Texas LLC: S corp or C corp?

Texas at a glance

What is different about Texas?

Texas does not care what the IRS calls your LLC. The Comptroller says an entity's legal formation, not its federal tax treatment, decides who files, so a single-member LLC that files as a sole proprietor federally is still a taxable entity. That means your S election does not move your Texas franchise tax in either direction. The tax runs on margin, not net income. Margin is figured one of four ways: 70 percent of revenue, revenue minus cost of goods sold, revenue minus compensation, or revenue minus $1 million. Most small LLCs end up owing nothing, because the no tax due threshold for 2026 and 2027 reports is $2,650,000 of annualized revenue.

Does Texas recognize a federal S corp election?

Texas treats an S corp like any other entity. The franchise tax applies to S corporations and LLCs alike, so an LLC taxed as an S corp is on the same footing as before the election. Texas has no state S election form, since the franchise tax does not depend on federal S status. If revenue is at or below $2,650,000 you owe no franchise tax and file no franchise report, but you still file a Public Information Report or Ownership Information Report each year. There is no state income tax on you or the company.

Does my LLC need a separate Texas election or form?

Texas has no state S election or consent form because it has no income tax and the franchise tax does not depend on S status.²

What does Texas tax an S corp or LLC at the entity level?

• An S corporation in Texas pays the franchise (margin) tax at 0.75% of taxable margin, or 0.375% for retail or wholesale, with no tax due at or below $2,650,000 of total revenue for 2026 and 2027 reports.³
• Texas LLCs, including single-member LLCs, pay the franchise tax at 0.75% of taxable margin (0.375% for retail or wholesale), with no tax due at or below $2,650,000 of total revenue for 2026 and 2027 reports.⁵
• The Texas franchise tax rate for 2026 and 2027 reports is 0.75% of taxable margin, or 0.375% for retail or wholesale.⁷
• The Texas franchise tax covers corporations, LLCs (including single-member LLCs) and S corporations alike.⁸
• For 2026 and 2027 reports the no tax due threshold is $2,650,000 of annualized total revenue.⁹
• Margin is the lesser of four calculations: 70 percent of revenue, revenue minus cost of goods sold, revenue minus compensation, or revenue minus $1 million.¹⁰
• An entity with revenue at or below the no tax due threshold skips the franchise tax report but must still file a Public Information Report or Ownership Information Report each year.¹¹
• Entities with total revenue of $20 million or less may use the EZ computation at 0.331%.¹²

Is a Texas LLC taxed as a C corp ever better?

A Texas C corp pays the same franchise tax as every other entity: 0.75% of taxable margin, or 0.375% for retail and wholesale businesses, on 2026 and 2027 reports. There is no separate corporate income tax. Companies with total revenue of $20 million or less can use the EZ computation at 0.331%. Dividends you take as a shareholder face no Texas income tax either, because Texas has no state income tax. The cost difference between C and S shows up federally, not in Austin.

Run your Texas numbers

Texas collects the same franchise tax whichever way you elect, so your state cost does not depend on S versus C. It is zero while revenue stays at or below $2,650,000. Past that line the margin tax applies to both structures. The S election pays off on federal grounds, so compare that gain against the added payroll and filing work.

How much would a Texas LLC owner save as an S corp?

Assumes a 60% salary¹⁴ and a single filer. Income tax is left out. C corp dividends are taxed again. Texas franchise tax is on margin, not profit, is the same whichever way you are taxed, and is $0 at or below $2,650,000 of revenue, so it is left out.

When is the Form 2553 deadline for a Texas LLC, and what if I miss it?

Late relief: federal steps, deadline guide.

What to do next

More on Texas: How to start a Texas LLC · How to start a Texas corporation · Texas LLC cost · Texas annual report · Annual report late fees by state

Common questions