Texas has no state income tax but charges franchise tax on LLCs with revenue >$2.47M (2024 threshold). Most small businesses exempt - effective 0% tax rate for 94% of Texas LLCs.
Why Texas
No state income tax on individuals or LLCs. Franchise tax exemption for businesses <$2.47M revenue (indexed annually for inflation). Business-friendly regulations, fast online filing via SOSDirect.
Second-largest state economy after California, 30 million population. No publication requirement like New York ($1,000+ saved).
Name Availability
Check Texas Secretary of State database before filing. Name must be "distinguishable" from existing Texas entities - both active and reserved names.
Use Texas SOSDirect search. Free, instant results. Reserve name for $40 (holds 120 days).
Texas distinguishability test: More strict than most states. "Texas Tech LLC" vs "Techtex LLC" might be rejected if same industry despite different spelling.
Naming Rules
Must contain "Limited Liability Company", "Limited Company", or abbreviation "LLC", "L.L.C.", or "LC". Cannot use "corporation", "corp.", "incorporated", "inc." unless actually incorporated.
Cannot use without authorization: "bank", "trust", "insurance", "olympic". Cannot imply government: "FBI", "Treasury", "State of Texas" require approval.
Formation Process
File Certificate of Formation: $300 via SOSDirect online portal, 3-5 business days processing. Expedited: $25 for 2-3 days, $50 for 24 hours, $100 for 2 hours.
Registered agent: Required, must have Texas street address. Cost: $0 if using yourself, $100-200/year for commercial service. Obtain EIN: Free, instant online from IRS.
File Public Information Report: Due within 90 days of formation, $0 fee (but required). Create Operating Agreement: Not filed but recommended.
Costs Breakdown
Certificate of Formation: $300 state filing. Registered agent: $0-200/year. Public Information Report: $0 (initial + annual).
Franchise tax: $0 if revenue <$2.47M (94% of LLCs exempt). Name reservation (optional): $40 for 120 days. Expedited processing: $25-100 if urgent.
Total first year: $300-500 with registered agent. Ongoing: $0-200/year (just registered agent if revenue <$2.47M - no annual fee).
Franchise Tax
No franchise tax if annual revenue <$2.47M (2024 threshold - adjusts yearly for inflation). Revenue $2.47M-$20M: 0.375% tax on margin (lowest rate tier).
Revenue >$20M: 0.75% tax on margin (retail/wholesale) or 0.375% (other). Tax based on "margin" (modified gross receipts), not profit - can owe tax even if unprofitable.
Margin Calculation
Choose lowest of: Revenue minus cost of goods sold (COGS), Revenue minus compensation (wages/benefits capped at $490K per employee), Revenue x 30% (automatic deduction), Revenue x 70% (for specific industries).
Most profitable method varies by business type. Service businesses often use 30% automatic deduction. Retail uses COGS deduction.
Public Information Report
Due within 90 days of LLC formation, then annually by May 15. $0 filing fee - completely free. Must update: Principal office address, registered agent, member/manager names.
Missing deadline: No monetary penalty initially, but company loses good standing after 45 days. Lose good standing = can't defend lawsuits, can't enforce contracts.
Annual Filing
File between January 1 - May 15 each year via SOSDirect. $0 fee every year (unlike Florida $138.75 or Nevada $150). One of the lowest ongoing compliance costs nationwide.
Texas Public Information Report is FREE - no annual fee unless franchise tax applies. Total annual cost: $0-200 (just registered agent if revenue <$2.47M).
Registered Agent
Required: Texas street address available during business hours to receive legal documents. Cannot use PO Box. Agent receives service of process, state notices.
DIY option: Use your Texas address if you have one ($0). Commercial service: $100-200/year for privacy and forwarding. Change agent anytime online at no charge.
Operating Agreement
Not required to file with state but ESSENTIAL for multi-member LLCs. Prevents ownership disputes, defines profit splits, clarifies management authority.
Single-member LLCs benefit too: Strengthens liability protection (separates LLC from owner), provides succession plan, prevents piercing corporate veil.
Texas courts respect properly drafted Operating Agreements - worth $500-1,500 attorney fee for complex ownership structures.
Series LLC Allowed
Texas recognizes series LLC structure - one master LLC with multiple series (like cells), each with separate assets and liabilities. Popular for real estate investors.
Cost: $750 to form master LLC (vs $300 regular LLC). Each series costs $0 to establish (just file Certificate of Designation with master LLC).
Series LLC Benefits
Own multiple properties with liability protection between them without forming separate LLCs. Lower annual costs - one $0 Public Information Report covers all series.
Franchise tax: All series combined for revenue threshold - if total <$2.47M, pay $0. Banks often don't understand series LLC - harder to open accounts than regular LLC.
Series LLC banking challenge: Many Texas banks refuse accounts for series LLCs. Verify bank will accept before paying $750 formation fee vs $300 regular LLC.
Foreign Qualification
Out-of-state LLC doing business in Texas must register as foreign LLC. $750 filing fee (2.5x higher than domestic LLC $300).
Public Information Report: $0 annually same as domestic. Franchise tax: Same $2.47M threshold applies. Outcome: Costs MORE to qualify foreign LLC than form new Texas LLC.
When Required
Physical office or warehouse in TX: Required. Employees working in TX: Required. Owning TX real estate: Required. Selling to TX customers online: Generally not required.
Threshold: Transacting intrastate business regularly in Texas. One-time projects or trade shows typically don't trigger.
No Publication Requirement
Texas requires no newspaper publication (unlike NY $1,000-1,500 requirement). No waiting period to do business. Can start operations immediately after approval.
Lower formation costs than many states with similar economic size. Attracts entrepreneurs from high-regulation states.
Common Mistakes
Paying for expensive registered agent first year: Use your own TX address if you have one ($0). Missing Public Information Report: Lose good standing, can't sue or be sued.
Not budgeting $300 formation fee: Higher than most states ($100-150 average). Assuming franchise tax applies: 94% of LLCs exempt below $2.47M revenue threshold.
Using series LLC without checking bank: Many banks won't open accounts - verify before $750 formation fee. Qualifying foreign LLC instead of forming domestic: Costs $450 more ($750 vs $300).
Post-Formation
Public Information Report: Due May 15 annually, $0 fee (file January 1 - May 15). Franchise tax: $0 if revenue <$2.47M, due May 15 if applicable.
Federal tax: Single-member Schedule C, multi-member Form 1065. State income tax: None - Texas has no state income tax. Sales tax: Register if selling taxable goods in Texas.
Trademark Lens verifies business name availability before $300-500 Texas LLC formation and $0-200/year ongoing costs.