Learn about the annual report and tax filing obligations for Texas limited liability companies.
To establish and operate a Texas limited liability corporation (LLC), you must prepare and submit a number of paperwork with the state. This article discusses the most significant continuing reporting and state tax filing obligations for Texas limited liability companies.
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In contrast to the majority of states, Texas does not require LLCs to submit yearly reports with the Secretary of State. However, LLCs are required to submit yearly franchise tax filings (see below).
State Corporation Tax
Most LLCs are pass-through tax corporations when it comes to income taxes. In other words, the burden for paying federal income taxes is passed via the LLC to the individual LLC members. LLCs do not pay federal income taxes by default; only its members do.
Most LLCs in Texas, however, are subject to a state franchise tax. The tax is due to the Comptroller of Public Accounts in Texas (CPA). In general, the franchise tax is calculated using an LLC’s “net surplus” (the net assets of the LLC less the contributions of its members). The technicalities for calculating the tax might be difficult. If no franchise tax is owed, submit Form 05-163. (No Tax Due Information Report). If tax is owed, you must utilize one of many various report forms (E-Z Computation or Long Form) depending on the circumstances. For further information, see the CPA website.
In certain situations, the owners of an LLC elect to have their firm taxed as if it were a corporation. This decision is made by submitting IRS Form 2553 to the IRS. (The form is available on the IRS website.) The franchise tax in Texas also applies to LLCs that are taxed like corporations. Again, the subtleties might be tricky. More information may be found on the Comptroller’s website.
Employer Taxes in the State
Do you have workers in your LLC? If this is the case, you must pay employer taxes. Some of these taxes are paid to the federal government (the IRS) and are not addressed in this section. (However, it is important to understand that federal employer tax duties begin with getting a federal employer identification number (EIN).) Texas employers, on the other hand, may be required to pay state taxes.
You will very certainly need to register to pay state unemployment insurance (UI) taxes. The Texas Workforce Commission is in charge of these taxes (TWC). These taxes may be registered for online or using TWC Form C-1 (Status Report). Then, each quarter, utilize TWC Forms C-3 and C-4 to record your earnings and pay your unemployment insurance taxes. Visit the TWC website for additional information.
Taxes on Sales and Use
If your LLC will sell items to consumers in Texas, you will need to collect and pay sales tax. This implies you’ll have to register with the Comptroller of Public Accounts for this reason and then make periodic sales tax payments for products sold. You may register online, in the mail (using Form AP-201, Texas Applications for Sales Tax Permit), or in person at a CPA field office. After you register, you will be issued a sales and use tax permit. Then, on a regular basis (say, quarterly), you must file sales tax returns with the CPA. File online or with the appropriate form (there are several). Visit the CPA website for further information.
Other States Registration
If you want to do business in states other than Texas, your LLC may need to be registered in any or all of those states. The exact states concerned will determine if you are needed to register: each state has its own regulations for what defines conducting business and whether registration is required. For registration reasons, having a physical presence (a business location) in a state, recruiting personnel in a state, or soliciting business in a state (through telephone, print advertisements, mail, or the Internet) are sometimes considered conducting business. Obtaining a certificate of authority or comparable document is normally required for registration.