S Corp Tax StrategiesS corp tax strategies for Texas owners

What changes in Texas, and what doesn't

The S corp math on this site is federal: self-employment tax on all of the profit, versus payroll tax on a reasonable salary. Texas adds no income tax on your salary or on your distributions, so the federal saving is the whole saving.

What Texas does have is the franchise tax. It applies to an LLC or a corporation that was formed here or does business here, S corp or not. The election doesn't change that. What it can change is how your margin is figured, because a salary on payroll counts as compensation and owner draws don't.

The May 15 franchise report

The report is due May 15 each year. For the 2026 and 2027 reports, yearly revenue at or under $2,650,000 means no tax is due and no tax report is filed. You still send in Form 05-102, the Public Information Report, which lists the officers. Missing it can cost the company its good standing with the state, so we file it with you even in a year with no tax.

Over that line, the tax is figured on margin at 0.75 percent, or 0.375 percent for retail and wholesale. A company with revenue of $20 million or less can use the EZ computation at 0.331 percent of revenue instead, but the EZ path gives up the compensation deduction, so it can cost more when payroll is large. We run both and you pick the one that costs less.

An extension moves the filing date to November 15 for most companies. It doesn't move the federal date for Form 1120-S, which stays March 15.

Where your salary shows up on the franchise report

One of the ways to figure margin is revenue minus compensation. W-2 wages count, up to $480,000 per person on the 2026 and 2027 reports. Owner draws that never went through payroll don't count, and neither does pay to 1099 contractors.

So an owner who starts a salary gets the federal S corp saving and, in some years, a smaller Texas margin too. Bring the payroll register, or tell us payroll hasn't started yet, and we'll compare the methods with your real numbers.

Texas unemployment tax on your own paycheck

Once you're on payroll, the company pays state unemployment tax on the first $9,000 of each employee's wages for the year, including yours. A new employer pays 2.7 percent until it has four chargeable quarters, and then a rate based on its own history. Your payroll provider files the quarterly report, and we check that it matches the books.

What to bring

A rough profit figure, last year's return, and the payroll register if you run payroll. If a franchise report was filed last year, bring it. If the company is new, tell us when it was formed and whether it has done business yet.

On the call we run the S corp numbers, set a salary that fits your work, and put the May report on its own calendar. The call is free and runs 30 minutes.

What Texas owners ask first

Do I still file something if no franchise tax is due? Yes. Under the revenue line you skip the tax report, but the Public Information Report still goes in by May 15.

Is the franchise tax deductible on my federal return? Yes. The company deducts it as a business expense on Form 1120-S.

Does Texas tax my S corp paycheck? No. Texas has no personal income tax. Federal income tax and payroll tax still apply to the salary.

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