Texas franchise tax calculation
The Texas franchise tax calculation is based company’s margin. Here’s a breakdown of the ways to calculate this margin.
Who is required to pay
Businesses, with revenue exceeding a threshold ( $1.23 million subject to annual changes)
Calculating the Margin
If you do not qualify for the EZ computation (explained later) you will determine your margin using one of these methods:
- 70% of Total Revenue – multiply your revenue by 70%. This method is the straightforward.
- Total Revenue Minus Cost of Goods Sold (COGS) – this method involves subtracting the cost of goods sold directly from your revenue. Not all businesses are eligible for this approach.
- Total Revenue Minus Compensation – subtract the compensation paid to employees from your revenue.
- Total Revenue Minus $1 Million – simply deduct $1 million from your revenue.
Selecting the optimal Texas franchise tax calculation
Each method offers its advantages and the suitable choice depends on the unique circumstances of your business.Typically the COGS deduction is commonly used, followed by subtracting $1 million.
Simplified Texas franchise tax calculation (Optional)
Companies, with revenue of $20 million or less have the option to use the simplified calculation. This approach involves applying a tax rate to your revenue, which is currently set at 0.331%.
Tax Rates
The franchise tax rate varies based on your business category.
0.75% – Applicable to businesses.
0.375% – Applies to wholesalers and retailers.
