Texas Franchise Tax 2025: A Practical Guide for Business Owners (From Your Fort Worth CPA Team)
Running your business in Texas should feel straightforward, including the rules of tax compliance. Below is a clear, 2025-ready guide to the Texas Franchise Tax with key thresholds, rates, deadlines, and filing steps.
If you want help navigating any of this, book a free consultation with Hecht & Associates, CPAs in Fort Worth. We’ll review your numbers, choose the best computation method, and file everything correctly.
What is the Texas Franchise Tax and Who Must Pay It?
Understanding the Texas Franchise Tax as a Business Owner
Texas does not impose a traditional corporate income tax. Instead, most entities pay a franchise (margin) tax for the privilege of doing business in the state.
Entities Subject to Franchise Tax vs. Exempt Organizations
Generally subject: corporations (including S corps), LLCs (including single-member LLCs), most partnerships (LP/LLP), business trusts, and professional associations. Common exemptions include sole proprietorships, general partnerships owned entirely by natural persons, certain passive entities, grantor trusts/estates, and entities exempt under Subchapter B.
Differences Between Franchise Tax and Corporate Income Tax
Franchise tax = based on taxable margin (a formula tied to total revenue and allowable deductions), then apportioned to Texas.
Corporate income tax = tax on profit (Texas doesn’t have one).
This structure is why the computation method and apportionment matter so much in Texas.
What Are the Texas Franchise Tax Thresholds and Rates for 2025?
The $1.23 Million No Tax Due Threshold Explained
2025 update: The No Tax Due threshold is $2,470,000 for reports originally due in 2024 and 2025 (up from $1.23M in 2022–2023). If your annualized total revenue is at or below $2.47M, no franchise tax is due. (You must still file an information report—see Public Information Report (PIR) / Ownership Information Report (OIR) below.)
Current Texas Franchise Tax Rates by Business Type
Retail/Wholesale: 0.375% of taxable margin
All others: 0.75% of taxable margin
Compensation deduction cap: $450,000 per person for 2024–2025 reports
These rates and limits apply to the 2025 report year.
EZ Computation vs. Standard Calculation Methods
If your total revenue ≤ $20 million, you may elect EZ Computation at 0.331%. With EZ, you can’t take COGS/compensation deductions or claim credits. Many lean towards EZ for simplicity; others use standard calculations to preserve deductions/credits.
How is the Texas Franchise Tax Calculated on Total Revenue?
Determining Taxable Margin: Cost of Goods Sold Deduction
Under the standard method, your taxable margin is the greatest benefit of:
Total revenue × 70%, or
Total revenue − COGS, or
Total revenue − compensation (subject to the per-person cap above).
COGS is generally available to businesses that sell tangible personal property in the ordinary course of business.
Gross Receipts and Annual Revenue Considerations
Texas uses single-factor apportionment: margin × (Texas gross receipts ÷ gross receipts everywhere). Sourcing and industry rules can materially change the Texas factor—important for multistate businesses and service companies.
Tax Credits and Deductions Available to Texas Businesses
Select state credits can reduce tax (but not when using EZ):
R&D franchise tax credit (currently available through Dec. 31, 2026, with carry-forward rules).
Historic structure rehabilitation credit (up to 25% of eligible costs; transferable; limited carryforward).
Evaluate credits before choosing EZ.
When Must You File a Franchise Tax Report in Texas?
May 15 Deadline and Extension Options for Compliance
Due date: May 15 annually. You can extend by paying 90% of the tax due (or 100% of prior year’s tax) by May 15. Large payers must use TEXNET.
Filing a No Tax Due Report When Below Threshold
For reports due on/after Jan. 1, 2024, entities at or below $2.47M no longer file a No Tax Due report. However, they must file the PIR/OIR information report annually.
Public Information Report and Ownership Information Requirements
Most corporations/LLCs file Form 05-102 (PIR); LPs and some others file Form 05-167 (OIR)—due the same day as the franchise report. This requirement remains even if you owe no tax due to the threshold.
What Exemptions Exist for the Texas Franchise Tax?
Businesses Exempt from Franchise Tax in Texas
Common exemptions include sole proprietorships, general partnerships owned entirely by natural persons, certain passive entities, and specific entities exempt under statute (plus certain trusts/estates/REITs/REMICs).
Qualifying for Exemption Status with the Texas Comptroller
Exemption depends on legal form and statutory definitions (e.g., the passive-entity test). Federal tax treatment (like disregarded status) doesn’t determine Texas filing—legal formation does.
Documentation Needed for Claiming Exemptions
Expect to substantiate ownership composition (for GP-natural-person exemption), passive income tests, and any specific statutory carve-outs during registration or notice responses. (See Comptroller FAQs and publications for entity-specific documentation.)
How to File Your Texas Franchise Tax Report for 2025
Step-by-Step Filing Instructions Using the Texas Comptroller’s Website
Decide the method: Standard vs. EZ (consider deductions and credits first).
Gather totals: total revenue (per federal return lines), apportionment data, COGS/compensation details, and credit certificates, if any.
Log in to Webfile (need your Webfile number—on Comptroller mailers; the state can help you retrieve it).
Complete the report: Form 05-158 (standard) or 05-169 (EZ). Combined groups attach Affiliate Schedule 05-166.
File PIR/OIR the same day (Form 05-102 or 05-167).
Pay electronically (Web EFT/credit card). If you paid $500,000+ last year in franchise tax, you must use TEXNET.
Save confirmations and monitor notices; correct any mismatches quickly.
Common Filing Mistakes and How to Avoid Them
Marking “combined” but not attaching 05-166 (Affiliate Schedule).
Taking a credit on the long form but omitting the Credits Summary (05-160).
Skipping the PIR/OIR because you’re under the threshold (still required).
Choosing EZ and unintentionally forfeiting credits/deductions.
Missing electronic payment rules for TEXNET payers.
Payment Options and Electronic Filing Requirements
Webfile supports EFT/credit card; some taxpayers are required to pay via TEXNET (≥ $500,000 in prior fiscal-year payments). Timing rules apply for large TEXNET payments.
What Happens If You Miss Your Franchise Tax Obligations?
Penalties and Interest for Late Franchise Tax Payments
Expect a $50 late-filing penalty per report, plus 5% after day 1, increasing to 10% after 30 days; interest begins 61 days after the due date. Additional penalties can apply for non-electronic payments when required.
Forfeiture of Texas Business Privileges for Non-Compliance
If you fail to file/pay after notice, the Comptroller can forfeit corporate privileges/right to transact business; prolonged delinquency can lead the SOS to forfeit the entity’s charter/registration. Banks, contracts, and good standing can be affected.
Reinstatement Process After Franchise Tax Delinquency
To reinstate: file all delinquent reports (including PIR/OIR), pay tax/penalty/interest, obtain a Tax Clearance Letter from the Comptroller, then file reinstatement paperwork with the Secretary of State.
Quick Scenarios (When to Call Hecht)
Under $2.47M revenue? No tax due—but PIR/OIR is still required. We’ll file it and keep you in good standing.
Services business with multistate clients? Apportionment and sourcing rules drive your Texas factor; we’ll optimize the method and documentation.
Manufacturing/retail? COGS vs. compensation can materially change tax—let’s run both and see.
R&D or historic rehab projects? Credits may lower liability—don’t pick EZ before we evaluate them.
Work With a Fort Worth CPA Who Handles Texas Franchise Tax Every Day
This guide gives you the lay of the land. The best outcomes come from running the actual numbers—standard vs. EZ, COGS vs. compensation, sourcing vs. credits—and filing clean reports with the right attachments.
Book a free consultation with Hecht & Associates and we’ll:
Review your entity structure, nexus, and revenue mix
Calculate your taxable margin both ways (and check credits)
File your 2025 Franchise Tax and PIR/OIR on time—properly
Note: This article reflects rules and thresholds for reports due May 15, 2025 (2025 report year). If your situation involves prior years or 2026+ planning, we’ll align your filings to the correct year’s thresholds and forms.