Texas Franchise Tax Report – Report Year and Accounting Period explained

Note for 2022 Texas Franchise Tax Reports – these are the reports for the calendar year ended on December 31, 2021 and other fiscal years that ended during 2021 -There is no change to the deadline like there have been for the past 2 years. The deadline is Monday, May 16, 2022.

Well, it’s time for all the Texas tax professionals to start preparing for the annual Texas Franchise Tax Report deadline. If you’re not familiar with this state tax return, it’s due on May 15 each year regardless of when your accounting year ends.

2019 Texas Franchise Tax Report
2019 Texas Franchise Tax Report

This post is focused on determining the report year and accounting year of the report because I do get a lot of questions about it.

Currently, it’s April 20, 2019 and I am preparing some extensions for 2018 so which form do I use?

This one gets confusing. The first thing to know about the Texas Franchise Tax Report is that there is a difference between the accounting period and the report year. As an accountant, I think of it as the accounting period driving the report year. But first, look at the Report Year since that determines when the report is due.

What is my Report Year?

Your report year is the year in which the franchise tax report is due. For the 2019 annual Texas Franchise Tax Report, this is the franchise tax report due on May 15, 2019.

Note that this 2019 report year will never include a tax period that ends in 2019, unless it’s a final tax report.  The best way to remember this is that the report year is the calendar year which comes after the year in which your accounting period ends. Which means that now we need to look at the accounting period.

If you’re preparing a final tax report, it’s a completely different animal that I’ll cover is a different post.

What is the Accounting Period that you’re filing?

The accounting period is typically the federal accounting period unless you are filing your first or last Texas Franchise Tax Report. So, assuming this isn’t either your first or your last report, then stick with your federal and look at the ending date of the accounting period. The report year is the year after your accounting period ends.

This is pretty straight forward for calendar year taxpayers. For a calendar year end of December, 31, 2018, your accounting period beginning date will be January 1, 2018 and your accounting period ending date will be December 31, 2018. The next calendar year is 2019, so the next annual franchise tax report for Texas will be the report year 2019. The 2019 Texas Franchise Tax Report is due on May 15, 2019.

Simple, right? Well, what about fiscal-year returns? Let’s look at a fiscal year corporation with a year end on March 31. This one confuses even seasoned tax professionals. The Report Year for a fiscal year ending on March 31 will be the following calendar year.

For the 2019 Texas Franchise Tax Report, you will use the accounting period that ended during calendar year 2018, so, your accounting period will be April 1, 2017 through March 31, 2018. It’s helpful to remember that this actually corresponds to your 2017 federal tax return filed on Form 1120. In this case, you would have filed your 2017 return months earlier, either by the due date of July 15, 2018 or the extended due date of January 15, 2019.

Let’s cut to the chase, most of the time the state of Texas hasn’t even released the 2019 tax reports when you file the 2017 federal tax return for a fiscal year. This can be a bummer because you can’t finish that tax year. So for the 2019 Texas Franchise Tax Report, you will prepare this tax report using your 2017 tax return preparation software. Most professional tax software has a separate section under the Texas area specifically for fiscal year returns.

I have definitely seen it happen that you are working on your 2018 fiscal year federal return before the prior fiscal year Texas Franchise Tax Report is prepared and filed. You definitely have to be careful to use the correct accounting period for the franchise tax report and the correct software version when preparing these reports.

If you’re in doubt, you can always reach out to the Texas Comptroller of Public Accounts to determine the correct accounting period and report year.

For more information on the Texas Franchise Tax Report, checkout my Answers to common questions about the Texas Franchise Tax Report. You can also get in touch with me for help using my Contact Me page.