Texas Franchise Tax

[Elliot Starcevich]

Thanks in advance to anyone who is reading this. This is my first post but I am excited about this community and I hope to learn a lot from it.

I started a Texas LLC in 2013 and I want to eventually buy multi- or single-family homes within the next few years and contract property managers. In 2013 I did not do very much with the LLC except pay for some gas (as I drove around looking at properties) and some educational materials.

In Texas, however, we still have to report the annual Franchise Tax which is due in May. I'm not too worried about it because my revenue was negative but I am trying to learn as much as I can as I go.

Any relevant information about the following would be greatly appreciated:

"Is this a passive entity as defined in Chapter 171 of the Texas Tax Code?"

I think I have to say no to this. I want to move to as passive as possible, but rental properties in Texas Tax Code technically are not passive right? Maybe I should put yes this year because I don't actually own any property though.

"Does the entity have zero Texas Gross Receipts?"

This is my main question actually. I looked around and I couldn't find anything that I really understood that explained what zero Texas Gross Receipts means. I assume I'll put yes here this year because I have zero (actually negative) profit, but what exactly does this mean and when should I say yes?

"Is this entity a Real Estate Investment Trust (REIT) that meets the qualifications specified in section 171.0002(c)(4)?"

I'm pretty sure REIT is a very specific conglomerate in which a group owns the property jointly and as part of a trust. Well I am the only operator/owner for the LLC so I figure I'll always say no for this.

I am trying to learn. Any information would be great. Thank you so much.

[Deidra Hubenak]

@Elliot Starcevich The second report is the Texas Franchise Tax Public Information Report. You must file this report as well as the no tax due Texas Franchise Tax Report.

Sharon is absolutely right. I am a CPA and an attorney, and I own 3 single family rental homes. I do NOT have an LLC, but I do have a $2 million umbrella policy.

Honestly, I would liquidate the LLC until you have a lot more activity. Take a look at my blog post from yesterday if you want more detail http://www.biggerpockets.com/blogs/5070/blog_posts/37210-llc---should-i-form-one-or-not

@Sharon Tzib Yes Sharon this was from yesterday. Great minds still think alike!