure you're prepared for tax season with accurate reporting.

Disclaimer: 

This content is for information purposes only and information provided should not be considered legal, accounting or tax advice or a substitute for obtaining such advice specific to your business. Additional information and exceptions may apply. Applicable laws may vary by state or locality. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein. Accordingly, the information provided should not be relied upon as a substitute for independent research. Intuit Inc. cannot warrant that the material contained herein will continue to be accurate, nor that it is completely free of errors when published. Readers should verify statements before relying on them.