Tax Planning for Texas
Business Owners & Investors.
Texas has no state income tax, but that doesn't mean your tax situation is simple. Between the franchise tax, high property taxes, and complex federal rules for real estate and S-Corps, you need a CPA who focuses entirely on federal strategy.
Quick Answer
Texas has no state income tax, so tax planning for Texans is a pure federal play: S-Corp optimization, cost segregation and bonus depreciation to offset high property-tax carrying costs, retirement stacking, and Roth conversions. The franchise (margin) tax, 0.375% to 0.75% on businesses with revenue over $2.47M, still shapes entity decisions.
The Texas Advantage
Living in Texas means you already keep more of what you earn: there's no state income tax eating into your paycheck or business profits. But here's what most Texas taxpayers miss: without a state return to worry about, your CPA should be spending 100% of their energy on federal tax reduction strategies. That's exactly what we do.
Texas does have its own quirks that affect your federal picture. The Texas franchise (margin) tax applies to most businesses and can interact with entity structure decisions in unexpected ways. Property taxes averaging 1.60% statewide (and much higher in Harris, Dallas, and Travis counties) mean real estate investors need aggressive cost segregation and depreciation strategies to offset their carrying costs.
Whether you're running an S-Corp in Houston, managing a rental portfolio in Dallas-Fort Worth, or practicing medicine at Texas Medical Center, we build federal tax strategies that are specifically calibrated for Texas residents.
Texas Tax Quick Facts
State Income Tax
None
Avg. Property Tax
1.60%
Sales Tax
6.25%+
Franchise Tax
0.375 to 0.75%
Notable Texas Tax Rules
- Texas franchise (margin) tax applies to most businesses with revenue over $2.47M
- No state income tax on wages, self-employment income, or investment income
- Property taxes are among the highest in the nation, averaging 1.60% but exceeding 2% in many metro counties
- Texas is a community property state, which affects how income is reported on federal returns for married couples
- No state capital gains tax, so all capital gains are taxed only at the federal level
Texas vs. National Average
| Category | Texas | National Avg. |
|---|---|---|
| State Income Tax | 0% | 4.6% |
| Avg. Property Tax | 1.60% | 1.07% |
| State Sales Tax | 6.25% | 5.09% |
| Business Formation Cost | $300 | $150 |
| State Capital Gains Tax | 0% | 3.5% |
National averages based on Tax Foundation 2025 data. Local rates may vary.
Key Strategies for Texas Residents
S-Corp Optimization
Reduce self-employment tax with the right salary and distribution split. Texas's zero income tax makes this a pure federal play.
S corp election guideSTR Loophole
Short-term rentals in Austin, DFW, and San Antonio let you offset W-2 income with cost segregation losses.
Short-term rental loopholeCost Segregation
Texas's high property taxes make depreciation even more valuable. Generate large first-year deductions.
Cost segregation studyRetirement Stacking
Solo 401(k) + Cash Balance Plan can shelter $200K to $350K+ from federal taxes annually.
Cash balance planRoth Conversions
No state tax on conversions means lower total cost. Build tax-free retirement wealth faster.
Backdoor Roth IRA100% Bonus Depreciation
Permanently restored by the OBBBA. Write off business equipment and vehicles in full the year of purchase.
Bonus depreciation rules“I recently had the pleasure of working with Taxstra, and I must say, the experience exceeded my expectations. From start to finish, their professionalism, expertise, and customer care were outstanding.”
Published client feedback. Individual experiences vary.
Who We Serve in Texas
Real Estate Investors
Texas's booming rental markets in Houston, DFW, Austin, and San Antonio create massive opportunities for cost segregation, bonus depreciation, and REPS qualification. High property taxes make aggressive depreciation strategies even more valuable.
CPA for real estate investorsBusiness Owners
S-Corp optimization is critical in Texas. While there's no state income tax, the franchise tax and federal self-employment tax still hit hard. We structure your entity and compensation to minimize both.
Small business CPA servicesPhysicians
Texas Medical Center in Houston is the largest medical complex in the world. Whether you're on staff, in private practice, or doing locum tenens work, we reduce your federal tax burden through retirement funding, entity structure, and real estate strategies. See our locum tenens Texas tax guide for the multi-state specifics.
Locum tenens taxes in TexasHigh-Income Earners
Oil and gas executives, tech professionals in Austin, and finance professionals in Dallas. We specialize in reducing federal taxes for W-2 earners through stock compensation planning, Roth conversions, and investment tax strategies.
Individual tax servicesLive in Texas? Let's Reduce Your Federal Tax Bill.
Book a free 30-minute consultation with our team. Tell us what you need, learn how Taxstra can help, and explore whether our services are a good fit. We serve Texas clients 100% remotely, no travel required.
Book your free 30-minute tax fit callHow We Work Together
Book your free 30-minute tax fit call
Book a free 30-minute consultation with our team to discuss your needs, our services, and whether Taxstra is a fit. Tax advice, document reviews, and analysis require a paid engagement.
Tax Diagnostic & Plan
We review your prior returns, current income, and investment portfolio to build a customized tax reduction roadmap.
Implementation
Entity formation, S-Corp elections, retirement plan setup, cost seg coordination. We execute everything.
Year-Round Advisory
Planning meetings on the schedule your proposal sets, mid-year projections, year-end optimization, and unlimited communication.
Illustrative Scenarios
Hypothetical composites, not clients or results. Actual outcomes depend on your facts. Educational, not individualized tax advice.
Houston RE Investor: Cost Seg & REPS
A Houston household owns 8 single-family rentals across Harris County. One spouse works full time as a real estate agent and the other earns a W-2 salary. If the agent spouse qualifies as a real estate professional and they materially participate in the rentals, depreciation accelerated by a cost segregation study is nonpassive and can offset the W-2 salary on a joint return. Texas has no personal income tax, so the benefit is federal only, and Harris County property taxes stay a real carrying cost.
Austin S-Corp Owner: Entity Optimization
A software consultant in Austin earns $420K of profit through a single-member LLC and owes self-employment tax on it: the Social Security piece up to the annual wage base and the Medicare piece on all of it. An S-Corp election with a documented reasonable salary takes the profit above that salary out of payroll tax. Because the Social Security piece already stops at the wage base, the savings are smaller than many owners expect at this income. Texas franchise tax applies to the LLC either way, so the election does not change the state picture.
DFW Physician: Multi-Entity Strategy
A Dallas-Fort Worth cardiologist earns $680K of W-2 salary plus $120K of 1099 locum tenens pay. Because the salary already exceeds the Social Security wage base, the locum income owes only Medicare self-employment tax, so an S-Corp election saves little. A Solo 401(k) adds employer contributions on the 1099 income, but the employee deferral limit is shared with the hospital plan. Cost segregation on long-term rentals creates passive losses that, at this income, wait for passive income or a sale. Texas taxes neither stream, but locum shifts in other states can trigger nonresident returns there.
Resources for Texas Taxpayers
S-Corp Tax Savings Calculator
Estimate your self-employment tax savings from an S-Corp election.
STR Loophole Guide
How to use short-term rentals to offset W-2 income.
Cost Segregation Explained
Accelerate rental property depreciation for massive tax deductions.
REPS Qualification Guide
Qualify as a Real Estate Professional.
Marginal Tax Rate Calculator
Calculate your federal tax rates.
Texas Capital Gains Tax
Zero state tax on gains: what Texans still owe federally.
S-Corp Election Guide
Step-by-step guide to S-Corp election.
Texas Tax Questions
Does Texas have a franchise tax, and how does it affect my business?
Yes. The Texas franchise (margin) tax applies to most businesses with total revenue exceeding $2.47 million. The rate is 0.375% for wholesale/retail and 0.75% for other businesses. While it's not an income tax, it affects your entity structure decisions, and we factor it into your overall federal + state tax optimization strategy.
Do I need a Texas-based CPA if I live in Texas?
No. Since Texas has no state income tax return to file, your CPA's expertise should be focused on federal strategy, not local compliance. We specialize in federal tax planning for high-income Texas residents and serve all clients 100% remotely through secure portals and video calls.
How do high Texas property taxes affect my tax strategy?
Texas property taxes (often exceeding 2% in metro areas) are deductible on your federal return, but the $40,000 SALT cap (raised from $10,000 by the OBBBA in 2025) limits this deduction for most taxpayers. For real estate investors, property taxes are fully deductible against rental income with no cap. We also use cost segregation to generate additional depreciation that offsets the high carrying cost of Texas properties.
Is Texas a community property state, and does that affect my federal taxes?
Yes. Texas is one of nine community property states. This affects how income is split on federal returns, particularly for married couples filing separately. It can also create planning opportunities, and pitfalls, that we help you navigate.
What tax strategies work best for Texas residents?
Without state income tax complexity, we focus entirely on federal strategies: S-Corp optimization to reduce self-employment tax, cost segregation and bonus depreciation for real estate investors, Solo 401(k) and defined benefit plans for high-income business owners, and Roth conversion strategies for long-term wealth building.
Ready to Keep More of What You Earn?
Texas has no state income tax. Let's make sure your federal strategy is just as optimized. We serve Texas clients 100% remotely.
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