Texas business owners need to understand both the state and federal tax landscape as it affects their operations. While Texas has no state income tax, businesses are subject to the franchise tax, property taxes, sales taxes, and various federal obligations. This guide covers the tax considerations most relevant to Texas businesses in 2026 and the incentive programs that can reduce your tax burden.
Texas Franchise Tax
The Texas franchise tax applies to most business entities doing business in Texas. Key considerations for 2026:
- Small businesses with total revenue below the no-tax-due threshold are not required to pay franchise tax (they still must file). The threshold is adjusted periodically by the Legislature.
- The general rate is 0.75% of taxable margin, with a reduced rate of 0.375% for qualifying wholesalers and retailers.
- Businesses can calculate taxable margin using several methods and should evaluate which produces the lowest liability. Franchise tax credit guide.
Property Tax Considerations
Property taxes are the largest tax burden for many Texas businesses, especially those with real estate or significant equipment. Programs that can reduce property tax liability include:
- Property tax abatements: Cities and counties can offer partial or full abatements for qualifying business investments. Abatement guide.
- Freeport exemption: Inventory held temporarily in Texas before being shipped out of state may qualify for property tax exemption.
- Pollution control exemptions: Equipment used for pollution control may be exempt from property taxes.
Federal Tax Credits for Texas Businesses
- R&D Tax Credit: Federal credit for qualifying research expenses. Startups can offset up to \$250,000 in payroll taxes per year. R&D guide.
- Work Opportunity Tax Credit: Credits of \$2,400 to \$9,600 per qualifying hire from designated target groups.
- Section 179 Deduction: First-year deduction for qualifying equipment purchases. Limits are adjusted annually.
- Bonus Depreciation: Check current-year bonus depreciation rates, as the percentage has been phasing down from 100%.
Sales Tax Exemptions
- Manufacturing equipment: Equipment used directly in manufacturing is exempt from Texas sales tax. Manufacturing exemptions guide.
- Data center equipment: Qualifying data center investments may receive sales tax exemptions.
- Agricultural exemptions: Agricultural equipment and supplies used in production are exempt from sales tax.
Tax Planning Strategies
- Stack federal credits with state exemptions. Federal tax credits and Texas sales/property tax exemptions can be combined. Stacking guide.
- Time equipment purchases. Maximize Section 179 and bonus depreciation by timing major purchases strategically.
- Review franchise tax calculation methods. The method producing the lowest taxable margin changes as your business grows.
- Apply for property tax abatements before investing. Abatement applications typically must be filed before the investment is made.
Find Tax Programs That May Fit
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