How to File Texas Franchise Tax No Tax Due Report (w/Income) + Public Information Rep (2023 & prior)

Hi everyone, my name is Loma and I teach entrepreneurs business and money management skills. And today we're going to talk about how to file your Texas franchise taxes. And this video specifically is for businesses that actually had an income in the previous year that need to file that income on their franchise tax return. If your company did not make any money last year, then you'll want to watch my other video that explains how to file zero income for a no tax due franchise tax return. Sole proprietors in Texas do not have to file a Texas franchise tax return, but anybody with an LLC, a C-Corp, or an S-Corp does have to file a franchise tax return every single year. So if this is you, keep watching because I'm about to show you how to file your own franchise taxes. Okay, to get started, what you'll want to do is go to the Comptroller's website. The address is comptroller.texas.gov. When you get to the home page, you'll see in the Business Center section it says Webfile eSystems Login. Click on that link and it'll take you to the login portal. If you don't already have an online account set up, you'll click the Create Profile button right here and go ahead and enter your information. Then it'll ask you about your business's information, and you'll want to grab that letter that the Texas Comptroller would have mailed to you. On the letter, it'll show you your Webfile number. You'll use that Webfile number to connect your business to your new online account that you're setting up. If you have more than one business, all you'll be doing is adding each new business to this same profile, so you only have one login whenever you need to file your tax returns for any of the companies, whether it's sales tax or your franchise tax. You can always watch my video as well that shows you exactly how to set up your profile. But for this video, what we're going to do is go ahead and log right in and get started. Once you log in, you'll see My Taxpayer Accounts, and there should be a list of accounts. If you only have one company, you'll only see the one account. If you have one company that you have to file sales tax for and franchise tax for, you'll see two separate lines for that same company. And under the assigned tax fee, you'll see the two different types of tax returns that you would be able to file: your sales and use tax as well your franchise tax. Since today we're working on the franchise tax return, you'll click on that company where it shows the assigned tax/fee is the franchise tax. Now you should be on the franchise tax menu. The state of Texas only charges franchise tax to companies that made more than $1.2 million, but even though they don't charge the companies that make less than $1.2 million, they still require you to file exactly what you made. And even if you made zero, they would require that as well for you to file exactly exactly how much money you made or didn't make and file that tax return so that they have the most up-to-date information about your company. And you have to file this Texas franchise tax return in order to be compliant with the state of Texas. If you fail to file this franchise tax return, even though you won't owe any money for the taxes, the state of Texas can revoke your permission to conduct business in Texas. So you definitely want to be in compliance. Make sure you file your annual return every year, no matter how much you made. When you start making more than $1.2 $1.2 million, that's when you'll use the option for either file an EZ computation report or the third option, which is file a long-form report. But for today's example, we're going to focus in on the businesses that made less than $1.2 million and choose the first option, which is file a no tax due information report. Then click continue. And here you'll see they want you to select the report that you're trying to file. It should be your annual report for the current year. You'll click the bubble and click continue. On this page, they're just giving you some additional information about making make sure that you're eligible to file the No Tax Due Report. And there's a link here for which forms you should file. In our case, we already know we're going to be filing the No Tax Due form. The second bullet talks about making sure you gather your business information before you get started. And the reason why that's important is because when you're filing your franchise tax return, it has to be completed all in one session. So you can't save it and then come back to it. But it's such a short tax return to file, you shouldn't have to come back to it later. So you should be able to get it all done in one session. Now, if you get stuck on any page or you had to stop in the middle of it, after 30 minutes of inactivity, they're going to prompt you with a little popup that asks you if you want to extend the timer for another 30 minutes to continue working on that tax return. But if you miss clicking that option, or if you don't get done before the session ends, then you'll have to start over. Right here, the Comptroller points out that the reports that were due on or after October 1st, 2011, they started assessing a $50 penalty whenever you file late. So it's really important not to file this tax return late. It's due May 15th of every year, unless the 15th falls on a weekend, then it's the following business day. So you want to make sure you file on time every year, otherwise you will get hit with a $50 penalty. But if you file late, definitely pay it because that's the only way to keep your account in good standing with the state of Texas. And then the last hint that they give you is to make sure you print your confirmation page and save it for your records. You'll definitely want to print it and save that PDF to your computer. It's always good to keep your own records as you're filing your own tax returns. Go ahead and click Continue from here. On this page, they're going to ask you questions about partnerships and combined groups. This does not apply to the company that we're going to file this tax return for. The example we're using today is an LLC owned by one person. So the answer to all these questions is no, and you'll click Continue after that. For this first section on the industry classification code, the NAICS code, and you'll just enter that number right here. Should be a 6-digit code. Then the next section asks about your accounting year. Most companies are cash-based. Cash-based accounting is whenever you're keeping up with your bookkeeping based on when you actually receive money and when you actually spend money. The accrual method is different because that's when you bill a client, not necessarily when you receive the payment. Larger companies tend to choose the accrual-based accounting method. So in this example, we're going to go based on the cash method, and the cash method would start at the beginning of the year and end at the end of the year. So that would be January 1st all the way through December 31st. And now the next question, it asks about your qualification questions. It asks, is this a passive entity as described in Chapter 171 of the Texas Tax Code? The answer is no. Is this entity's annualized total revenue below the no tax due threshold? As you can see here in this chart, The threshold for no tax due is $1,230,000. So until you reach that level of income, no franchise tax is actually due, but you do have to file what you made. The answer to this one is yes. The next question is, does the entity have zero Texas gross receipts? The answer is no, because you did have income. Next question is, is this entity a real estate investment trust, REIT, that meets the qualifications specified in Section 171.0002. Our answer to that is going to be no, because for the sake of this example, this is not a real estate investment trust company. So the last question asks is if your business is a new veteran-owned business based on the definition in the Texas Tax Code 171.0005. For the sake of this example, the owner is not a veteran, so we're going to click no. The next section is looking for you to report your total revenue. Just a quick side note, for those of you who file a Texas sales tax return, I put together a one-page PDF with the 3 main pitfalls to watch out for when you're filing your Texas sales tax return. I break down what to watch out for and what's the right way to handle each situation. So if you file a Texas sales tax return for your business, feel free to download my PDF. You can click the link in the description or go to www.lomobam.com/tax. Sales Tax: 3 Pitfalls. Okay, so to figure out what amount to put in the total revenue box, we're going to look at the paper form for filing this no tax due report. And if you look at line 7, it shows the total revenue line we're working on. Notice the information bubbles on this form. Each one gives you information to guide you on what information they're looking for for each line. I'm going to show you the information for the information bubble for line 7 so we can enter the right amount on the online franchise tax return you're filing right now. It says to enter the amount of total revenue used the instructions for items 1 through 10 on Form 05-158-A. It also says that if the business is a passive entity, a REIT, or a new veteran-owned business, they want you to enter 0 for the total revenue. But for the sake of this example, we're not claiming the business as passive, a REIT, or a veteran-owned business. So we have to look at the instructions on Form 05-158-A, which is the long form I referred to earlier for filing franchise taxes. So we're looking at the long form here, and it tells us to use the instructions for lines 1 through 10 to calculate the total revenue, which is what we'll be reporting on the online tax return for filing. For the sake of this example, only instructions for line 1 will apply, but I will go over each one real quick just to give you an idea of what other scenarios may apply to you. The first line is for gross receipts or sales. The information bubble goes over the instructions for where to find this information based on your entity type. It shows where to look on your federal income tax return that you filed with the IRS IRS based on whether you are a corporation, an S corporation, a partnership, a trust, or a single-member LLC. And it even gives instructions if your business entity is something other than the ones we just listed. For our example, we would follow the instructions for the single-member LLC and only look at our 1040 tax return on Schedule C, line 3, to get the amount that we need to list for the total revenue on our franchise tax return. Here's what our Schedule C would look like, and you would enter the amount listed here on line 3 of your Schedule C as your total And you'll notice that this amount is going to be gross sales or income and does not deduct the expenses that you have because franchise tax returns ask for your gross sales. That means before any expenses are deducted. And so when you think about whether you meet the no tax due threshold of $1.2 million, this would be based on the gross income before any tax deductions. If the income that you report on the Schedule C is the only income you receive, Or if you don't receive dividends, interest income, rent, royalties, have capital gains or losses, or other income based on the instructions they have on this long form, then you can go ahead and go back to the online filing and enter the gross income that we got from line 3 on your Schedule C. If not, and you did receive any income listed on the long form listed on lines 2 through 7, you'll want to review the instructions that I'm about to show. We'll go over them real quick just so you have an idea of what they're looking for, just in case any of them did apply to you. Line 2 is about dividends. Again, you'll notice the instructions are broken down based on your entity type. If you skip down to the LLC instructions, you'll see that it says, to the extent dividends earned by the LLC, to enter the amount associated with dividends from Form 1040 Schedule C, Line 6. And here on your Schedule C, you'll see Line 6 is other income including federal and state gasoline or fuel tax credit or refund. So they're saying if you do have an amount here on Line 6, you refer to the amount associated with the dividends the LLC earned. Line 3 is for interest income, and skipping down to the LLC instructions, it says to enter the amount associated with the interest income from your 1040 Schedule C Line 6 again. So it's referring to the same Line 6 but only applies to the amount that came from interest earned by the LLC. The next line is for rental income. For the LLC, it says to enter the amount from Form 1040 Schedule E Line 23A, to the extent that it relates to the LLC. Here's what Schedule E looks like. Schedule E is the supplemental income and loss form where you would report income from rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc. The long form instructions ask for the amount on Line 23A only to the extent that it's related to your LLC's income. The next line is about royalties income. The LLC's instructions say to enter the amount from Form 1040 Schedule E, Line 23B, to the extent that it relates to the LLC. The next line is about capital gains and losses. The LLC instructions say to refer to your Form 1040 Schedule D to the extent that it relates to the LLC, and the amount from Form 4797, Line 17, to the extent that it relates to the LLC. Here's what Schedule D and Form 4797 look like. The last income line is about other income. The LLC instructions for other income say to enter the ordinary income or loss from partnerships, S corporations, estates, and trusts from Form 1040 Schedule E to the extent that it relates to the LLC. It also says to enter the amount from line 9 plus Line 1B, or Form 1040 Schedule F, Line 44, to the extent that it relates to the LLC. The instructions also say to enter the amount from Form 1040 Schedule C, Line 6, that has not already been included in any total revenue passed from a lower-tier entity under the tiered partnership election. Okay, so we are finally on Line 8 that says to add up Lines 1 through 7 to get your gross revenue. Then line 9 lets you exclude certain amounts from your gross revenue. For LLCs, the first one is based on the amount associated with bad debt from Form 1040 Schedule C line 27. The next few screens I show you will provide further guidance on other exclusions that are allowed. You'll want to pause the video to read through each one of them to see if any of them apply to your situation. Once you've reviewed all the exclusions, subtract the difference between line 8 and line 9 to come up with the amount for line 10, which is amount you're going to report on your online franchise tax return for your total revenue. If by chance line 10 is less than zero, you would enter zero for your total revenue on your franchise tax return. If you have any questions while you're watching this video, please leave a comment down below and I'll do my best to answer your question. But if you'd rather ask me questions face to face, I do hold a group mentoring session once a month via Zoom. You can sign up by going to www.lomobam.com and just click on the Consulting tab. The link is also going to be in the description. Okay, so once you've entered your total revenue, click Continue. Then on this page, they want to confirm your current mailing address. If the address that they have on file is not correct, here's where you would go ahead and update that information. And once you update it here, they'll submit it to the state of Texas for you, and that way your public records report is updated with the correct mailing address based on what you have here on this page. Once everything looks good, click Continue. On this page, this is the public information report. Everybody is required to keep all this information up up to date. So you would want to review the information that's on this page specifically, make sure that everything looks good. They want you to fill in the principal office. So the difference between principal office and principal place of business is principal office is where you might take care of your business as far as paperwork, finances, any of that. If you have a separate office from where you actually do your business, you'll list that office address here. And then in the second box where it says principal place of business, that's where actually conduct business. So you'll want to put that address right there. And then the next section, this is where you have a list of your officers, directors, managers, members, or general partners. It should reflect what you originally filed when you filed with the state of Texas, or if you filed any changes or amendments, that information should also show right here. If everything looks correct, you can leave it the way that it is. If it does not look correct, you can correct anything in here. It allows you to put the name of the person. So the name of the person, the title, the address, whether or not they're a director, all of that is required. Optionally, you can also list if there was a term or when that position expires, but if there's no expiration to when that position expires for that person, you can leave that part blank. Once all of that looks good to you, you can move on to the next section. The owned entity does not apply because this business is owned by a person. Because this company is owned by a real person and not owned by another corporation or another entity, those two sections can stay blank. And this last section, they ask you who your registered agent is and what their address is. As long as everything looks correct, you can go ahead and click on the last checkbox and click Continue. However, just know that if you do change this information because you've changed registered agents or your registered agent has a new address, if you correct it here, it does not transfer over to the state of Texas. So you would still have to go to the state of Texas website and file a change of registered agent form. You can do it all online, so it doesn't take very long to do it as well. It's pretty simple, but that is something that you'd have to take care of there on their website because this information for the registered agent section is not going to get transferred over there. So if you do changes here, just make sure you go and file it with the state of Texas as well, separately, using their specific form and paying their fee to get that updated. It's very important to keep this updated because you can lose your company's ability to conduct business in the state of Texas if you're not in compliance. Because you have to have a current registered agent on file. For the sake of this example, we're going to assume everything is correct and click Continue. And now you're on the Review Your Report section. This is where they'll show you a summary of everything you already filled out, all the options you chose, all the answers you provided. You'll want to review everything on this page to make sure it is correct before you submit it. They show you every section that you provided information, every question that you answered. If you have anything that you needed to change, if there's anything that was not correct, that you need to change, go ahead and click the Edit Information Report, and it'll allow you to go back to that section to make the changes. If everything looks good, you'll go ahead and click Submit Report, and you're all done. You have successfully filed your franchise tax return. So the last thing you want to do is click on the Print This Page for your records. It shows you the submission ID number and the date and time that you filed this tax return. That way you have proof that you filed your franchise tax return on time, and it shows you everything that you actually filed. Filed on your tax return. That way you have it for your records. Once you've saved this, you can log out. I hope you found today's video helpful. Hope it's a little less intimidating and you were able to follow along so that you can file your own franchise tax on your own. If you want to learn more about subjects like this, you can always sign up for courses at my website at www.lomabamm.com. That stands for Business and Money Management, and I teach a variety of business subjects there. If you like this video, don't forget to like, comment, and subscribe, and I want to thank you for watching today.