Texas is one of the better states in the country for operating a business, in terms of taxes and fees. The state does not require small businesses to pay a corporate tax. To a great extent, the taxation on your business will depend upon the form your company takes, whether it be a partnership, sole proprietorship or limited liability company. It is important to work with a Bryan business lawyer both when you establish your business and during the life of your company to ensure that you avoid taxation penalties and other problems.
Taxation and the Type of Business You Operate
The type of business form you establish will be dictated largely by your needs. The following are the basic taxes that are paid by each form:
- Sole Proprietorships: Many small business owners decide upon a sole proprietorship because such a business enjoys flow-through taxation. This means that the taxes for your company are a part of your personal taxes. The drawback is that you will also be personally liable for any unpaid business debts.
- Partnerships: Partnerships, like sole proprietorships, have flow-through taxation. Each partner’s degree of liability depends upon the percentage of the business he owns.
- Limited Liability Companies: LLCs are a popular option to the above, as they have flow-through taxation without personal tax liability for unpaid business debts.
- Corporations: The main drawback to corporations is that owners and shareholders are doubly taxed, in that the company assets are taxed and then shareholder dividends are separately taxed. However, as with an LLC, there is no personal tax liability.
Franchise Taxes, Quarterly Reporting and Deductions
Although Texas does not tax small businesses as such, the state does impose a franchise tax, which is in essence a tax for the right to do business in the state. The IRS also imposes a franchise tax.
Small businesses must file estimated taxes and report income quarterly. However, there are many deductions enjoyed by small businesses. Deductions in general are defined as expenses incurred in the operation of the business, and include repairs, maintenance, license fees, insurance, purchase of equipment, rental of business space, etc.
Work with an Attorney for Any Small Business Tax Matters
Your small business will be penalized for failing to file on time, making late payments, underestimating taxes, etc. It is in your best interests to work with a Bryan business attorney to avoid difficulties with company taxes. Call Peterson Law Group today to make an appointment at 979-703-7014 or 936-337-4681.