Franchise Tax·4 min read
From Chapter 6
Texas has no income tax. Here's what it has instead.
It's the first thing every newcomer hears, and the most misleading: Texas doesn't tax personal income, but it absolutely taxes businesses — through franchise tax, a margin-based "privilege tax" that applies to nearly every LLC and corporation operating in the state, foreign-owned or not.
The good news is that most small and early-stage businesses fall under the no-tax-due threshold — $2,650,000 in annualized revenue for the 2026–2027 report years — and owe nothing. The catch: owing nothing doesn't mean you're excused from filing. Below the threshold, you still have to submit a Public or Ownership Information Report every year, and skipping it triggers an automatic $50 penalty that can snowball into losing your "good standing" with the state.
The lesson newcomers learn the hard way: "no income tax" describes one layer of a three-layer system (federal, state, local). Franchise tax lives in the state layer, and it doesn't care whether you knew about it.
Property Tax·3 min read
From Chapter 8
The $125,000 property tax exemption nobody told you about
Starting with the 2026 tax year, Texas raised its business personal property (BPP) exemption from $2,500 to $125,000, following the passage of Proposition 9 and House Bill 9. For a small business with modest equipment, furniture, and inventory, this can mean owing zero property tax on that equipment where you previously would have owed something.
The part that still trips people up: the exemption usually isn't automatic. You generally still need to file an annual rendition — a report listing your taxable business equipment as of January 1 — to claim it. The rendition is due April 15, with a 30-day extension available if requested in writing before the deadline. Miss it, and you risk a 10% penalty and complications with the exemption you were otherwise entitled to.
If you lease your space, note that this obligation is separate from whatever your landlord owes on the building itself — you're still responsible for rendering your own equipment and furniture.
Federal Filings·3 min read
From Chapter 9
The federal form most foreign-owned LLCs don't know they owe
A single-member US LLC owned by a foreign national is typically treated by the IRS as a "disregarded entity" — meaning, for most purposes, it's as if the LLC doesn't exist separately from its owner. That sounds like it should mean less paperwork. For a foreign-owned disregarded entity, it means something else entirely: a special reporting requirement most owners have never heard of.
Foreign-owned disregarded entities generally have to file Form 5472 along with a pro forma Form 1120 — even when no US tax is owed at all. It exists purely for informational reporting on transactions between the LLC and its foreign owner. The reason this catches people off guard is almost structural: a disregarded entity would otherwise have zero federal filing obligation, so there's no natural moment where the requirement surfaces on its own.
The penalty for missing it starts at $25,000 — dramatically higher than most of the state-level penalties covered elsewhere in this manual. If you have a single-owner LLC and you're not sure whether this applies to you, it's worth a direct conversation with a CPA who has handled foreign-owned entities before, rather than assuming "no income, no filing."