Texas charges no state personal income tax on LLC profit, and franchise tax applies only above $2.47M in revenue, where the rate below that threshold is 0%. Federally, a single-member LLC is a disregarded entity and a multi-member LLC is a partnership, with profit passing through to owners. An S-corporation election saves self-employment tax once net income exceeds roughly $40,000-$60,000.
By default the IRS treats a single-member Texas LLC as a disregarded entity taxed on Schedule C of the owner's 1040, and a multi-member LLC as a partnership filing Form 1065 with K-1s to members. There is no federal entity-level tax in either case. Profit passes through to the owners' personal returns and is taxed at their individual rates. The LLC itself files an information return where required but does not pay income tax as an entity. This pass-through treatment is the default for every US LLC until the owners elect corporate taxation.
No. Texas charges no state personal income tax on LLC profit, so pass-through income reaches owners without a state-level income levy. This is one of the main reasons founders choose Texas. The only state-level business tax is the franchise tax, which is 0% for LLCs under $2.47M in annualized revenue. An LLC under that threshold owes no franchise tax and no state income tax, paying only federal tax on its profit. Larger LLCs above $2.47M owe franchise tax at the applicable margin rate, still with no personal income tax at the state level.
The Texas franchise tax is a margin tax with a no-tax-due threshold: LLCs under $2.47M in annualized revenue owe 0% and pay nothing. It replaces a corporate income tax and applies to the LLC's taxable margin, not its net income. Every Texas LLC files the franchise tax report and the Public Information Report each year, even when the tax due is zero, by the May 15 deadline. An LLC above the threshold computes its margin and applies the retail/wholesale or general rate. The threshold shields the vast majority of small LLCs from any franchise tax while keeping the annual filing obligation in place.
A Texas LLC elects S-corporation treatment by filing IRS Form 2553, which becomes worthwhile once net income exceeds roughly $40,000-$60,000 a year. The election splits profit into a reasonable salary and distributions, moving the distribution portion out of the 15.3% self-employment tax. Below that income range, the payroll compliance cost of running an S-corp outweighs the self-employment tax savings. Above it, the savings on the distribution portion exceed the added cost of payroll and a separate corporate return. The S-corp election keeps pass-through treatment while changing how the profit is taxed for self-employment purposes; Texas charges no state income tax on either structure. Running the numbers matters more than the rule of thumb: the savings equal about 15.3% of the distribution portion, minus the cost of payroll processing and a separate Form 1120-S return. A founder with $120,000 in net profit who pays a $60,000 salary shifts the other $60,000 out of self-employment tax, saving several thousand dollars a year. A US tax preparer sets the reasonable salary, which the IRS scrutinizes closely on S-corp returns, and files the payroll returns the election requires.
Default Texas LLC owners pay 15.3% self-employment tax on net business income: 12.4% Social Security up to the annual wage base of $168,600 plus 2.9% Medicare with no cap. This is the federal payroll tax that applies to pass-through LLC profit. An S-corporation election reduces this by paying the owner a reasonable salary subject to payroll tax and taking the rest as distributions exempt from self-employment tax. The trade-off is payroll compliance: the S-corp runs payroll, files quarterly payroll returns, and files a separate Form 1120-S. The 15.3% rate is federal; Texas adds no state self-employment or income tax.
Non-resident owners owe US income tax only on income effectively connected to a US trade or business (ECI); an LLC without US ECI files information returns but owes no US income tax on foreign-source profit. A foreign-owned single-member LLC files Form 5472 with a pro-forma Form 1120 each year. Whether income is ECI depends on the nature and location of the business activity, and a US tax preparer determines it case by case. Anonymousllc.co partners with US tax preparers familiar with non-resident filings. An ITIN, at $299, is needed only when the owner has a personal US tax filing obligation. Texas charges no state income tax regardless of the owner's residency.
Form 5472 is an information return required for any US disregarded entity with 25% or more foreign ownership, filed with a pro-forma Form 1120 each year. Most non-resident-owned single-member Texas LLCs must file it annually. The form reports reportable transactions between the LLC and its foreign owner or related parties. The penalty for failing to file is $25,000, so it is a filing non-resident owners cannot skip. A multi-member foreign-owned LLC files Form 1065 with K-1s instead. Anonymousllc.co partners with US tax preparers who handle Form 5472 for non-resident owners as a separate service.
Under the March 21, 2025 FinCEN interim final rule, domestic reporting companies are exempt from beneficial ownership information reporting. A US-formed Texas LLC is a domestic reporting company, so it currently files no BOI report. Foreign reporting companies (LLCs formed outside the US) that register into Texas from abroad remain obligated to file. Most Texas LLCs are domestic and currently exempt. The rule changed the prior requirement that swept in domestic LLCs, so a US founder forming a Texas LLC today has no BOI filing to make under the current framework.
A Texas LLC owner pays federal income and self-employment tax in four quarterly estimated installments, due April 15, June 15, September 15, and January 15, because pass-through profit carries no employer withholding. The IRS expects payment as income is earned across the year. Underpaying the quarterly amount triggers an interest-based penalty from the IRS. A default LLC owner estimates the year's profit, applies income tax plus the 15.3% self-employment rate, and remits one quarter each period through IRS Direct Pay or with Form 1040-ES. An S-corp election shifts part of this to payroll withholding on the owner's salary, with the remaining distribution income still reported on the personal return. Texas requires no state estimated payments, since there is no state income tax, so the quarterly schedule is purely federal.
A Texas LLC files one federal return each year plus the Texas franchise tax report and Public Information Report by May 15, even when franchise tax due is zero. The federal form depends on the entity's tax classification. A single-member LLC reports on Schedule C inside the owner's Form 1040. A multi-member LLC files Form 1065 and issues K-1s to members by March 15. An LLC that elected S-corp status files Form 1120-S, also due March 15. A foreign-owned single-member LLC files Form 5472 with a pro-forma Form 1120 by April 15. On the state side, the franchise tax report and the Public Information Report share the May 15 deadline and list the LLC's governing persons. Missing the Public Information Report moves the LLC toward loss of good standing with the Texas Comptroller.
No. Federal tax treatment is identical whether an LLC forms in Texas or Wyoming, because pass-through, self-employment, and S-corp rules are federal, not state-specific. Neither Texas nor Wyoming charges a state income tax. The difference is privacy and franchise obligation, not income tax. A Wyoming anonymous LLC keeps owners off the public record and pays a $60 minimum annual report license tax, while a Texas LLC discloses governing persons and files the franchise tax report. A founder who wants Texas operations with privacy forms a Wyoming LLC and foreign-qualifies it into Texas, with the same federal tax outcome either way.
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