I understand Texas has a franchise fee for LLC’s. I’ve looked and can’t determine if this is a one time tax when setting up the LLC or if it’s an annual tax. Does anyone know?
Thanks,
Greg
Howdy Greg:
I searched on Google and found this :
In Texas, corporation franchise tax is computed on both taxable capital and a taxable earned surplus basis. Your corporation pays on the basis that produces the greater tax.
The tax is applicable to each corporation that is authorized or actually does business in Texas. This includes S corporations as well as C corporations. Franchise tax also applies if you have a limited liability company (LLC). Exemptions are provided for most nonprofit corporations and for insurance companies and certain cooperative public utilities, among others.
The franchise tax is calculated based on net taxable earned surplus and net taxable capital. The “net taxable earned surplus” is computed by determining the corporation’s reportable federal taxable income and by making certain specified adjustments. The tax rate is (1) 0.25% of net taxable capital, plus (2) 4.5% of net taxable earned surplus.
In Texas, consolidated or combined reporting is not permitted. If you have more than one corporation, you must file reports solely on the basis of their own financial condition.
Various credits are subtracted from the tax in order to arrive at the amount owing. If the amount of computed tax is less than $100, your corporation is not required to make any payment of franchise tax for that period. However, filing is still required.
Thanks Tedjr,
I’ve spoken to a CPA in the past concerning setting up an LLC for asset protection and he said I would be better off just getting an umbralla policy for $1M or so. He said it would only cost around $300/yr.
Any thoughts on this?
Has anyone investors in Texas stayed away from the LLC because of the franchise tax?
Thanks,
Greg
Setting up an LLC for the purpose of Asset Protection doesn’t make a lot of sense. Most States now have written into the States statues LLC legislation affording LLC members a liability shield that aids in protecting the members PERSONAL assets.
The property is still partitionable realty and subject to liens and encumbrances. I would recommend setting up a land trust first since your purpose is asset protection.
Assigning beneficial interest to the LLC after creation of the trust is an unrecorded event and has an added benefit, from a lenders standpoint, of a clean chain of title and avoiding any seasoning issues, assuming ther intent is to refi at some point.
Judgments and tax liens against a beneficiary do not attach to property in trust. Death, incapacity, and divorce of one of the owners will not necessarily affect the ability to sell, mortgage, or otherwise deal with the real estate.
Holding your properties in a Land Trust creates one of the greatest benefits, and that is to Easily Transfer your interest. A Beneficial Interest under the Land Trust is considered to be Personality, not Realty, therefore a Transfer of Interest need not be witnessed or notarized. In most real estate transactions the closing can be very time complicated and time consuming. Not so with the transfer of a beneficial interest in a land trust. It is done as simply as transferring your stock certificates in your corporation - no closing costs, no documentary stamps or recording fees.
In some cases, liability can be restricted to the actual property, which enables you to safeguard other assets.
Professionals such as Physicians, Real Estate Brokers and commodity traders for instance, often establish a land trust to help protect themselves from financial liabilities inherent to their professions.
I look at the Trust as the way to protect the property’s title and to give the parties involved privacy in the transaction, plus many additional benefits, but in order to protect an individual’s personal assets, then that is where the LLC and/or Corporation comes in.
Do your research and I wish you success.
might as well just live in an airtight, plastic bubble, it offers the best protection from everything, including cantagious bacteria
Whats the fee to set up an air tight plastic bubble?
lol
i’ve got a better one for u greg, it’s the “old country special”, it’s 1% of ur net worth, plus $2000/mo to trust me. and i will call my uncle guido and u’ll have full protection, gauranteed!
Deleted blantant violation of the rules.
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Nothing like a little blatant horn-blowing!
Keith
Keith,
Taken care of.
John $Cash$ Locke
A land trust is certainly one way to convey property and offer some asset protection, but I thought I would point out that there are a couple of downsides, too.
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While it is true that the transfer of a property’s title into a land trust does not violate the Due on Sale Clause, it is also true that an assignment of the beneficial interest of such a trust does violate the DOSC.
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In Texas, conveying the property from an individual to a trust wipes out the individual’s homestead exemption, which reduces an owner-occupied house’s property taxes by about 20%.
I’m not saying trusts aren’t a good way to “get the property out of your name,” but they’re not the be-all end-all of existence, either.
Drew,
Glad to meet you.
"I'm not saying trusts aren't a good way to "get the property out of your name," but they're not the be-all end-all of existence, either."
It’s OK go ahead and say it if you want to, nevermind I see you already said it.
John $Cash$ Locke
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It’s annual and states are starting to get wise to the amount of money they can make taxing entities. They are jacking up the annual fees and starting to require all types of licenses. Property owners are not a sympathetic voting block, especially since they aren’t organized.
The tax is applicable to each corporation that is authorized or actually does business in Texas. This includes S corporations as well as C corporations. Franchise tax also applies if you have a limited liability company (LLC). Exemptions are provided for most nonprofit corporations and for insurance companies and certain cooperative public utilities, among others.
Texas entities only have to pay the franchise tax if the total tax due is $1,000 or more AND the annual revenue is $300,000 or more.
Unless you’re making $300k a year, it’s not a concern.