Texas Sole Proprietorship vs LLC:
Fees, Taxes, and Decision Guide (2026)
Texas has no state income tax and no annual LLC report fee, but a $300 filing fee and a franchise tax that applies to businesses over $2.47M in gross receipts. Here is what Texas small business owners need to know.
Texas LLC Fees
$300
Certificate of Formation fee
$0
Annual report fee
$0
State income tax
$2.47M gross
Franchise tax threshold
5-Year Cost for Texas Residents
| Structure | Year 1 | Year 2-5 | 5-Year Total |
|---|---|---|---|
| Sole Proprietorship | $0 | $0 | $0 |
| Texas LLC | $300 | $0/yr | $300 |
Note: Texas franchise tax applies at gross receipts over $2.47M. LLC must file a Public Information Report annually (free). Franchise tax filing required even if below threshold (but $0 due).
Texas Franchise Tax: What Small Businesses Actually Pay
The Texas franchise tax (officially "margin tax") applies to LLCs, corporations, and other entities -- but not to sole proprietors. However, the no-tax threshold is $2.47 million in annual gross revenue (2026). Most small businesses never reach this threshold.
Texas-Specific Guidance
Where to file a Texas LLC
File with the Texas Secretary of State (SOS.state.tx.us) or online at SOSDirect. The Certificate of Formation costs $300. Processing typically takes 3-5 business days for standard filings. Expedited same-day service is available for an additional $25.
Texas DBA (Assumed Name)
If your LLC or sole prop operates under a name different from the registered name, you must file an Assumed Name Certificate. For a sole proprietor, file with the county clerk where you conduct business ($15-$25). For an LLC, file with the Secretary of State ($25).
Texas LLC veil protection
Texas Business Organizations Code provides strong protection for properly-operated LLCs. Texas courts have generally been reluctant to pierce the veil unless there is clear evidence of fraud, commingling, or undercapitalisation. Maintaining a proper operating agreement and separate banking are key.