Franchise tax adjustments from the 89th Session have introduced changes that reduce tax pressure for small and home-based Texas businesses.
Introduction
The 89th Texas Legislature made several important changes to the state’s franchise tax system. These adjustments implemented in November 2025 aim to ease financial strain on small and home-based businesses, especially those already navigating rising operating costs and high property taxes.
While the franchise tax is separate from property taxes, both systems affect Texas entrepreneurs. The Legislature’s goal was to reduce total tax pressure so business owners can reinvest in operations, equipment, and growth. Here is what changed and what you should do before filing.
What Changed in the Franchise Tax System?
1. Higher Filing Thresholds
One of the biggest updates is the increase in the no-tax-due threshold. Many small businesses, especially home-based operations will no longer owe franchise tax if their revenue falls below the new level. This reduces paperwork and eliminates payments for thousands of Texans.
2. Simplified Reporting Rules
Another change focuses on streamlining reporting. The revised rules reduce time spent preparing returns and remove some complex calculations that often confused new business owners. These adjustments also help prevent unintentional filing errors.
3. Alignment With Property Tax Relief Efforts
The franchise tax updates were designed to support the larger property tax relief package passed in 2025. Lawmakers wanted to ensure that homeowners who run businesses from their primary residence benefit on both sides lower property taxes and lower business taxes.
This dual approach is especially helpful for:
- Home-based childcare providers
- Freelancers and independent contractors
- Online sellers
- Small service businesses
- Craft, baking, or home-production businesses
Lower franchise burdens combined with homestead protections offer measurable savings heading into 2026.
How These Changes Help Home-Based Businesses
Smaller firms often run on tight margins. Between property taxes, supplies, utilities, and licensing costs, many owners struggle to keep expenses predictable. The new franchise tax adjustments provide:
- More cash flow
- Less administrative stress
- Lower compliance risk
- Freedom to expand or hire
For home-based operations already eligible for the homestead exemption, this creates a more stable financial environment.
Filing Tips for the 2026 Franchise Tax Season
1. Verify Whether You Still Need to File
Even if you qualify for “no tax due,” you may still need to submit a basic report. Check your revenue and confirm your filing status early.
2. Separate Home and Business Expenses Clearly
Since many business owners work from home, keep accurate records to avoid incorrect deductions. This helps protect both tax and homestead exemption status.
3. Take Advantage of Property Tax Relief Programs
Lower franchise tax does not replace the need to manage your property taxes. Make sure you:
- Apply for your homestead exemption
- Check your 2026 appraisal
- Consider protesting if the value is too high
These steps work together to lower total financial pressure.
4. Keep Up with Texas Comptroller Updates
The Comptroller will release additional guidance ahead of the 2026 filing deadline. Monitor their announcements so your business stays compliant.
Conclusion
The franchise tax changes from the 89th Legislative Session reflect Texas’ broader effort to support small and home-based businesses. With simpler filings, higher thresholds, and closer alignment to property tax relief, many entrepreneurs will feel meaningful financial relief starting in 2026.
To further lower costs, stay proactive with your property tax exemptions, check your assessed value, and be prepared to protest when necessary.
