1. Why Form Your LLC in Texas?
Texas is one of the most business-friendly states in the US, with a large economy, no state income tax, and straightforward LLC requirements:
- No state income tax — Texas has no personal income tax and no corporate income tax
- Large economy — Texas is the second-largest US economy with 30+ million people and strong GDP growth
- No franchise tax for most small businesses — The 2026 threshold is $2,650,000 in annualized revenue; most small LLCs pay $0
- Simple ongoing compliance — File two annual forms with the Comptroller, no fee required
- Same-day expedited processing available — $25 for same-business-day formation
- Strong legal infrastructure — Texas has well-developed commercial courts and business law
Best for Texas Residents
If you live and operate in Texas, forming there is almost always the right choice. Out-of-state founders will need to foreign-qualify in their home state anyway, making Texas formation less compelling unless you have a Texas presence.
2. Texas LLC Requirements
- Choose a unique name containing "Limited Liability Company," "L.L.C.," or "LLC"
- Name must be distinguishable from existing Texas entities (check availability on SOS website)
- Appoint a registered agent with a physical Texas address
- File Certificate of Formation (Form 205) with the Texas Secretary of State ($300)
- File annual Franchise Tax Report and PIR with the Comptroller by May 15 each year
- Maintain a registered agent at a Texas physical address at all times
3. Texas LLC Costs and Fees (2026)
| Cost Item | Amount | Notes |
|---|---|---|
| Certificate of Formation | $300 | One-time state filing fee |
| Expedited Filing (optional) | $25 | Same-day processing (online, before noon) |
| Annual Franchise Tax Report | $0 filing fee | Due May 15; tax owed only above $2.65M revenue |
| Public Information Report | $0 filing fee | Due May 15 with Comptroller |
| Registered Agent | $50–$200/year | Required TX physical address |
| EIN | Free | Apply at IRS.gov |
| Late Filing Penalty | $50 | For missing the May 15 Franchise Tax deadline |
4. How to Start a Texas LLC (Step by Step)
- 1 Choose your LLC name (must include "Limited Liability Company," "L.L.C.," or "LLC")
- 2 Appoint a registered agent with a Texas physical address
- 3 File Certificate of Formation (Form 205) with the Texas Secretary of State ($300)
- 4 Obtain an EIN from the IRS (free at IRS.gov)
- 5 Draft an Operating Agreement (not required by Texas law but strongly recommended)
- 6 File for any required local business licenses or permits
- 7 File annual Franchise Tax Report and Public Information Report by May 15 each year
- 8 Open a business bank account and maintain separate finances
5. Texas Franchise Tax (2026)
The Texas Franchise Tax is the state's primary business tax. For 2026, here is what you need to know:
- No-Tax-Due Threshold — If your annualized total revenue is $2,650,000 or less, you owe zero franchise tax
- Standard rate — 0.75% on taxable margin (revenue minus the greater of: cost of goods sold, compensation, 30% of revenue, or $1 million)
- Retail/wholesale rate — 0.375% for qualifying retail and wholesale businesses
- EZ Computation — Businesses with $20 million or less in revenue can use a simplified 0.331% rate
- Due date — May 15 annually (reports and any tax owed)
Most Small LLCs Pay $0 Franchise Tax
The vast majority of small Texas LLCs fall below the $2,650,000 threshold and owe zero franchise tax. You must still file the annual Franchise Tax Report and Public Information Report by May 15, even if you owe nothing. Failure to file results in a $50 penalty.
6. Texas LLC Taxes and Compliance
Here is the full Texas LLC tax picture for 2026:
- Federal income tax — Pass-through to members' personal returns (Schedule C for single-member)
- Self-employment tax — 15.3% on net earnings up to the Social Security wage base
- Texas Franchise Tax — $0 for most small businesses below $2.65M revenue threshold
- Sales and Use Tax — Texas imposes 6.25% state sales tax plus local rates (up to 8.25% combined) on taxable goods and services
- No personal income tax — Texas residents pay no state income tax on LLC profits
7. Best For / Not Best For
Best For
- Entrepreneurs physically living and operating in Texas
- Business owners who want no state income tax in a major US market
- Companies with Texas customers, employees, or physical presence
- Businesses below the $2.65M franchise tax threshold (pay $0 franchise tax)
- Founders who want access to Texas's large and growing economy
Not Best For
- Out-of-state owners: $300 formation + home-state foreign qualification doubles costs
- Privacy-focused founders (Texas requires member info in Public Information Report)
- Businesses above $2.65M revenue who face the 0.75% franchise tax
- Founders comparing costs — Wyoming or New Mexico offer lower ongoing fees