Tag: Texas Franchise Tax

  • Should You Put Your Rental Property in an LLC? Tax Realities and Schedule E

    Should You Put Your Rental Property in an LLC? Tax Realities and Schedule E

    When acquiring a residential rental property, one of the first questions owners ask is whether they need to form a Limited Liability Company (LLC) before taking on tenants.

    Online forums and social media often claim that forming an LLC unlocks exclusive tax write-offs or automatically lowers income tax. The reality is an LLC is a legal tool designed for liability containment and is not a federal tax shelter. Understanding the distinct line between legal protection, federal Schedule E reporting, and Texas state compliance helps you evaluate whether holding real estate in an entity makes operational sense for your portfolio.

    The Legal Shield vs. The Federal Tax Reality of an LLC

    An LLC is created under state law to contain liability. If an accident, premises liability claim, or tenant dispute occurs on the property, a judgment is generally limited to the assets owned by that entity. It prevents a plaintiff from pursuing your personal residence, personal bank accounts, or personal wages to satisfy an entity judgment.

    For federal income tax purposes, however, a single-member LLC owned by an individual is classified as a disregarded entity which means the LLC does not need to file a federal tax return.  In the eyes of the IRS, it is not a business entity.  All gross rental income, mortgage interest, property taxes, insurance premiums, advertising costs, and operating expenses are reported on Schedule E (Form 1040) under the exact same statutory rules that apply to property held in an individual’s name.  An LLC does not create new tax deductions. Every deductible item remains governed by ordinary and necessary business standards under Internal Revenue Code rules. Personal expenses, commuting miles, and personal meals cannot be deducted simply because an entity exists. Residential rental property must still be depreciated on a straight-line basis over 27.5 years under MACRS rules, starting on the date the property is placed in service.

    Banking, Capital Contributions, and Protecting the Liability Veil

    Forming an LLC on paper does not provide automatic protection. If an owner fails to maintain operational separation between personal and entity finances, a court can disregard the entity through a concept called piercing the corporate veil that exposes the owner to personal liability.  All tenant rent payments must be deposited directly into a separate business checking account opened under the LLC’s name and Employer Identification Number (EIN). All maintenance invoices, insurance premiums, and utility payments must be paid directly from that account. If the rental account is short on funds to cover a major repair or mortgage payment, personal funds should not be spent directly on the vendor invoice. Instead, transfer the money from your personal account into the LLC checking account as an owner capital contribution, then pay the vendor from the entity account.  When taking rental profits out of the property, write a transfer from the business account to your personal account recorded as an owner draw or distribution, rather than paying personal groceries or bills directly from the rental account.

    Schedule E Realities: Repairs vs. Capital Improvements

    Regardless of whether property is held in an LLC or your individual name, reporting expenses on Schedule E requires distinguishing between immediate repairs and capitalized improvements. Costs that keep the property in an ordinary, efficient operating condition without adding significant value such as patching drywall, repairing a leak, servicing an air conditioner, or painting between tenant turnovers are fully deductible in the year paid. Expenses that result in a betterment, restoration, or adaptation of the property to a new use such as replacing an entire roof, installing a new HVAC system, or adding a patio must be capitalized and depreciated over multiple years. Landlords can make an annual election on their tax return to immediately deduct tangible items and repairs costing up to $2,500 per invoice or item, avoiding the requirement to capitalize and track small equipment or appliance purchases over several tax years.This is called the De Minimis Safe Harbor election.

    An Alternative for Smaller Portfolios: Umbrella Insurance

    For an investor with one or two single-family rentals, forming an LLC is not the only path to liability management.  A comprehensive landlord liability policy combined with a personal umbrella policy ($1 million to $2 million in coverage) provides direct risk management.  The insurance carrier provides and pays for legal defense counsel in covered lawsuits.  An umbrella policy requires no state filing fees, no registered agent costs, and no annual state filing requirements.

    The Annual State Reporting Obligation

    Forming an LLC introduces mandatory annual reporting obligations with the state of formation.  For example, in the state of Texas there is a mandatory May 15 reporting deadline. Every Texas LLC registered with the Texas Secretary of State must file an annual Franchise Tax Report and Public Information Report (PIR) with the Texas Comptroller by May 15th each year.  While Texas does not have a state income tax, the Public Information Report is required even if the LLC’s revenue falls below the no tax due threshold. Failing to file the Public Information Report and the Franchise Tax Report leads to administrative forfeiture by the Comptroller and charter revocation by the Secretary of State. Once forfeited, the LLC loses its legal right to file evictions or defend itself in court, and owners face potential personal liability until delinquent reports are filed and formal reinstatement is completed.

    Structuring Your Rental Property with Confidence

    Deciding whether to hold your rentals in an LLC or your individual name comes down to your portfolio size, insurance structure, and administrative readiness. If you want clear guidance on managing your rental property books, properly recording capital contributions and draws, or setting up your Schedule E depreciation schedules, I work directly with property owners to establish an organized system. Contact my firm to get your rental properties in order.

    Schedule E & LLC Consultation
  • Texas Franchise Tax Margin Calculation: Avoid the EZ Computation Fallacy

    Texas Franchise Tax Margin Calculation: Avoid the EZ Computation Fallacy

    When Texas business owners face the annual Texas Franchise Tax Report (Form 05-158 or Form 05-169), many assume the easiest route is the cheapest route. Software frequently push filers toward the E-Z Computation or the standard 70% total revenue method on the Long Form report.

    The Texas franchise tax is a privilege tax imposed on taxable margin, which is a figure based on revenue. The Texas Comptroller gives taxable entities four distinct methods to calculate that margin and choosing the wrong one can result in paying more taxes than necessary.

    The Four Texas Franchise Tax Margin Calculation Options

    Unless an entity qualifies for the No Tax Due threshold or elects the E-Z Computation, taxable margin is determined on the Long Form report by taking total revenue and subtracting the greatest of:

    • 70% of Total Revenue: Taxable margin equals 70% of total revenue (an automatic 30% deduction).
    • Cost of Goods Sold (COGS): Total revenue minus allowable direct costs to produce, acquire, or manufacture goods.
    • Compensation: Total revenue minus allowable cash compensation and benefits paid to officers, directors, owners, and employees (subject to per person compensation cap).
    • Total Revenue Minus $1 Million: Available as a flat statutory deduction for businesses where this subtraction yields a smaller margin than 30%.

    Once the lowest margin is determined and apportioned to Texas, the applicable franchise tax rate is applied, generally 0.75% for wholesale/retail, or 0.375% for retail/wholesale.

    The Fallacy of the E-Z Computation

    Businesses with annualized total revenue within the statutory E-Z threshold often choose Form 05-169 because it requires minimal schedule preparation.

    However, the E-Z Computation uses a flat tax rate applied directly to apportioned total revenue with zero deductions for COGS or compensation per the Long Form report. It may save thirty minutes of paperwork, but can significantly increase the actual check written to the Comptroller.

    A Direct Comparison: Manufacturing & Labor-Heavy Scenarios

    Consider a Texas business generating $3,000,000 in gross revenue with significant direct operational costs.

    • Scenario A: A High COGS Company (e.g., Fabricator or Commercial Contractor)
      • Gross Revenue: $3,000,000
      • Allowable Texas COGS: $1,800,000
      • Option 1 (70% Method): Margin = $2,100,000 ($3,000,000 × 70%)
      • Option 2 (COGS Deduction): Margin = $1,200,000 ($3,000,000 − $1,800,000)
      • The Result: The COGS deduction slashes the taxable margin by $900,000 compared to the 70% default.
    • Scenario B: A High Payroll Service Provider (e.g., Specialized Engineering or Field Services)
      • Gross Revenue: $3,000,000
      • Total Qualifying Compensation & Benefits: $1,600,000
      • Option 1 (70% Method): Margin = $2,100,000 ($3,000,000 × 70%)
      • Option 2 (Compensation Deduction): Margin = $1,400,000 ($3,000,000 − $1,600,000)
      • The Result: Using allowable compensation cuts the taxable margin by $700,000 below the 70% revenue figure.
    • Scenario C: Electing the E-Z Computation
      • Electing the E-Z rate on the entire $3,000,000 without deducting COGS or payroll produces an artificially inflated tax base. Even with a lower stated rate, taxing 100% of revenue almost always yields a higher tax liability than applying the standard rate to a substantially reduced margin under the COGS or Compensation methods.

    Strategic Margin Selection Protects Capital

    Filing a Texas Franchise Tax Report requires evaluating the structure of your general ledger:

    • Capital intensive and inventory heavy businesses should run the numbers under the statutory Texas COGS definitions (which differ from federal tax COGS).
    • Labor heavy firms must calculate qualifying wages, healthcare, and retirement benefits up to the statutory cap.
    • Defaulting to the 70% standard or the E-Z form without running the parallel calculations leaves money on the table.

    Texas Franchise Margin Calculation Frequently Asked Questions

    Who qualifies to use the Cost of Goods Sold (COGS) deduction in Texas?

    The COGS deduction is restricted to entities that produce, manufacture, acquire, or sell tangible personal property in the ordinary course of business. Pure service businesses (e.g., consulting, legal, accounting, marketing) generally cannot claim COGS unless they qualify under narrow statutory exceptions (such as certain computer hardware/software development or direct construction labor).

    What is the margin cap under the Texas franchise tax COGS method?

    An entity’s taxable margin cannot exceed 70% of total revenue. Even if you calculate margin using Cost of Goods Sold (COGS), compensation, or the standard $1 million subtraction, the 70% threshold acts as an absolute statutory ceiling on your taxable margin. If your revenue minus COGS results in an amount greater than 70% of your total revenue, your margin is automatically capped at 70% of total revenue.

    What is the officer and employee compensation deduction cap for Texas franchise tax?

    Texas caps the deductible cash compensation and W-2 wages per person, adjusted biennially for inflation. For 2026 and 2027 reports, the compensation cap is $480,000 per person (it was $450,000 for 2024 and 2025 reports). When electing the compensation deduction method, any single officer or employee paid more than this cap has their deduction limited to the statutory maximum.

    When must a business file the Texas Franchise Tax Long Form (Form 05-158)?

    A business is required to file the Long Form if its annualized total revenue exceeds $20 million, as it is legally disqualified from using the EZ Computation. For entities with revenue between the filing threshold and $20 million, the Long Form is used when electing to take margin deductions (Cost of Goods Sold, compensation, 70% of revenue, or $1 million subtraction) or when claiming statutory franchise tax credits that cannot be taken on the EZ Computation.

    Ensure Your Margin Calculation Serves Your Bottom Line

    If your entity has crossed the filing threshold, has multiple business lines, or carries significant payroll and direct material expenses, you need an accurate, logic driven review of your general ledger before filing Form 05-158.

    Andris Financial Services will review your financial records, analyze all four statutory margin calculations, and ensure your business claims every allowable deduction while staying strictly compliant with the Texas Comptroller. Contact my firm today to review your franchise tax filing posture, resolve past due reporting issues, or defend your standing before the state.

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  • Stop Handing the Texas Comptroller Free Money: Texas Franchise Tax EZ Computation vs. Long Form

    Stop Handing the Texas Comptroller Free Money: Texas Franchise Tax EZ Computation vs. Long Form

    If you own an LLC, corporation, or partnership in Texas, you know that May 15 brings the annual Texas Franchise Tax deadline. Even though Texas passed legislation exempting businesses earning under the no-tax-due threshold from paying tax or filing a tax report, many entities that exceed the threshold face an important decision when filing: Which franchise tax report will produce the lowest tax due, the EZ Computation Form or the Long Form?

    Choosing the wrong form can mean overpaying on your Texas Franchise Tax or spending unnecessary hours untangling complex accounting calculations. Here is a clear breakdown to help you understand how each form works and which one fits your business.

    What Is the Texas Franchise Tax EZ Computation Form (Form 05-169)?

    The EZ Computation Form is designed for businesses that exceed the no-tax-due threshold but want a streamlined, low-friction way to calculate and pay their tax. Instead of taking detailed deductions for Cost of Goods Sold (COGS) or Compensation, the EZ Computation takes total revenue, applies the Texas apportionment factor, and multiplies the apportioned margin by a reduced flat tax rate (currently 0.331% for most businesses).

    The EZ Computation Form is fast and straightforward because it has fewer line items therefore less time is usually spent preparing the return.  It also requires minimal accounting preparation.  You do not need to do deep cost accounting or categorize detailed wage/benefit metrics.

    On the other hand, if an entity has heavy inventory costs or a large payroll expense, the EZ rate might result in a higher tax bill than the Long Form.  Also, the entity is not able to deduct cost of goods sold, compensation, or use the 70% revenue standard deduction.

    Visit the Texas Comptroller for Downloadable Forms

    What Is the Texas Franchise Tax Long Form (Form 05-158)?

    The Long Form is the standard Texas Franchise Tax report. It requires more detailed financial data, but it unlocks the full taxable margin calculations allowed under Texas law. Under the Long Form, franchise tax is calculated using the entity’s margin, which is the lowest of four potential calculations:

    1. Total Revenue minus Cost of Goods Sold (COGS)
    2. Total Revenue minus Compensation (subject to per-person statutory caps)
    3. 70% of Total Revenue
    4. Total Revenue minus $1 Million

    Once the lowest margin is determined and apportioned to Texas, the standard tax rate (typically 0.75% for general businesses or 0.375% for qualified retailers/wholesalers) is applied.  A benefit of using the Long Form is the tax savings for high-cost businesses. Capital-intensive businesses, manufacturers, companies with high inventory costs, or firms with heavy payroll usually pay significantly less tax using Long Form deductions. An entity needs to have well-organized bookkeeping, precise profit and loss statements, and accurate payroll summaries to justify the deductions.

    As a general rule of thumb:

    • Consider the EZ Form if you run a lean, high-margin service business where your main expense is software or overhead rather than heavy inventory or payroll, and you want a quick, clean filing.
    • Consider the Long Form if you sell physical products, carry significant inventory, or pay substantial wages that would lower your taxable margin enough to offset the standard tax rate.
    • The $20 Million Cap: Under Texas Comptroller rules, the EZ Computation is only available to businesses with annualized total revenue between $2.65 million and $20 million. If your business generates over $20 million, Texas requires you to file the Long Form. However, if your revenue is under $20 million, don’t let the EZ Form trick you. You can file using the Long Form as this is often where the real tax savings are.
    • Note on Public Information Reports (PIR): Regardless of whether you file the EZ Form or the Long Form, every active Texas LLC or corporation must file a Public Information Report (Form 05-102) or Ownership Information Report annually to maintain good standing with the Texas Secretary of State.

    Frequently Asked Questions: Texas Franchise Tax EZ Computation vs. Long Form

    Can I switch back and forth between the EZ Computation and the Long Form each year?

    Yes. You make the election annually on your original, timely filed franchise tax report. You are not locked into one method; you can file the EZ Computation (Form 05-169) one year and switch to the Long Form (Form 05-158) the following year if your cost structure changes. However, once you file for a given year, you cannot amend to switch between the Long Form and EZ Computation after the statutory due date.

    Can I file the Long Form even if my revenue qualifies for the EZ Computation?

    Yes. Even if your annualized total revenue is below the $20 million EZ threshold, you are never required to use the EZ Computation (Form 05-169). If your business has high Cost of Goods Sold (COGS) or high compensation expenses, calculating your margin on the Long Form (Form 05-158) will often result in a lower tax liability than the flat EZ tax rate applied to your gross receipts.

    What deductions can I take on Texas Form 05-169 (EZ Computation)?

    None. The EZ Computation does not allow deductions for Cost of Goods Sold (COGS) or compensation. Tax is calculated by taking your apportioned Texas gross receipts and multiplying directly by the statutory EZ tax rate (0.331%). If deductions are necessary to reduce your taxable margin, you must file the Long Form (Form 05-158) instead.

    Does the EZ Computation report use total revenue or Texas-sourced revenue?

    Both. Form 05-169 starts with your total gross revenue from all sources everywhere. It then applies an apportionment factor calculated by dividing your Texas gross receipts by your total everywhere gross receipts. The flat EZ tax rate is then assessed only against that apportioned Texas revenue.

    What is the difference between thte Texas Public Information Report and EZ Computation Report?

    All Texas entities must file the Public Information Report whether the entity made $20 million in revenue or $0. The EZ Computation Report is filed by entities that earned more than the minimum statutory revenue and do not elect to take any deductions.

    Need Help Clearing Up Texas Compliance Issues?

    Filing the wrong report or missing Texas Franchise deadlines can lead to severe penalties, interest, and even the administrative forfeiture of your LLC’s legal standing.

    If your entity has fallen behind on state reports, received a Comptroller notice, or needs strategic oversight on Texas tax filings, my firm offers entity restoration services and state compliance advisory.

    Request an Entity Status Review

    Submit your entity details through the secure intake form for a direct review by a Texas CPA. Andris Financial Services examines public state records and emails a diagnostic breakdown of missing filings along with a flat fee proposal the same business day!

  • Stop Flirting with Generic Tax Advice: Five Texas Franchise Tax Myths

    Stop Flirting with Generic Tax Advice: Five Texas Franchise Tax Myths

    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.
    Read my blog for more information on penalties and interest for missed filing deadlines.

    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.

    Book Texas Franchise Tax Consultation

    Prefer to send a confidential message? Submit your inquiry below.

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  • Why a Missing Texas Tax Clearance Letter Request Kills a Reinstatement

    Why a Missing Texas Tax Clearance Letter Request Kills a Reinstatement

    Tax Clearance Letter Request and the Golden Ticket

    Is your Texas business involuntarily terminated or in a forfeited existence status with the Secretary of State?  Those two terms are as bad as they sound for a Texas business.  When researching to figure out how to get your entity back in good standing, you will come across the terms tax clearance letter and reinstatement.  Some of the information is not clear about this process.  I will discuss the Texas tax clearance letter request process and how the Tax Clearance Letter is the golden ticket to reinstating your Texas business entity.

    How does a Texas business become forfeited or terminated?

    All business entities in Texas must file one or more of the following annually by May 15:

    • Texas Franchise Tax Report – the filing threshold is $2,650,000 for 2026.  Depending on the type of entity, one of the following information reports must be filed along with the annual Texas Franchise Tax Report.
      • Public Information Report (PIR) – corporations, limited liability companies (LLC), limited partnerships, professional associations, and financial institutions.
      • Owner Information Report (OIR) – all other Texas business entity types.
    • If the business entity’s annual revenue is below the $2,650,000 threshold, only the information reports must be filed by May 15 to stay in compliance.

    If any other above filing requirements are not met, the business entity will become forfeited with the Texas Comptroller and eventually Involuntarily Terminated with a forfeited existence with the Secretary of State.

    Tax Clearance Letter Request

    To get back in good standing, the business must first file all past due annual reports as detailed above and pay any late fees and penalties.  Once this is completed, the business entity has to submit a request with the Texas Comptroller to verify they are current on all annual filings and fees.  The Comptroller then produces a Tax Clearance Letter (Form 05-377).   Once the Tax Clearance Letter is received, the business can then submit it along with the Secretary of State form to reinstate the entity.

    Tax Clearance Letter Facts

    The application for reinstatement with the Texas Secretary of State will get rejected if the Tax Clearance Letter is not included with the application.  The Secretary of State explicitly states, An application of reinstatement must be accompanied by a tax clearance letter from the Texas Comptroller of Public Accounts stating that the entity has satisfied all franchise tax liabilities and may be reinstated.  The application fee for reinstatement is $75 and you will have to reapply if the Tax Clearance Letter is not submitted.

    If the application gets rejected and the business has not filed the past due annual reports, the Comptroller will continue to assess late fees and penalties, the business can be denied the right to sue or defend itself in a Texas court, and each director or officer of the entity can be held liable for debt of the business.  This is why the Tax Clearance Letter request is so important.  You may think you are ready to complete the reinstatement application, but if the Texas Comptroller account is not current, the reinstatement cannot happen.

    Online Reinstatement Research

    If you search for reinstatement help online, you will see a lot of companies advertising to reinstate your LLC.  Some of these services do not include filing the franchise tax and information reports. The filing company expects you to have completed the back filings.   You as the business owner have to submit the Tax Clearance Letter request and send the Tax Clearance Letter to the filing company to complete the reinstatement process.  

    My firm handles the reinstatement process from beginning to end.  I pull the Comptroller records to determine which reports are due and how much is owed in penalties and late fees.   I then submit the Tax Clearance Letter request and send it along with the application for reinstatement to the Secretary of State.  The complete package.  I will do the heavy lifting to give you peace of mind.

    Request an Entity Status Review

    Submit your entity details through the secure intake form for a direct review by a Texas CPA. Andris Financial Services examines public state records and emails a diagnostic breakdown of missing filings along with a flat fee proposal the same business day!

    Visit the Texas Comptroller to get more information regarding Form 05-391 Tax Clearance Letter Request and Reinstatements.

    Get more Tax Clearance Letter Request information
  • The Steep Penalties for Overdue Texas Franchise Tax Reports

    The Steep Penalties for Overdue Texas Franchise Tax Reports

     Franchise Tax Reports Due Date

    If you have not filed your Texas Franchise Tax Reports yet, the late fee and interest penalties are already accruing.  If you have not filed your Public Information Report, the clock is ticking on your liability protections for your business.  Both reports were due on May 15 and the penalties for failing to file or pay taxes are significant.   Find out why failing to file either report can lead to fees and loss of your right to transact business in the state of Texas.

    Who is Required to File Texas Franchise Tax Reports?

    If you are not sure whether you are required to file franchise tax reports or which reports you need to submit, below are the three filing requirements per the Texas Comptroller:

    1. If the total annualized revenue for your business was under $2,650,000, you are not required to file a franchise tax return.  You are, however, required to file a Public Information Report.
    2. If your business did meet the $2,650,000 threshold, you are required to file a Franchise Tax Return and also file the Public Information Report.
    3. If you complete the Franchise Tax Report and your tax due is less than $1,000, your business does not owe any tax to the Comptroller.  Even though you do not owe any tax to the Comptroller, you are still required to file the Franchise Tax Report to show your calculations, and you are also required to file the Public Information Report.

    Franchise Tax Late Filing Penalties

    The state charges a $50 penalty for a late filed Franchise Tax Report.  The fee is assessed whether you subsequently file the report or any tax is due.  Meaning if you file your franchise tax report late and did not request an extension, the penalty is still due. For example, if your Franchise Tax Report is filed on May 20 and the Comptroller has not yet assessed the late filing penalty, you will be able to file the report and pay the amount due but the late penalty will be added later if not there already.  There is no grace period for filing the late report; it is due on May 15, no exceptions. 

    More Late Penalties and Interest

    On top of the $50 late filing penalty, the Comptroller also imposes a 5% penalty on the tax due if the tax is not paid when due.   If after 30 days the taxes are still unpaid, the Comptroller charges another 5% on top of the $50 late filing fee and the 5% for nonpayment when the report was due.  Sixty after the taxes are unpaid, interest begins to accrue.  The rate charged is 1% plus the prime at the beginning of the calendar year.

    No Annual Texas Franchise Tax Fee

    The state of Texas does not charge a franchise fee for doing business in the state.  Since there is not an annual franchise tax fee, the minimum requirement for all businesses in Texas is the Public Information Report.  Even though a business does not owe any tax, the state still has the ability to impose penalties for late or non-filers of the Public Information Report.   The penalty is the loss of liability protections for individual members of the business entity and loss of the business’ ability to defend itself against lawsuits.

    Falling into Forfeiture

    The Comptroller will mail a Notice of Intent to Forfeit Right to Transact Business if the business entity has not filed the Franchise Tax Return, Public Information Report. or has not paid the past due taxes, penalties, and interest.  The business has 45 days after receiving the forfeiture intent notice to make the account current.  If the business does not file or pay and is forfeited by the Comptroller, it has 120 days after the forfeiture to pay or file. Failure to pay or file results in Involuntary Termination by the Texas Secretary of State.

    Next Steps to Get Back in Good Standing

    As you can tell by the process above, simply missing a Public Information Report with the state can lead to losing corporate privileges and the right to transact business in Texas.  If you need to file Franchise Tax or Public Information Reports, it is never too late to file.  While your account may have incurred penalties, you can stop any further assessments on your account and potentially remove some of the fees.

    Contact Andris Financial Services for a consultation to determine which reports your business needs to file to erase compliance headaches.

    Schedule a Consultation Today!
  • How a Texas CPA Performs a Texas Entity Reinstatement

    How a Texas CPA Performs a Texas Entity Reinstatement

    Last week during my Texas entity reinstatement research, I came across a business that had a history that was both heartbreaking and full of lessons that businesses can learn from.  As a Texas CPA, I focus on helping entities like these to get reinstated with the Texas Comptroller and prevent a sales tax audit.

    The owner of this trade business was rising star and was featured in local magazines in the DFW area within the first year of formation with the state of Texas.  They were very proud of where they came from to achieve the goal of owning a business.  This is something we can all celebrate but this is where the marketing vs the reality is apparent.  As of April 2026, the company is in the process of undergoing a sales tax audit, is Involuntarily Ended with the Texas Comptroller, and is Inactive with the Texas Secretary of State.  The owner has also formed a new LLC in another state at the same time the Texas Comptroller and Secretary of State have taken away the right to conduct business in the state of Texas.  All of this has taken place in the first five years of formation.

    Below are the steps I would have taken to help this business owner stay in compliance.

    Step 1: The Multi-Agency Nexus Audit

    Before filing anything, I perform a deep-dive search of both the Texas Comptroller and Secretary of State (SOS) records. For this business, we have to bridge the gap between their Involuntary End at the Comptroller and their Inactive status at the SOS. We identify every missing Franchise Tax Report and Public Information Report (PIR) from 2023 to the present.

    Step 2: Pre-Audit Shielding

    Since the Comptroller has an Intent to Audit but hasn’t assigned an auditor yet, there is a narrow window of opportunity. I conduct an internal Sales Tax Audit Defense review. I examine their 1099s, invoices, and material receipts to find overpayments or missing exemptions before the state finds them. This sleuth review can save thousands in potential penalties.

    Step 3: Filing the Public Information Report Catch-ups

    This business fell into Inactive status because they didn’t realize the Texas Franchise Tax reporting changes. I prepare and file all delinquent reports. Even if no tax is due, the state will not move forward until every Franchise Tax Report and Public Information Report is reconciled and filed.

    Step 4: Securing the Tax Clearance Letter by Filing Form 05-391

    Once the Texas Comptroller’s ledger is balanced, I request the official Tax Clearance Letter.  This document proves to the State of Texas that the business has met all its tax obligations and is eligible to return to Good Standing.

    Step 5: The SOS Entity Reinstatement

    With the Tax Clearance Letter in hand, I file the formal Application for Reinstatement with the Secretary of State. This officially brings the Inactive entity back to life, protecting the business owner from personal liability and allowing them to keep their contracts and bank accounts active.

    Many small businesses don’t realize that while the No Tax Due threshold is $2.65 million as of 2026, you are still required to file a Public Information Report (PIR) to remain in good standing. Missing this one form is a top reason entities become Inactive or Forfeited.

    Is your entity in good standing?  Use the Texas Comptroller entity search to determine the status of your business.

    Want a Professional to Handle the Paperwork?

    Navigating state requirements, clearing tax backlogs, and filing reinstatement forms can be a confusing and time-consuming process. While you can look up your status using the Comptroller search, a single misstep can delay your business operations for weeks.

    Let a Texas CPA manage your state filings from start to finish so you can keep your business moving.

    Request an Entity Status Review

    Submit your entity details through the secure intake form for a direct review by a Texas CPA. Andris Financial Services examines public state records and emails a diagnostic breakdown of missing filings along with a flat fee proposal the same business day!