Tax law is an important legal area for any business to consider. Not only do taxes impact your company’s profits, but they also require strict compliance or you may face serious fines and even criminal charges. Texas tax law is especially friendly to businesses and is the reason that many companies chose to incorporate in Texas. With no corporate income taxes, Texas has become one of the fastest-growing states for startups. Through Priori Legal's vetted attorney marketplace, you can connect on-demand with Texas tax lawyers with precisely the experience your business requires.
Corporate Tax Planning
Taxes can have a huge impact on any company’s bottom line. In order to minimize the negative effects of taxes, many companies hire Texas tax attorneys to help with corporate tax planning. These attorneys will develop legal strategies to minimize the amount of taxes your company owes in any given year, as well as help to lower your tax burden in the long term.
Federal Income Taxes
In the United States, income taxes are levied on both businesses and individuals according to how much money has come in during the fiscal year. All individuals in the United States must file an income tax return every year, as well as all corporations and other businesses considered legal persons for the sake of taxes. Not all businesses owe corporate taxes, however. LLCs, S-corps, partnerships, and sole proprietorships are all pass-through entities for taxes, which means owners are only taxed on the distributions from the business. The income is not taxed at the corporate level. The IRS is responsible for collecting taxes and assessing these taxes for accuracy.
Texas State Business Taxes
In Texas, corporate and personal income tax is not allowed by the state constitution. Depending on your industry, business activities, and assets, you may still owe other state level taxes. These taxes must be paid to the Texas Comptroller of Public Accounts.
Texas Franchise Taxes
A common tax faced by businesses operating in Texas is franchise tax. This does not only apply to traditionally franchised companies. All businesses not owned 100% by natural persons that make at least $600,000 per year need to pay franchise or margin taxes. To determine if this tax applies to a company, your company must submit tax forms annually to the Comptroller’s office. For LLCs and corporations, this filing is a Public Information Report, and all other businesses file an annual Ownership Information Report.
Sales Tax in Texas
Texas does levy a sales tax on businesses selling certain classes of goods and services. All retail sales, leases, and rentals qualify, as do services that result in a tangible good or outcome being delivered, such as cleaning, parking services, utilities, amusement services, the arts, and repair. Texas cities, counties, transit authorities, and special purpose districts can also add additional sales tax, capped at 8.25%. This tax must be clearly conveyed to consumers and paid to the Texas Comptroller’s Office.
Dealing with an Audit in Texas
Even if you are careful with your tax obligations, you may be selected for a Texas Comptroller state tax examination or IRS tax audit. These audits can be nerve-wracking, but they generally are nothing serious. Some actions will automatically trigger an audit in Texas, such as a more than $10,000 change in your reported sales. Others are less clear-cut. The larger your company is, the more likely you are to be randomly audited, but errors or aberrations in reported taxes , as well as tips to tax authorities can also cause even the smallest companies to be audited. If you are audited, you shouldn’t panic. Your company should have clear records, and a tax attorney and accountant can minimize the impact and inconvenience of an audit.
If I do business in states other than Texas, but am located here, do I owe taxes in other states?
You might. It depends on what business activities you are carrying out and what corporate presence you have in those other states. While corporate income tax is generally paid where you are incorporated and based, sales tax, franchise taxes, and other corporate taxes have other requirements to determine whether or not you must pay them in certain states. If you are facing a complex tax situation, it may help to consult an accountant or Texas tax attorney to minimize the taxes you owe while ensuring compliance.
What business expenses can I legally deduct?
Only ordinary and necessary business expenses can be deducted, not any personal expenses related to business activities or expenses outside standard industry practice. A tax attorney or a corporate accountant will be able to assess specific expenses to tell you whether or not they are deductible.
Has the tax code in Texas changed since the last time I filed?
It may have. The tax code changes often, both at the federal level and in the state of Texas. The best way to stay up-to-date on Texas tax law is to consult an experienced Texas tax lawyer.