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Franchise Tax Questions

What is Franchise Tax?

A Franchise Tax is a tax levied at the state level against businesses and partnerships chartered within that state. In some states, companies with operations in that state may also be liable for the tax even if they are chartered in a different state. Below are some of the most commonly asked questions about Franchise Taxes that are answered by the Experts.

Would it be legal for the Franchise Tax Board to take a person’s personal property from their home in order to pay back unpaid taxes?

Most generally a tax lien is a legal claim to secure a debt, and it threatens both real and personal property. However, personal property is rarely used unless the taxpayer does not cooperate. The best way to deal with this problem would be to work out an installment agreement on the unpaid balance based on the individual’s financial situation, and then continue to try to get a reduction of the penalty without fear of removal.

In the state of Texas’s Franchise Tax Report, is it correct that if a person’s total revenue is under $1,000,000 they would owe zero tax, and file “No Tax Due”?

In most cases if the company was in business the whole year, and their annualized revenue is under $1,000,000, then they would file the “No Tax Due Information Report”.  

How many years back can the State of California Franchise Tax Board go to collect an unpaid tax debt?

In most cases, under California Revenue and Tax Code 19255, the statute of limitations is twenty years from the date that the tax return was filed or the auditor’s assessment was issued.

How would a person calculate and fill out the State of Texas’s Franchise Tax form 05-163?

Most generally, anytime a person has a question regarding a form, the instructions for that form should be the first place they look. For this form the following link should prove useful and walk the individual through step by step, and also give them the charts that they need. http://www.window.state.tx.us/taxinfo/taxforms/05-392.pdf

If a person’s wages are garnished in California by the Franchise Tax Board, for unpaid state taxes, could a person deduct the money that the state has already collected from them on their next tax return?

In some cases the money garnished from the individual’s wages may be deducted on their federal tax return. To do this the person should itemize and choose to deduct income taxes, and not general sales taxes. Schedule A, line 5. www.irs.gov/pub/irs-pdf/f1040sa.pdf  should prove useful in this matter. However the individual may not deduct California state income taxes that were garnished on their state tax return, because that amount is treated as taxes paid, and will reduce the amount they owe, therefore reducing their total tax liability.

While the amount of Franchise Tax levied on a business generally varies from state to state depending on the tax rules of each individual state. Some states will calculate the amount of franchise tax owed based on assets or net worth of the business, while other states look primarily at the capital stock of the company. The many questions brought up when the subject of Franchise Taxes can frighten even the most seasoned accountant, that’s when to ask for the insight of the Experts.
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