Side Hustle Taxes in Texas: What You Owe

The Real Story Behind "No State Income Tax"

I moved to DeSoto partly because Texas has no state income tax. That was 2019 — I was still working logistics in Dallas, thinking about side hustles, and the idea of keeping 100% of any extra income sounded perfect. No state return to file, no additional percentage coming off the top. Just me and the IRS.

Then I started actually earning side hustle income, and I learned that "no state income tax" is about 40% of the tax picture. Texas still gets its money. The state has a franchise tax that applies to LLCs. It charges up to 8.25% in combined sales tax. And the property taxes here in Dallas County — I'll just say my escrow payment tells a story that "no income tax" does not.

I'm not saying Texas is a bad deal. It's a genuinely good deal for side hustlers, especially compared to California or New York. But the pitch of "no state income tax" creates this assumption that Texas is some kind of tax-free zone, and I've watched friends move here for that reason alone and then get surprised by a $7,800 property tax bill on a $340,000 house.

This guide is the reality check I wish I'd had. I'm writing it from DeSoto, where I've run my side hustles for six years, and everything in here comes from that experience — plus a few hard lessons about what Texas actually costs.

Your Federal Tax Bill Doesn't Care Where You Live

The single most important thing to understand about side hustle taxes in Texas is that the biggest chunk of your tax burden is federal — and it's identical whether you live in Dallas, Denver, or Detroit.

When you earn side hustle income, you owe federal income tax at your marginal rate (10% to 37%, depending on total income) and self-employment tax at 15.3% on your net profit. The self-employment tax covers Social Security (12.4%) and Medicare (2.9%). At a regular job, your employer pays half. When you're self-employed, you pay both halves.

I made $18,000 from DoorDash my first year. After about $4,200 in deductions — mileage, phone, hot bags — my net profit was around $13,800. Self-employment tax on that: $1,950. Federal income tax (I was in the 22% bracket because of my W-2 job): roughly $3,036. The total federal tax on my side hustle income was about $4,986. Texas took zero of that. But $4,986 is still $4,986.

One thing that simplified my deductions: I got a $10/month Lyca Mobile prepaid line just for side hustle calls. That way I deduct the entire bill — no trying to figure out what percentage of my personal phone was "business use." It's a small move, but clean records matter when the IRS comes looking. I wrote more about cheap phone plans that work well for side hustlers.

Living in Texas didn't make my federal tax bill smaller. It just meant I didn't have a state return on top of it. That's a real advantage — somewhere between $500 and $5,000 per year depending on your income level — but it's not the "I don't owe taxes" fantasy that some people walk around with.

Texas Franchise Tax: The Filing Most Side Hustlers Forget

Texas gets sneaky here. The state doesn't have an income tax, but it does have a franchise tax — sometimes called the "margin tax" — that applies to most business entities operating in Texas. And if you formed an LLC for your side hustle, this means you.

The good news first: the vast majority of side hustlers will owe exactly $0 in franchise tax. The no-tax-due threshold is $2.47 million in annualized total revenue. If your side hustle makes less than that — and I'm going to guess it does — you don't owe any franchise tax.

But — and this is the part that catches people — you still have to file a report.

Every LLC, corporation, partnership, and other entity registered with the Texas Secretary of State must file a franchise tax report annually with the Texas Comptroller. If you're under the $2.47 million threshold, you file a No Tax Due Report (Form 05-163). The deadline is May 15 each year. It takes about 15 minutes to complete online through the Comptroller's WebFile system.

What happens if you don't file? The Comptroller sends a notice. If you still don't file after the notice period, the state can forfeit your LLC — meaning it loses its legal right to transact business in Texas. Your liability protection, your business bank account status, your EIN-based relationships — all of that gets complicated when your LLC is forfeited. Reinstating costs money and paperwork.

I formed my LLC in 2022. Paid the $300 filing fee, took about 20 minutes online, and immediately felt like I was playing business dress-up. What nobody mentioned during that process was the franchise tax report. I only found out about it in April when I was doing tax research for this site. Filed it with about three weeks to spare. Easy once you know it exists — but you have to know it exists.

Sole proprietors — if you're running your side hustle under your own name without forming an LLC or any other entity — are generally not subject to the franchise tax filing requirement. The franchise tax applies to entities, not individuals. This is one case where the simplest business structure is also the most tax-efficient in Texas.

Sales Tax If You Sell Physical Products

Texas charges 6.25% state sales tax on most tangible personal property, plus local jurisdictions can add up to 2%, bringing the combined rate to a maximum of 8.25%. Here in DeSoto, the combined rate is 8.25% — we're maxed out, because Dallas County and the city both tack on their portions.

If your side hustle involves selling physical products — Etsy shops, craft fairs, Amazon FBA, eBay, Facebook Marketplace (regularly, not just cleaning out your garage) — you need to think about sales tax.

The first step is getting a Texas Sales and Use Tax Permit from the Comptroller. It's free, and you can apply online. Once you have it, you're responsible for collecting sales tax on taxable sales to Texas buyers and remitting it to the state on a monthly, quarterly, or annual basis depending on your volume.

A few things that trip people up:

Marketplace facilitators handle it for you — sometimes. If you sell through Amazon, Etsy, Walmart Marketplace, or eBay, the platform collects and remits Texas sales tax on your behalf. This is because of Texas's marketplace facilitator law. You don't need to collect again on those transactions. But if you also sell through your own website, at craft shows, or through social media — any sale not processed through a qualifying marketplace — you're responsible for collection and remittance yourself.

Not everything is taxable. Most food for home consumption is exempt from state sales tax in Texas (though some local jurisdictions may differ). Clothing is taxable. Digital goods are generally taxable. Services are mostly exempt, but there are around 20 specifically taxed service categories — including data processing, insurance services, and security services. If your side hustle is freelance writing, graphic design, or consulting, you're probably not collecting sales tax. If you're selling handmade candles, you are.

The permit comes with filing obligations. Even in months or quarters when you make zero taxable sales, you still file a $0 return. Failing to file — even with nothing to report — can result in penalties. It's a nuisance, not a burden, but it's the kind of administrative overhead that "no state income tax" doesn't warn you about.

Property Tax and Your Home Office Deduction

This is where living in Texas gets personally expensive — and where the tax code gives you a partial lifeline if you work from home.

Texas has some of the highest property taxes in the country. The effective rate varies by county, but Dallas County averages around 1.6% to 1.8% of your property's assessed value. My property tax bill in DeSoto on a house assessed at about $340,000 is roughly $5,780 per year. That's $482 a month just in property taxes — and it's gone up every year since I bought the house because assessed values keep climbing.

Texas funds its schools, roads, and local services primarily through property tax, which is the trade-off for not having a state income tax. The money has to come from somewhere. For renters, this cost is baked into your rent even if you never see a tax bill directly.

Now, if you use part of your home regularly and exclusively for your side hustle, you can claim the home office deduction on your federal return. Since Texas has no state income tax, there's no state benefit — but the federal deduction reduces both your income tax and your self-employment tax.

The simplified method gives you $5 per square foot of home office space, up to 300 square feet (maximum $1,500 deduction). The actual expense method lets you deduct the business-use percentage of your mortgage interest, property tax, insurance, utilities, and repairs. Given how high Texas property taxes are, the actual expense method often produces a bigger deduction here than it would in a low-property-tax state.

My office is about 140 square feet in a 1,980-square-foot house — roughly 7% of the total. Using the actual expense method, 7% of my property taxes ($405), plus 7% of insurance ($126), plus 7% of utilities (around $210 for electricity — Texas summers are no joke), adds up to about $741 in home office deduction. Not life-changing, but it's there, and it's money I'd be spending anyway.

No City Income Tax (Unlike Some Other States)

One genuinely nice thing about Texas: no city in the state levies a personal income tax. In states like New York, Ohio, and Pennsylvania, certain cities add their own income tax layer on top of state and federal. New York City's additional income tax can run 3% to nearly 4% on top of the state rate. Some Ohio cities charge 2-3%.

In Texas, that layer simply doesn't exist. It doesn't matter if you live in Houston, Dallas, Austin, San Antonio, or a small town in West Texas — no city income tax, period. For side hustlers, this means your tax situation is the same if you're in a major metro or a rural area (at least on the income tax side — sales tax rates and property tax rates still vary by jurisdiction).

Texas cities also don't impose separate business license taxes or gross receipts taxes on small operators the way Los Angeles, San Francisco, and some other cities do. There's no equivalent of LA's business tax based on gross receipts or New York City's unincorporated business tax. You register your LLC with the state, deal with the franchise tax report, and that's it from an entity-tax perspective.

This simplicity is genuinely valuable. Every additional tax jurisdiction means another filing obligation, another deadline, another potential penalty. In Texas, the side hustle tax picture is: federal taxes plus maybe franchise tax filing plus maybe sales tax. Three things. In some other states, you can be looking at six or seven separate obligations.

Multi-State Side Hustlers and Texas Residency

If your side hustle is location-independent — freelance work, e-commerce, content creation, online consulting — and you're a Texas resident, your income is only subject to federal tax. You don't file a state return at all. That's straightforward.

Where it gets complicated is when you earn money in another state. Income tax nexus rules vary by state, but the general principle is: if you perform work in a state that has an income tax, that state may want to tax the income you earned there.

A few examples relevant to side hustlers:

Gig work across state lines. If you live in Texarkana and occasionally dash or do Uber rides on the Arkansas side of the border, Arkansas could technically claim you owe state income tax on the income earned within Arkansas. In practice, most states have de minimis thresholds or don't actively pursue small amounts from out-of-state gig workers. But the legal obligation exists.

Remote freelance work for out-of-state clients. Generally, if you're a Texas resident working from your home in Texas for a client in California, California does not get to tax that income. The work is performed in Texas, and Texas is your state of residence. However, there are exceptions — New York's "convenience of the employer" rule being the most aggressive — so if you take on clients in certain states, check their specific rules.

Temporary relocation or travel. If you spend several months working from, say, Colorado while keeping your Texas domicile, Colorado could argue that income earned during your physical presence there is Colorado-source income. Most states won't pursue this for short visits, but spending 3-4 months in a state with income tax while earning freelance income is getting into gray territory.

The key advantage of Texas residency for multi-state side hustlers is that you never file a Texas state return, period. If another state does tax some of your income, you won't get a credit against a Texas income tax (since there is none) — but you also don't have the double-filing headache that residents of income-tax states face when they earn income across state lines.

How Texas Compares to Neighboring States

I get asked this a lot from people considering a move to Texas specifically for the tax benefits. Here's an honest comparison with the states that border Texas — because the savings depend heavily on what you're earning and how you're earning it.

Louisiana has a state income tax ranging from 1.85% to 4.25%. On $40,000 of net side hustle income, a Louisiana resident might pay around $1,400 more in state income tax than a Texan. But Louisiana's property taxes are among the lowest in the country — about 0.55% on average. If you own a $340,000 home, that's roughly $1,870 in property tax versus my $5,780 in Texas. The income tax savings in Texas get partially eaten by higher property taxes.

Oklahoma charges state income tax from 0.25% to 4.75%. On $40,000 of side hustle income, that might be $1,600-$1,800 in state tax. Oklahoma's property taxes average around 0.87%, notably lower than Texas. Similar story to Louisiana — income tax savings exist but are offset by property tax differences.

New Mexico has rates from 1.7% to 5.9%. Higher earners see more significant savings by being in Texas. Property taxes in New Mexico average about 0.67% — again, much lower than Texas.

Arkansas has recently been cutting its income tax rates and now tops out at 3.9%. It's becoming more competitive with Texas, especially when you factor in Arkansas's lower property taxes and lower cost of living in general.

The math is clear at higher income levels. If your side hustle nets you $100,000 or more, Texas saves you $4,000-$6,000 per year in state income tax compared to most neighboring states, and that gap more than covers the property tax difference. Below $40,000 in side hustle income, the advantage is real but more modest — maybe $1,000-$2,000 net after accounting for Texas's higher property tax and sales tax rates.

Bruce Samuels

Personal Finance Writer

Bruce has lived in DeSoto, Texas since 2019 and has run three income streams from his home office since 2020. The $6,000 tax surprise from his first year of side hustling is the reason MoneySavvyHQ exists. He is not a CPA — just a guy who got burned and did a lot of homework.

Related reading: The Complete Side Hustle Tax Guide | Should You Form an LLC for Your Side Hustle? | Etsy Seller Tax Guide