“Texas has no income tax” is one of those true statements that quietly causes problems, because of what people hear inside it.
What is true: Texas imposes no personal state income tax, and that is a genuine advantage worth several percent of profit compared with a lot of other states.
What people hear: Texas businesses do not have much to file. That part is wrong, and it is the reason I meet businesses that have never filed a franchise report and do not know they were supposed to.
What you still owe
Federal income tax, in full
The federal government does not care where you live. Business profit flows to your return and is taxed at federal rates exactly as it would be anywhere else.
For most small business owners this is by far the largest number, and it is entirely untouched by the state situation.
Self-employment tax
The one that ambushes people who have only ever been employees.
As an employee, your employer paid half of Social Security and Medicare and you never saw it. Self-employed, you cover both halves on your business profit. It is calculated separately from income tax and stacks on top.
Owners who budget only for income tax are routinely short by a significant margin, and the shortfall shows up in April when it is too late to plan around.
Quarterly estimated payments
No employer, no withholding. The IRS expects payment through the year rather than in one lump.
Miss them and you are charged interest on the underpayment, accruing from the date each payment was due. Paying late is meaningfully better than not paying, so a missed quarter is not a reason to skip the next one.
The habit that makes this painless: move a percentage of every deposit into a separate savings account the day it arrives, and treat it as money that was never yours.
Texas franchise tax report
This is the one that catches people hardest, precisely because of the “no income tax” framing.
Texas does have a franchise tax, due May 15 each year. Most small businesses are under the revenue threshold and owe nothing.
They still have to file. Being under the threshold means no tax, not no filing. At or below it, the filing is your Public Information Report or Ownership Information Report.
Skipping it is how a business ends up with its right to transact business forfeited, which is public, can deny your entity the right to sue or defend itself in a Texas court, and can expose owners personally for certain debts. The details are worth knowing, because this is the single most common Texas-specific miss I see.
Sales tax, if it applies
If you sell taxable goods or services, you collect sales tax and remit it. Texas is 6.25 percent state plus up to 2 percent local, capped at 8.25 percent combined.
Your filing frequency is assigned by the Comptroller and communicated by letter. A $50 penalty attaches to each report filed after its due date, even on a period where you collected nothing, which is how quiet businesses accumulate penalties on zero liability. The mechanics are here.
Payroll taxes, if you have employees
Federal income tax withholding, Social Security and Medicare, federal unemployment, and Texas unemployment tax through the Texas Workforce Commission.
These have their own deadlines and their own penalties, and payroll tax problems are among the more serious ones a small business can have. If you have employees, this is not the area to improvise.
1099s for contractors
Pay a contractor over the annual threshold for services and you generally owe them a 1099-NEC by January 31, with a copy to the IRS. Collect the W-9 before you pay, not in January.
The calendar, condensed
Four dates cover most Texas small businesses:
- January 31 — 1099s and W-2s
- March 15 — S-corp and partnership returns, if that is your structure
- April 15 — personal return, plus Q1 estimated payment
- May 15 — Texas franchise report, tax due or not
Plus the remaining estimated payment dates through the year, and your assigned sales tax dates if you collect it.
Put those in your phone with a week’s warning each. Most of the penalties I see on new clients are not from doing anything wrong. They are from a date nobody had written down.
What the advantage actually is
None of this makes Texas a bad place to run a business. Skipping a state income tax return and the state income tax itself is a real, recurring saving.
The mistake is treating a saving as an absence of obligations. Texas asks for less than most states. It does not ask for nothing, and the things it does ask for, particularly that franchise report, carry consequences well out of proportion to the effort involved.
The practical version
Know your four dates. Set aside tax money as it comes in rather than hoping it is still there in April. File the franchise report every year even when you owe nothing.
And keep your books current enough to answer the questions these filings ask, because almost every missed deadline I see is a bookkeeping problem wearing a tax problem’s clothing. The report was not late because the owner did not care. It was late because nobody could produce a revenue figure.
If that sounds familiar, send me three months of statements and I will build you a real Profit and Loss free, then we can look at where you actually stand.