Introduction
California and Texas are two of the biggest economies in the U.S., but they offer very different experiences for entrepreneurs. From income taxes to business regulations, where can you actually save more money in 2025 as a founder or small business owner?
Tax Environment Overview: California vs. Texas
Applicable Code: IRC §11, §162; CA Rev. & Tax Code §17041, §23151; Texas Tax Code §171
| Category | California | Texas |
|---|---|---|
| Personal Income Tax | 1% – 13.3% | 0% |
| Corporate Tax | 8.84% (C Corps) | 0% (No corporate income tax) |
| Franchise Tax | $800 minimum + gross receipts (LLC) | 0.375% – 0.75% on gross receipts |
| Sales Tax (state) | 7.25% base, up to 10.75% w/ local add-ons | 6.25% base, up to 8.25% total |
| Property Tax | 0.76% average (low rates, high values) | 1.60% average |
Personal Income Tax Comparison
- California has the highest top income tax rate in the country at 13.3%. All types of income—including wages, capital gains, and business profits—are taxed at ordinary rates.
- Texas has no personal income tax, making it attractive for high-earning founders, especially those drawing profits via passthrough entities.
Example:
A sole proprietor earning $300,000 in net income:
- CA taxes owed: ~$23,000+
- TX taxes owed: $0
Business Tax Comparison
California
- C Corps: 8.84% on income (Form 100)
- S Corps: 1.5% tax on net income (Form 100S)
- LLCs: $800 franchise tax + gross receipts fee (Form 568)
Texas
- No state income tax
- LLCs, corps, and partnerships owe Texas Franchise Tax:
- 0.375% for retailers/wholesalers
- 0.75% for others
- No tax if revenue is under $2.47 million (2024 threshold)
Example:
LLC in CA with $1M revenue:
- Owes $800 + $6,000 = $6,800
LLC in TX with $1M revenue: - Owes $0 (under threshold)
Payroll and Employment Taxes
| Tax Type | California | Texas |
|---|---|---|
| State Unemployment | 1.5%–6.2% on first $7,000 | 0.31%–6.31% on first $9,000 |
| State Disability | 1.1% on wages | None |
| Withholding Tax | Required | Not applicable (no income tax) |
If you hire employees in California, you’re also subject to SDI (State Disability Insurance) and EDD registration. In Texas, employer payroll taxes are generally lower.
Cost of Living and Hidden Expenses
While Texas has higher property taxes, its home prices and cost of living are significantly lower. California imposes additional hidden costs:
- Annual Statement of Information filing
- Local business licenses and fees
- Higher minimum wage requirements
- Stricter environmental and employment regulations
These affect the operational costs for entrepreneurs, especially those scaling a physical team.
Step-by-Step Guide for Entrepreneurs Comparing CA and TX
Step 1: Determine your income and expected business revenue
Step 2: Estimate personal income taxes in each state
Step 3: Compare corporate/LLC tax obligations (Form 568 vs. Texas Margin Tax)
Step 4: Factor in property, payroll, and local compliance costs
Step 5: Consider your target market, talent access, and funding ecosystem
Step 6: Consult a CPA for multi-state tax projections and compliance analysis
Conclusion
Entrepreneurs can often save more in Texas, especially when income and business revenue are high. However, California still offers advantages in tech talent, venture capital, and ecosystem support. Your choice should depend on your business model, scaling plans, and risk tolerance.
Call to Action
Planning to relocate or launch your business and wondering where you’ll save more—California or Texas?
Schedule a consultation with Anshul Goyal, CPA EA FCA, a U.S.-licensed CPA and IRS Enrolled Agent, specializing in multi-state tax planning for founders and startups.
📅 Book your appointment here
- FAQs – California vs. Texas for Entrepreneurs
Q1: Can I register in Texas and operate in California to avoid taxes?
No. If you’re doing business in California, you’ll still owe California tax and must register there.
Q2: Do S Corporations pay more in California than Texas?
Yes. California S Corps owe 1.5% on net income, while Texas does not impose a separate tax.
Q3: Are there startup tax credits in Texas like California’s R&D credit?
Texas has limited credits, but lower tax rates often offset the absence of incentives.
Q4: Which state is better for remote startups?
If you don’t need California-based resources, Texas offers significant savings for remote entrepreneurs.
Q5: What if I have operations in both states?
You’ll need to apportion income and comply with multi-state tax laws—seek CPA guidance.
About Our CPA
Anshul Goyal, CPA EA FCA is a U.S.-licensed Certified Public Accountant, IRS Enrolled Agent, and Fellow Chartered Accountant. He helps businesses across all 50 states structure their entities, reduce state taxes, and remain compliant with franchise and income tax requirements. He has saved clients over $200 million in taxes and penalties.
Disclaimer
This blog is intended for informational purposes only and does not constitute legal or tax advice. State tax laws are subject to change. Always consult a licensed CPA before deciding on business registration, relocation, or entity restructuring.