Planning Where the Big Taxes Are Different
In most states, planning starts with the state income tax. In Texas it starts elsewhere: the franchise tax on business margin, local property tax, sales tax on business purchases, and the federal income tax that applies to everyone. Texas also has community property rules and no estate or inheritance tax, which change how families plan for a sale, a divorce or a death. BOMCAS works with Texas owners and households on these decisions remotely, usually before the year ends or before a large transaction.
Entity Choice Under the Franchise Tax
A sole proprietorship or a general partnership of individuals is not subject to the franchise tax, while an LLC, corporation or limited partnership is. For a business well under the $2.65 million no-tax-due threshold, that difference may cost nothing but the annual information report. For a growing business, the choice affects both federal tax and Texas margin tax. An S corporation election can reduce federal self-employment tax through a reasonable salary and distributions, and the salary and distributive income count toward the Texas compensation deduction. A partnership or trust that earns at least 90 percent of its federal gross income from passive sources such as interest, dividends, capital gains and mineral royalties can qualify as a passive entity and owe no franchise tax, which is common in family mineral holding partnerships. Rent does not count as passive income, so most rental real estate partnerships do not qualify.
Managing Margin
Because the tax applies to the lowest of four margin calculations, planning means knowing which costs land where. Moving contract labor onto payroll, documenting production costs that qualify as Texas cost of goods sold, or confirming that more than half of revenue comes from retail or wholesale trade to qualify for the 0.375 percent rate can all change the bill. Businesses near the $20 million EZ computation ceiling or the no-tax-due threshold should look at revenue timing and how affiliates are grouped. From 2026, an enhanced franchise tax credit for research and development applies at 8.722 percent of the increase in qualified research spending over a base amount, replacing the old sales tax exemption for research equipment.
Property Tax
Property tax is often the largest Texas tax a business or homeowner pays. Appraisal district notices usually arrive in spring, and a protest must generally be filed by May 15 or within 30 days after the notice is delivered, whichever is later. Planning steps include:
- Applying for the residence homestead exemption and the over-65 or disability exemption when eligible.
- Rendering business personal property accurately and claiming the $125,000 per-location exemption that began in 2026.
- Reviewing the freeport exemption for inventory shipped out of Texas within 175 days, where local taxing units allow it.
- Keeping records of condition, income and comparable sales to support a protest.
Equipment and Large Purchases
Federal law now allows 100 percent bonus depreciation on qualified property acquired after January 19, 2025 and a section 179 limit of $2.5 million, indexed after 2025. Those deductions reduce federal tax but not Texas total revenue. Sales tax also applies to most equipment, although manufacturing machinery, and farm and ranch equipment bought with an agricultural and timber registration number, can be exempt. We review the sales tax treatment before a large purchase, not after.
Community Property and Estates
Texas has no estate or inheritance tax, and the federal estate tax exemption is high enough that few families owe it. The bigger issue is income tax basis. When one spouse dies, both halves of community property generally receive a new basis equal to fair market value, not just the deceased spouse's half. That can eliminate built-up gain on a home, a business or an investment portfolio, and it is one reason to keep clear records of which assets are community and which are separate. Couples who move to Texas from a common-law state should review how their assets are titled.
Moving to Texas
A move from California, New York or another income-tax state is often the single largest planning opportunity a household has, and the timing of a bonus, option exercise or business sale relative to the move date can decide which state taxes it. We plan the move year with you and help you build the records that support your change of residence.
Retirement and Investments
With no state tax on withdrawals, Roth conversions, required distributions and capital gains are planned around federal brackets alone. Self-employed owners can use a solo 401(k), SEP IRA or SIMPLE IRA, and families with high-deductible health plans can use health savings accounts.
Year-End Checklist
- Compare margin methods using year-to-date figures.
- Decide on equipment purchases and depreciation.
- Review owner salary and distributions.
- Fund retirement plans.
- Confirm property tax exemptions for next year.
Texas Tax Planning Questions
Does Texas have an estate or inheritance tax?
No. Only the federal estate tax can apply, and its exemption is high enough that most families do not owe it.
Can an S corporation lower my Texas franchise tax?
Not directly, since an S corporation is still a taxable entity. It can lower federal self-employment tax, and salary and distributive income count toward the Texas compensation deduction.
What is the deadline to protest my property appraisal?
Generally May 15, or 30 days after the appraisal notice is delivered, whichever is later.
Why does community property matter at death?
Both halves of community property generally receive a new basis at fair market value when one spouse dies, which can remove built-up gain.
Talk to BOMCAS About Tax Planning in Texas
Planning uses real figures from bookkeeping and last year's business and personal returns, and it is carried out through payroll and purchases that affect sales and use tax. Unfiled years should be resolved through back taxes and late filing first, and families or companies with Canadian ties should add cross-border planning. For a summary of how Texas taxes businesses and residents, see the Texas accounting and tax overview or our United States services.
Tell us what you need help with and we will reply with next steps. Contact BOMCAS, use the contact form below, call 780-667-5250 or email info@bomcas.ca. You can also go back to the Texas overview. This page is general information, not advice for a particular situation.