Small business accounting and bookkeeping in Austin

What to take away

The two numbers that decide your year

Start with the threshold. A taxable entity at or below the no-tax-due line owes nothing, though it still files Form 05-163, the No Tax Due Report, and most entities also file the Public Information Report, Form 05-102. The report is due May 15, with a November 15 extension available.

For the 2024 tax year the threshold was $2.47 million. Total revenue counts sales into every state, not Texas alone.

The Comptroller adjusts the threshold for each report year and publishes the current figure in the franchise tax instructions. Use the figure for your own report year, not the 2024 figure, before you build an accrual around it.

Above the threshold the tax equals the chosen base multiplied by the rate under Texas Tax Code Chapter 171. Retail and wholesale sellers pay 0.375%. Other entities pay 0.75%.

An entity with total revenue of $20 million or less can often use the EZ computation instead: Form 05-169, the EZ Computation Report, applies 0.331% to total revenue, with no base comparison.

Total revenue on the franchise report is not automatically the revenue line in the profit and loss statement. Bookkeeping foundations explains which basis each figure sits on, and the gap decides who is above the threshold.

Which margin base to pick

Texas charges the tax on the lowest of four bases. The long-form return that reports the comparison is Form 05-158, the Texas Franchise Tax Report. You run the arithmetic and pick.

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Most Austin startups land on revenue minus 30%, because it needs no supporting schedule. A payroll-heavy team sometimes wins on compensation, though that base caps the deduction per employee.

Whichever base wins, the accounts have to carry it. Cost of goods sold and compensation belong in separate expense accounts, or the comparison needs a manual rebuild. That is a chart of accounts decision, because the account number is what keeps the two apart in every report.

Setting up the franchise accounts

Register with the Secretary of State first. The entity also needs an employer identification number before it hires or opens a bank account, and the IRS explains how to get an employer identification number for a new business.

Step four is the one founders skip. Without it, the threshold test turns into a year-end research project.

Austin sales tax and multi-state nexus

Texas sales tax runs through the Comptroller under a permit obtained before you collect; the application is Form AP-201, Texas Sales and Use Tax Permit Application. Austin's combined rate is 8.25%: the 6.25% state rate plus 2% in city and transit taxes. The Comptroller assigns monthly, quarterly, or annual filing, and returns are generally due the 20th day after the reporting period. Much of Texas sits below that rate.

Collection follows nexus, the connection between a seller and a state. The Texas Comptroller publishes the state's nexus rules, and a general overview of state and local sales tax and nexus rules covers how that connection arises elsewhere.

Economic nexus is what catches remote sellers. Texas uses a $500,000 threshold measured on Texas revenue. Many other states use $100,000 in sales or 200 separate transactions.

Thresholds differ, so the ledger stores destination rather than billing address. How Illinois, Washington, Massachusetts and Georgia set sales tax deadlines shows how far four filing calendars diverge once four registrations exist at once.

Founders still choosing an entity should read USAGov's guide to starting a business in the United States, because entity type sets the registration list.

Recording franchise tax in the monthly close

The tax accrues across the year, not in the month the return is filed. Wait for the filing date and you post one large expense and misstate eleven months.

Estimate the annual liability from the projected margin base, divide by twelve, and post the same amount to franchise tax expense and franchise tax payable each month. In journal-entry form, debit franchise tax expense and credit franchise tax payable for the projected annual liability divided by twelve. True up after the return is prepared.

The estimate needs the revenue splits the return needs, so the close should produce a Texas subtotal and a non-Texas subtotal. Without both lines the accrual is a guess.

Payments reduce the payable, not the expense. Mixing the two leaves a gap that surfaces at year end.

A close checklist for an Austin founder

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The state tagging and the nexus review are the items founders defer. Both feed next year's filings, and neither reconstructs cleanly after the fact.

The revenue figure underneath is not automatic either, and revenue recording choices made in month one decide whether destination reports can be produced in month twelve.

Common questions