There is a lot of generic Texas Franchise Tax information online. In order to stay in good standing and avoid unnecessary penalties and interest, business owners should consult with a tax professional to determine the best filing options to minimize tax liability. Below are five Texas Franchise Tax myths I found online and the result of following generic tax advice.
Myth #1 – The Texas Franchise Tax Filing Threshold
- What they write: The threshold to file a Texas Franchise Tax report is $2.47 million
- The Reality: The state of Texas updated the franchise tax filing threshold to $2.65 million for the 2026 filing.
- The Result: Any business relying on the old $2.47 million threshold will end up filing unnecessary tax reports. For a business with $2.50 million in revenue, this would involve filing the franchise tax report when it is not required. If the business ends up owing once the calculation is completed and the business pays any tax due, the business will have to file an amended return for a refund. Once that is filed by a tax professional, the business will have to endure an administrative hassle with the Texas Comptroller to receive the refund.
Myth #2 – Misleading Explanation of the EZ Computation
- What they write: If a business earns between $2.65M and $20M, they must file an EZ Computation report.
- The Reality: Filing the EZ Computation is not a requirement. A business within the revenue parameter can choose to file franchise taxes using the EZ Computation form or file the Long Form.
- The Result: The tax rate is a flat 0.331% on total revenue with zero margin deductions allowed on the EZ Computation form. For a service business or contractor with high payroll or cost of goods sold (COGS), forcing the business onto the EZ Computation form instead of running the Long Form with the Compensation or COGS method could cost thousands in overpaid tax.
Myth #3 – Businesses Need to File a No Tax Due Report
- What they write: If a business’ revenue is under the $2.65M threshold, they must file a No Tax Due Report with the Texas Comptroller
- The Reality: Starting in 2024, the Comptroller completely eliminated the No Tax Due Report for entities under the threshold. These entities only file a Public Information Report (PIR) or Ownership Information Report (OIR).
- The Result: This false tax advice leads a Texas business down an unnecessary hunt for reports that no longer exist and face penalties for missing the PIR or OIR filing.
Myth #4 – The One Size Fits All Texas Franchise Tax Extension
- What they write: If a business files their Texas Franchise Tax extension by May 15, they are automatically granted a six-month extension to file.
- The Reality: If a business is a mandatory EFT payer and paid $10,000 or more in franchise tax the prior year, Texas puts them on a two-step extension track. The May extension only buys the business time until August 15.
- The Result: If the business does not pay the remaining tax balance and request a second extension by August 15, they will face late penalties and interest even if they thought they were fully extended.
Myth #5 – Texas Has No State Income Tax Therefore No State Return
- What they write: Texas does not have a state income tax.
- The Reality: Many misinterpret this to mean Texas has no annual filing requirement.
- The Result: Missing any filing requirement, whether it is the franchise tax return, Public Information Report, or Owner Information Report, will eventually result in penalties, interest, and potentially losing the right to transact business in the state.
Stop Guessing with Texas Franchise Taxes. Put a Texas CPA in Your Corner.
From choosing the right deduction method to navigating strict extension timelines, accurate filing requires dedicated Texas knowledge. Partner with a Texas CPA who will keep your business in good standing year after year. Book your consultation with Andris Financial Services and gain complete peace of mind for May 15th and beyond.
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