LLC and TaxesA third record sits in Texas

TX

We are all Texans, and the call is the visit

An owner in the Hill Country, on the Gulf, or up in the Panhandle is not a guest in someone else's state. We are all Texans. That is the whole claim about place. We do not keep an office beside your courthouse, and we do not pretend a Friday night game is our neighborhood. The practice is in Dallas. The certificate, the books, and the report move on a video call.

The same close happens whichever side of the state the company sits on. Shared books, a calendar you open when you want it, and a month that ties to the bank. A norther that drops the temperature in one county and a humid week on the coast do not change the due date. They do change the afternoon you are having when the letter arrives, and the page is written for that afternoon.

What usually lands in the mailbox, once a Texas company already has a federal return or a year of silence in its place, is a state paper the federal filing never named. The Comptroller wants a public information report, or a franchise tax computation, and the owner is holding that third paper with a May date while the two records already on the kitchen table still look familiar. This page is for that afternoon, and for the relief of reading all three while the year can still be changed.

01

What the Secretary of State actually created

A Texas limited liability company begins when the Secretary of State accepts the certificate of formation, and the instructions for Form 205 put that filing at 300 dollars. One organizer is enough. The signature can come from anyone who has turned 18, or from a second company acting as organizer, and neither one is required to keep a home in Texas. The signature is the organizer's, and the form does not ask anyone to notarize it.

Someone has to agree, in advance, to accept legal papers for the new company, and the company is not allowed to appoint itself. The person who agrees has to live in Texas, or the stand-in can be an organization that is already registered to do business in Texas. The consent stays in the company file. It is not attached to the certificate. The office named beside that person has to be a street where papers can be handed over during the business day, so a mailbox with no person behind it does not qualify.

Since 1 January 2022 the certificate also states an initial mailing address, and that is where the Comptroller sends the tax mail. If the agent or the office later changes, the update is a separate statement sent to the Secretary of State. The instructions warn that letting either one lapse can lead to involuntary termination. Sending the federal return does not put the agent or the office back on the state list. Those two items stay current only when someone keeps them current on purpose.

A company agreement may create series of members, managers, interests, or assets. Business Organizations Code section 101.601 is the sentence that allows the agreement to say so. Later sections, starting at 101.602, cover protected series and registered series and how far a debt reaches the assets of that series. This page does not tell you a series walls the debts off. An owner who wants that structure reads those sections with a lawyer. Even with those sections in place, Publication 98-806 keeps a series company inside the group franchise tax can still reach.

02

The federal choice is still a separate paper

Forming the company did not tell the IRS how to tax it. One owner who never files an election usually reports the activity on an individual return. Two or more owners who never file an election usually file Form 1065 and hand each owner a K-1. The split described at dinner is not the split on that slip unless someone wrote it the way the return requires.

The later letter is Form 2553, the one the owners sign when they want the IRS to tax the company as an S corporation, and every shareholder signs it. The instructions measure a window of 2 months and 15 days from the day the tax year starts, and they also allow the form during the tax year that comes before. Their first year example is a calendar year company whose first tax year starts on 7 January. Count two months and you land on 6 March, then count 15 days and you land on 21 March, so that example accepts a form dated from 7 January through 21 March. A form dated before 7 January fails in the example, because the company had no earlier tax year in which to file.

Their other example is a company already taxed as a C corporation that wants the S election for a year starting on 1 January. In that example the last day is 15 March, and the company may file during the year before. 15 March is that example. It is not a date this page hands to every owner. Late relief sits in Revenue Procedure 2013-30. The instructions say to write FILED PURSUANT TO REV. PROC. 2013-30 across the top. Relief outside that procedure is generally a private letter ruling, and that ruling has a fee.

The IRS page on who may hold the shares allows individuals, certain trusts, and estates. It does not allow partnerships, corporations, or a person who is a nonresident alien. The count stops at 100 shareholders. One class of stock. Some banks, insurance companies, and domestic international sales corporations cannot make the election. An owner who works in the company takes reasonable compensation for that work before distributions that are not wages. We open the payroll accounts, and the service you already run is the one that sends the pay. The employer identification number is free from the IRS, and the state filing comes first.

03

The franchise report is the third record

The Comptroller describes franchise tax as a privilege tax, and the tax reaches each taxable entity formed in Texas or doing business in Texas. Publication 98-806 puts limited liability companies on that list, a one owner company and a series company included, and it puts S corporations on the list as well. A person who never formed a company, and who is not holding a single member limited liability company, generally stays off this filing. The certificate is the event that pulls this third paper into the same year as the federal return.

Read the report year before you trust the dollar. Pair 2026 with 2027. Revenue that annualizes to 2,650,000 dollars or less leaves the franchise tax at zero, and the computation report is the paper you skip. What still has to leave the building is a naming paper, Form 05-102 or Form 05-167, unless the Comptroller has already placed the company on a skip list. The 2024 and 2025 reports used 2,470,000 dollars as the line under which no tax was owed, and that older dollar does not belong in a sentence about 2026.

Goods sold at retail or wholesale are taxed at 0.375 percent on the long form, and activity that is not retail or wholesale is taxed at 0.75 percent. The cap on compensation per person is 480,000 dollars for a 2026 or 2027 report, and it was 450,000 dollars for a 2024 or 2025 report. The EZ path taxes that base at 0.331 percent, and only while annualized total revenue stays at or below 20 million dollars. Choosing the EZ path closes off the four margin measurements. Staying with the long form means choosing one of four measurements: seventy percent of total revenue, total revenue after the cost of the goods the company sold, total revenue after compensation, or total revenue after a flat one million dollars. Compensation in that subtraction is W-2 wages and cash paid to officers, directors, owners, partners, and employees, including net distributive income paid to a natural person, kept inside the per person cap, plus the benefits the statute allows, among them workers' compensation, health care, and retirement. Left out of the subtraction are 1099 labor and the payroll taxes the employer itself pays. A shop that sells services and nothing else often finds the statute allows no cost of goods at all, and whatever margin is left is apportioned on Texas gross receipts.

Mark 15 May for the report, and when that calendar day is a weekend or a holiday the Comptroller pushes the due day to the next business day, which you confirm on the page for the year in front of you rather than from a memory of last May. Miss that day and the report alone costs fifty dollars, even before any tax is added. Tax money that arrives anywhere from 1 to 30 days late costs an added 5 percent, tax money that arrives after that stretch costs an added 10 percent, and interest begins to run on day 61. The interest percent is printed on the Comptroller interest page, and this page will not supply a percent from memory.

May stays put unless the Comptroller is holding either the money or their form on the original day. The payment that usually qualifies is the whole of last year's tax, or nine tenths of the tax the report being extended will eventually show. A company meeting this tax for the first time cannot lean on last year's number, because there is no last year to copy. A company outside the electronic funds transfer rule uses Webfile or Form 05-164, and the extra time runs out on 15 November. Paying 10,000 dollars or more of this tax in the previous state fiscal year moves the company onto electronic funds transfer, with a first extra period ending 15 August and a second ending 15 November. Cross 500,000 dollars of this tax and more time is requested by a TEXNET payment that clears on time under code 13080. Leave Form 05-164 unfiled once that payment is in. The live extensions page states the hour the payment has to clear, and a payment after that hour is late even when the calendar date still looks safe.

Leaving the information report unfiled is a separate failure from owing the tax. The Comptroller's page warns that forfeiture can take away the right to sue or to defend in a Texas court, and that it can put personal liability on officers, directors, partners, members, or owners for certain debts. A combined group does not fold the paperwork into one envelope. Every member organized in Texas, and every member with nexus, still produces a report that carries its own name. Form 05-167, unlike the public card, keeps those ownership names off the copy a stranger can pull. An officer who changes after the report is in waits for the following year's filing, unless an amendment is sent because of an error or a critical need. Moving the registered agent is a filing at the Secretary of State, and these annual tax reports are the wrong filing for that change. Drop below sufficient nexus and the closing report has 60 days to reach the Comptroller.

04

If the company sells, sales tax is another paper

A Texas seller also meets a state sales and use tax of 6.25 percent on retail sales, leases, and rentals of most goods, and on taxable services. Cities, counties, and transit districts may add their own tax, and that local add-on stops at 2 percent, so the stacked total cannot pass 8.25 percent. Look the rate up for the actual place of business. This page refuses to memorize one city's rate. A server in a closet, or a website, does not by itself become that place of business.

The sales file keeps either a monthly rhythm or a quarterly rhythm, and the letter that follows the permit is the only place that choice is written. A monthly file comes due on the 20th of the month after the selling period, so April's sales are due on 20 May unless that day is a weekend or a holiday, and then the next working day is the one that counts. Quarterly files are the ones that come up in April, in July, in October, and in January. A filer on a yearly rhythm reports the year just ended on 20 January. A sales report that misses its day costs fifty dollars before the tax is even considered, and the added 5 percent and 10 percent on late tax follow the same stretches already described for the franchise report. Filing and paying on time lets the seller keep a discount of one half of one percent of the tax, and paying early adds a further 1.25 percent on top of that half.

Under the safe harbor on the Comptroller's page, a remote seller whose Texas revenue across the prior 12 months stayed under 500,000 dollars is not required to take out a permit or to collect use tax. Dollars that moved through a marketplace still add into that 500,000 even when the marketplace was the collector. The illustration the Comptroller publishes sets 300,000 dollars on a site the seller runs next to 300,000 dollars on marketplaces, and together those 600,000 dollars cross the line. Someone who lives in Texas and sells only inside a marketplace does not get that harbor, because physical presence in Texas means a permit is still required. The resale certificate is Form 01-339, and a photocopy of the permit is not a substitute for it. Hold the certificate for four years. Goods sitting in a Texas warehouse are a reason to read the franchise rules in the same sitting as the sales tax rules. Inside the books, keep your own site, the marketplaces, and the exempt sales that have a certificate on file in three separate piles.

05

The ownership report to the federal government, said once

FinCEN issued a final rule, effective 14 August 2026, that takes the beneficial ownership report off United States companies and off United States persons. A company formed in Texas counts as a domestic entity under that rule, so the domestic exemption is the line to read again before anyone builds a filing. Some foreign companies that registered to do business in a state can still owe a report, and those reports leave United States owners off the form. The wording of the rule has already been replaced more than once, so open the current FinCEN page before you treat this paragraph as closed. The employer identification page at the IRS may still point a reader toward FinCEN, and where the two pages disagree the FinCEN page is the one that governs.

06

What we do with the three papers

Send the certificate if you have it, the last federal return if you filed one, and the last franchise report or information report if the Comptroller has one on file. What comes back is a short note in ordinary words. It says which federal default appears to be in force, whether Form 2553 is still a live choice for this year or only for the next one, and whether the information report is the paper that is actually late.

Steven Palmieri is the person who reads the three papers with you. In this practice the work is named the Tax CFO way, and the same practice is also called the Entrepreneur's CFO. Counting a year that has already closed is the habit an accountant brings to the table. Deciding the classification, the wage, the May report, and a sales tax permit when the company sells, while this year can still move, is the step the third paper is here to force. If a lender asks for a signed audit, a review, or a compilation, that signature belongs at a firm allowed to give it, and we say so before the talk turns to months. What stays with us after that sentence is the books, the payroll accounts, statements drawn from a closed month, and the return.

A constructed picture, so the sequence is easy to see. Two people form a Texas company in January and agree out loud on a split. Nobody files Form 2553. By autumn the verbal split and the papers do not match, the bank account is still in one person's name, and a Comptroller notice asks for the information report that was due in May. No dollar figure is attached, because an amount would pretend the shape was a result. October is late enough to notice and early enough to close the open months. The three papers can still be made to tell one story.