Texas High-Income Tax Strategies (2026)

Why Texas Is a Magnet for High Earners

Texas has no state income tax. A high earner moving from California to Texas eliminates the 13.3% top state rate entirely. On $2 million of income, that is up to $266,000 saved every year.

But "no income tax" does not mean no tax planning. Texas funds itself through high property taxes, a franchise (margin) tax on businesses, and sales tax. High earners and business owners still need a coordinated federal and entity strategy.

What Texas Does and Doesn't Tax

• No personal income tax on wages, business income, capital gains, dividends, or interest
• No tax on retirement distributions, Social Security, or pension income
• Property taxes average 1.6-2.2% of assessed value — among the highest in the nation
• Franchise (margin) tax applies to most entities with revenue above the no-tax threshold (approximately $2.47 million in annualized revenue)

Capital Gains Advantage

Texas does not tax capital gains. A business owner selling a company for a $5 million gain pays only federal tax:

• Federal tax at 23.8% (long-term + NIIT): $1,190,000
• Texas tax: $0
• Compared to California (50.3% combined): savings of $1,325,000 on the same gain

This is the single largest reason high-net-worth founders relocate to Texas before a liquidity event.

Core Strategies for Texas High Earners

1. Residency Establishment Before a Liquidity Event

The biggest Texas opportunity is timing relocation before a business sale or equity event. But the prior state — especially California or New York — will audit the move aggressively.

Building Texas Domicile

1. Buy or lease a primary residence in Texas and live in it
2. Obtain a Texas driver's license and register vehicles in Texas
3. Register to vote in Texas
4. Move bank accounts, financial advisors, and professional relationships to Texas
5. Spend more days in Texas than any other state and document them
6. File a Texas homestead exemption on the residence

For a software founder with $5 million in RSUs, establishing genuine Texas residency before vesting can eliminate the originating state's tax on income sourced after the move. RSUs vested while still working in the prior state generally remain sourced there.

2. Property Tax Management

Texas property taxes are high and a real planning target.

Homestead Exemption and Appraisal Protests

• The homestead exemption reduces taxable value on a primary residence and caps annual assessed-value increases at 10%
• Appraisal protests challenge over-assessments; many high-value Texas homes are over-assessed

Example: $4 million home assessed at $4.4 million (10% over-assessment) in a 2.0% property tax county:

• Over-assessment: $400,000
• Annual property tax overpayment: $400,000 × 2.0% = $8,000/year
• Over 10 years: $80,000 in avoidable property tax

Property tax audits and protests frequently pay for themselves in the first year.

3. Real Estate Strategies

Federal real estate deductions still reduce federal taxable income, and Texas adds no state tax to claw back.

Cost Segregation with Bonus Depreciation

Cost segregation plus 100% bonus depreciation front-loads deductions.

Example: $5 million multifamily acquisition, $900,000 reclassified to 5/7/15-year property:

• Year 1 deduction: $900,000
• Federal tax savings at 37%: $333,000
• Texas state tax savings: $0 (no income tax)

Short-Term Rental and REPS

Short-term rental material participation and real estate professional status let losses offset W-2 and business income.

Example: $1 million W-2 income, $200,000 STR loss with material participation:

• Federal tax savings at 37%: $74,000

4. Business Structure and the Franchise Tax

Texas businesses above the revenue threshold owe franchise (margin) tax — generally 0.375% for retail/wholesale and 0.75% for other businesses, calculated on margin, not income.

Example: Professional services business with $3 million revenue and $1.2 million margin:

• Franchise tax at 0.75% of margin: $9,000
• Compared to a 10%+ state income tax in California or New York on the same profit: $120,000+

The federal S-corp / QBI planning still applies for self-employment tax efficiency.

5. Retirement and Charitable Planning

• 401(k), cash balance, and defined benefit plan contributions reduce federal taxable income with no offsetting state tax
• Donor-advised funds and appreciated-stock gifts produce federal deductions and avoid capital gains tax

Example: $180,000 cash balance contribution saves $66,600 federally; a $500,000 appreciated-stock DAF gift produces a $185,000 federal deduction plus avoided capital gains on the appreciation.

How Crescendo Helps Texas High Earners

Crescendo helps founders and business owners time relocation, defend residency, manage property tax, and coordinate federal entity and real estate strategy. We model the savings of moving a liquidity event to Texas and document the residency file. Educational only, not personalized advice. Work with your CPA and attorney.