What taxes apply to a new small business?

Taxes Applicable to New Small Businesses in Texas

Starting a small business in Texas involves understanding several key tax obligations to ensure smooth operations and compliance. Below are the main taxes you should be aware of as of 2026.

State Taxes for Small Businesses in Texas

• Franchise Tax: Texas imposes a franchise tax on most businesses operating in the state. This tax is based on your business's taxable margin, which varies depending on your revenue and deductions. New small businesses should register with the Texas Comptroller’s office to file and pay this tax.
• Sales and Use Tax: If your business sells tangible personal property or certain services, you must collect and remit sales tax. Texas has a state sales tax rate of 6.25%, and local jurisdictions may add up to 2% more. Proper bookkeeping and regular reporting to the Texas Comptroller are essential.
• Employment Taxes: If you hire employees, you are responsible for withholding federal income tax, Social Security, and Medicare taxes. Additionally, Texas does not have a state income tax, but you must pay state unemployment tax (SUTA) through the Texas Workforce Commission.

Additional Operational Tax Considerations

• Business Registration: Register your business with the Texas Secretary of State and obtain an Employer Identification Number (EIN) from the IRS to handle tax filings properly.
• Recordkeeping: Maintain accurate records of all sales, payroll, and tax filings. Automation tools can help streamline bookkeeping and reporting requirements.
• Tax Reporting: File franchise tax reports annually and sales tax returns either monthly, quarterly, or annually based on your sales volume.
• Insurance: Consider workers' compensation insurance even though it is not mandatory in Texas, as it can affect your payroll tax management and employee classification.

Understanding these tax requirements early helps you avoid penalties and supports effective financial management for your Texas small business.