Texas Franchise Tax Filing Guide: 2024 UPDATE

hi I'm Kelly with Ledger gurus this year there have been some changes in Texas franchise tax that you need to know about by the end of this video you'll know what Texas franchise tax is the changes that have been made in the laws if you need to worry about it and I'm going to walk you through how to file it step by step at let your gurus we get a lot of questions about Texas Franchise Tax so before we start I'm going to walk you through a few key points that you need to know first what is Texas Franchise Tax well I know often times when people hear the word franchise they think of something like McDonald's or Subway or Little Caesars or something like that this is actually has nothing to do with it a franchise tax is a privileged tax for being able to do business in a certain State imagine that you contacted a neighbor down the street and said hey I want to set up a lemonade stand in your front yard and the neighbor said sure I just would like you to share some of your sales learnings with me that's basically what a franchise tax is now one thing that's helpful to know is that franchise tax is not the same thing as an income tax or a sales tax a franchise tax is something that is paid by the companies by the businesses themselves for the privilege of doing business in a certain State it's paid off of the gross sales not the profit like an income tax and it's different from a sales tax because it's not charged to the end consumer it's paid by the businesses themselves another thing that's important to note is that franchise tax is based on your annualized total revenue as stated on your federal income tax return okay so who is responsible for paying Texas Franchise Tax well this goes into a discussion on Nexus if you don't already know what Nexus is don't worry we've discussed it in great detail in this video so make sure that you go and watch that in a nutshell all businesses who have Nexus in Texas whether they are e-commerce or brick and mortar or any other businesses if they meet a certain income Thresh hold they are required to pay Texas Franchise Tax so let's talk about what those thresholds are well it used to be prior to 2024 if a business had Nexus in Texas and they were less than 1.18 million then they would have to file what was called a no tax due report meaning yep we know that this is here we don't have responsibility to pay for it yet that changed as of January 1st 2024 the revenue threshold has been increased to 2.47 million and and the no tax due report is no longer required so if you have Nexus in Texas and you have less than 2.47 million in annualized total revenue as stated on your income tax return you don't have to worry about Texas Franchise Tax yet so now there are two kind of categories that businesses are put into to to pay this tax so the first one is if you are between 2.47 million and 20 million you will fill out the easy computational report if you you are over 20 million then you would fill out the long form report the main difference between the two are the deductions that you can take now since we are an e-commerce accounting firm we want to talk specifically to e-commerce sellers for a moment this is why it's really important for you to note that this is not the same thing as sales tax as opposed to marketplaces like Amazon and Etsy and eBay that collect sales tax from your customers so that they and then remit it directly to the state that is not what's going to be happening here this is a tax on your gross sales so this is a tax that you have to pay regardless of what channels that you're selling on now another thing that's important to note is that the due date is May 15th now just so you know if if it's on a weekend or a holiday of some sort then it becomes the due date becomes the next business day but as of this year it's May 15th so filing your Texas Franchise Tax actually comes down to four basic steps the first one is find your total revenue the second one is subtract your deductions the Third is to choose your margins and the fourth is to multiply by the tax rate which is 375% for most businesses so let's talk about filing here the first thing that you're going to do is go to the Texas com trollers website the link is in the description below and just so you also know typically you will not have to register for a Texas Franchise Tax account when you file for a sales tax permit you're automatically set up for Texas Franchise Tax account you should have received your web file number in a letter when you registered for your sales tax permit you can extrapolate your Franchise Tax web file number from your sales tax web file number you'll do that by changing the last digit of your sales tax permit number by adding one to it so if it's a four it becomes a five and also a sales tax permit number has an r at the beginning of the number and it will change to an X for a franchise tax number okay so now I'm going to show you how to fill out the report as you can see this is the easy computation report and the top part is actually pretty self-explanatory you'll need your taxpayer number contact information you're going to need your accounting year begin and end dates and your naics code which usually for online sellers is 454110 if you have any questions about this computation report while you're filling it out there's actually a really um comprehensive instructions sheet it's about 30 pages long so if you have any questions that will answer anything that you have now one thing that's really important is that lines one through seven on this next part need to match your federal income tax return exactly this is why you really can't file your Texas franchise tax report until after you filed your federal income tax return and that's also why the deadline is a month after the income tax deadline on line eight you're going to add up lines 1 through 7 and line nine is your bad debt expense line 10 is going to be line 8 minus line n this is why you don't want to just multiply your gross receipts in Texas by the Texas franchise tax rate now 11 you're going to pull the gross receipts for Texas from your sales Channel and then for line 12 make sure that you definitely check the info icon for more info on this one if you're confused right here then for line 13 you're going to divide line 11 by line 12 on line 14 you're going to multiply line 10 by line 13 and then lines 15 through 17 just do the math and then sign it at the bottom okay so now this is the long form report everything is pretty much the same as on the easy form but it's on two pages and you're going to go into a bit more detail lines 10 through 23 will also allow you to take more deductions you'll then use those numbers to get your apportionment factors and the taxable margin finally you'll calculate the total tax due in Texas again if you get confused just make sure to click on the info icon at the beginning of each line so to wrap up let's summarize a few key points first the due date for Texas franchise tax is May 15th second you don't have to worry about Texas Franchise Tax one if you don't have Nexus in Texas and two if you are less than 2.47 million in annualized total revenue as stated on your income tax return if you are at the 2.47 million then between that and 20 million you will fill out the easy computation report if you're over 20 million you'll fill out the long form report if you are sick of dealing with this and you're ready to to hand over your sales tax and your Franchise Tax to The Experts make sure that you reach out to us here at leder gurus we have a specialized team that does this day in and day out and can help you and take this off of your shoulders as always thanks for watching please like this video and share and subscribe it and if you have any questions make sure that you put them in the comments down below thanks and we'll see you next time