Texas Franchise Tax 2026: What LLCs and S-Corps Need to Know
Who Has to File
Texas franchise tax is a business privilege tax, not an income tax. It applies to any taxable entity formed or doing business in Texas, including:
- LLCs, including single-member LLCs that are disregarded entities for federal purposes
- S-corporations
- C-corporations
- Partnerships and professional associations
Texas does not exempt pass-through entities the way the federal government does. If your LLC reports all income on a Schedule C, the entity still owes Texas franchise tax.
The $2.65 Million No-Tax-Due Threshold
If your annualized total revenue is at or below $2.65 million, you owe zero franchise tax for the 2026 report year. This is up from $2.47 million in 2025, adjusted biennially for inflation under Tax Code Section 171.006.
Entities below this threshold no longer need to file a No Tax Due Report. You are still required to file a Public Information Report (PIR) or Ownership Information Report (OIR), however.
How Taxable Margin Works
The franchise tax is based on your taxable margin: total revenue minus the best available deduction. You choose whichever of these four yields the lowest margin:
- Total revenue minus cost of goods sold (COGS)
- Total revenue minus compensation (wages, salaries, and cash paid to owners)
- 70% of total revenue
- Total revenue minus $1 million
The resulting margin is multiplied by the applicable tax rate and apportioned to Texas based on revenue earned in the state.
Tax Rates and the EZ Computation Option
| Filing Method | Rate |
|---|---|
| Standard (most entities) | 0.75% |
| Retail or wholesale | 0.375% |
| EZ Computation | 0.331% |
The EZ Computation is available if your annualized total revenue is $20 million or less. It skips the four-method margin calculation and applies a flat 0.331% to total revenue. The trade-off: no tax credits, no loss carryforwards, and no COGS or compensation deductions. Run both methods before choosing.
New in 2026: Bonus Depreciation Election
Starting with the 2026 report year, Texas aligns its franchise tax depreciation rules with federal law following the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025.
Businesses can now elect to deduct the full cost of qualifying fixed assets (machinery, equipment, furnishings) placed in service after January 19, 2025. This matches the 100% federal bonus depreciation reinstated under OBBBA.
A one-time depreciation catch-up adjustment is also available for qualifying assets placed in service before the 2026 accounting period that have not been disposed of. For capital-intensive businesses, this catch-up can meaningfully reduce taxable margin.
If you claimed federal bonus depreciation on your 2025 federal return, that same amount now flows into your Texas COGS calculation for the 2026 franchise tax report.
May 15 Deadline
The 2026 Texas franchise tax report is due May 15, 2026. A late filing triggers a $50 penalty even if no tax is owed. A valid extension shifts the deadline to November 15, 2026.
Before You File
- Confirm your annualized revenue against the $2.65M threshold
- Calculate taxable margin under all four methods and compare to EZ Computation
- Pull 2025 federal bonus depreciation to apply under the new OBBBA-aligned election
- File or extend by May 15
For help calculating your Texas franchise tax margin or choosing the method that saves you the most, contact TS CPA.