Where do I get a tax number?
There is more than one kind of tax number so the first thing is to identify what you need one for. You will need a Federal EIN (employer I.D. number) if you will have employees, a business partner other than your spouse, and possibly also to open a business bank account. You can obtain an EIN number at irs.gov. You will need a Texas Sales & Use Tax Permit if you are required to collect sales tax on your products and/or services. That application is completed through the Texas Comptroller’s website at window.state.tx.us/taxpermit.
Am I required to collect sales tax?
In Texas, most products are taxable and some services are taxable. A search of the State Tax Automated Research (STAR) database will help you determine the answer for your business. If you’re unable to locate the answer to your specific question, the Comptroller can be emailed at firstname.lastname@example.org.
What legal structure am I required to use?
You’re free to choose from any legal structure you like. The most popular in Texas are sole proprietorships, general partnerships, and limited liability companies (LLCs).
What’s the difference between sole proprietorships, general partnerships, and LLCs?
Sole proprietorships and general partnerships are filed at the county level in whichever counties you plan to do business. A sole proprietorship can be filed by a single owner, or two owners who are married. All net income of the business flows to your personal tax return and there is no income tax on the business itself. A general partnership operates similarly, but is filed when there are two or more partners who are not married. Neither a sole proprietorship nor general partnership provide any liability protection to the owners.
An LLC is filed with the Secretary of State and creates a separate legal entity for your business. It can be taxed as a sole proprietorship where all net income flows to the owner’s personal tax return for taxation, or a corporation where income is taxed at the business level before being taxed again on the personal tax return. Texas allows single member LLCs and if operated correctly, this entity provides significant liability protection to the business owner since it’s a separate legal entity.
Do I need to file an assumed name form?
If you’re doing business as a sole proprietor or general partnership, you’ll file an assumed name form in any county in which you want to do business. If you’ve filed an LLC or corporation with the state and plan to do business under a different trade name, you’ll file an assumed name form in the county in which you’re headquartered as well as a Form 503 with the Secretary of State. Download Form 503 at sos.state.tx.us. County filed forms can be created at assumednames.org.
How do I know if someone else already has the business name I want to use?
Searches of the official records should be done at both the county and state level for all entity types. Sole proprietors and general partnerships may use their business name in whichever counties they file and LLCs and corporations may use their name state-wide. Many county records can be searched for free attx.countygovernmentrecords.com. If your county is not listed, contact the County Clerk to learn about their search procedures. The official recorder of LLC and corporate names is the Secretary of State and searches can be completed at sos.state.tx.us.
Do I need a business license?
Texas does not have a general business license. Some industries (electricians, food manufacturing, healthcare, etc.) do require specific permits. Search texas.gov to determine if you’re required to have a state license. In addition to a state license, some businesses are required to register and/or receive permits from the municipality in which they do work. City departments commonly requiring permits are Environmental Health, Fire Marshal and Building Safety/Code Enforcement.
Can I do payroll and my business’ federal income tax return myself?
Yes, but we generally recommend that you consult with a tax professional unless you have significant time and resources to invest in these activities.
Can I classify my employees as contract labor in order to lower my business’ tax burden?
No. The IRS has strict guidelines regarding employment classification. Disregarding those rules can result in audits and/or significant fines. Learn how to properly classify employees/contractors at irs.gov.
Is there anything the SBDC can’t do for me?
We are prohibited from doing taxes and giving legal advice.