Introduction
Texas small business owners can take advantage of various tax deductions and credits to reduce their tax liability. While Texas does not have a state income tax, businesses are still subject to federal taxes and state-level franchise tax.
This guide explains the top tax deductions and credits available to Texas business owners, how to qualify, and strategies to maximize savings.
Does Texas Have Business Income Tax?
No, Texas does not impose a state income tax on businesses. However, businesses earning over $2.47 million annually must pay the Texas Franchise Tax.
Top Federal Tax Deductions for Texas Small Businesses
1. Home Office Deduction
If you use part of your home exclusively for business, you may deduct:
- A simplified deduction of $5 per square foot, up to 300 square feet.
- A detailed deduction covering mortgage interest, utilities, and depreciation.
2. Business Vehicle Deduction
If you use a vehicle for business, you can deduct either:
- Mileage deduction – $0.67 per mile (2025 rate).
- Actual expenses – Gas, maintenance, insurance, and depreciation.
3. Equipment and Machinery (Section 179 Deduction)
- Deduct up to $1.22 million in business equipment purchases.
- Applies to computers, furniture, and machinery used for business.
4. Startup Costs Deduction
- New businesses can deduct up to $5,000 in startup expenses.
- Covers legal fees, licensing, and market research.
5. Advertising and Marketing Deduction
- Deduct 100% of marketing costs, including social media ads, website expenses, and branding.
6. Business Meals Deduction
- Deduct 50% of eligible business meals with clients, partners, or employees.
- Must have a valid business purpose.
7. Rent and Utilities Deduction
- Deduct office rent, electricity, water, and internet expenses.
8. Salaries and Employee Benefits Deduction
- Wages, bonuses, and employee health insurance premiums are deductible.
- Business owners cannot deduct their own salary for sole proprietorships.
Tax Credits for Texas Small Business Owners
1. Research & Development (R&D) Tax Credit
- Credit for businesses investing in innovation, software development, or product research.
- Can be used alongside the federal R&D tax credit.
2. Work Opportunity Tax Credit (WOTC)
- Businesses receive a $2,400 to $9,600 tax credit for hiring workers from target groups (veterans, long-term unemployed).
3. Small Business Health Care Tax Credit
- Covers up to 50% of employee health insurance premiums.
4. Disabled Access Credit
- Tax credit of up to $5,000 for making business facilities ADA-compliant.
How to Maximize Tax Savings for Your Small Business
- Keep detailed financial records to support deductions.
- Use business credit cards to track deductible expenses.
- Separate business and personal expenses to avoid IRS audits.
- Consider an LLC or S-Corp structure for tax advantages.
Should You Work with a CPA for Business Tax Planning?
- Ensure compliance with Texas franchise tax laws.
- Identify the best deduction strategies for your business.
- Help maximize tax credits and reduce IRS audit risks.
Conclusion
Texas small business owners can significantly lower their tax burden by claiming federal deductions and tax credits. Proper planning and tax compliance are essential to maximizing business savings.
For expert tax guidance, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.
Frequently Asked Questions (FAQs)
1. Does Texas have business income tax?
No, Texas does not impose a state income tax, but businesses may owe franchise tax.
2. What are the best tax deductions for Texas businesses?
Common deductions include home office expenses, business meals, marketing, and equipment costs.
3. How do I qualify for the R&D tax credit?
Businesses investing in product development, technology, or process improvements may qualify.
4. Can I deduct business travel expenses?
Yes, airfare, hotels, and business-related travel expenses are deductible.
5. What happens if I do not pay the Texas Franchise Tax?
A $50 late filing fee and a 5-10% penalty may apply. Businesses can lose good standing with the state.