Texas takes no cut of what you earn. Four dates a year settle the rest

You cleared $145,000 last year after material, fuel, insurance and the help, and the State of Texas asked for none of it. There is no state return on what you drew out of the company and none on what the company made. The Comptroller's office says it collects, processes, administers or oversees 100 separate taxes, fees, assessments and program applications: franchise, sales and use, motor fuels, hotel, oyster sales, coin-operated machines, a surcharge on off-road heavy duty diesel equipment. A tax on what you earned is not among them.

So your entire income tax year is federal, and it is run by you instead of by somebody's payroll department. A man on a crew loses his tax every Friday before the check reaches him. You hold yours, all of it, until you decide to send it. That is a real cash advantage and it is also the whole trap, because money you are holding does not feel like money you owe.

Four dates turn the advantage into a system. Pay on them and the April return is a reconciliation instead of a demand. Miss them badly enough and the IRS charges interest at 7 percent for the quarter running July to September 2026, compounded daily, on whatever you were short.

Every figure here is tax year 2026. Below is the arithmetic worked all the way to a check, on a profit a two-truck Texas outfit actually reaches.

Your whole tax year on one page

Read the bottom two rows together, because that is the shape of the year. Texas wants one short form in May and no money with it: below $2,650,000 of total revenue for report years 2026 and 2027 the franchise tax is zero, while the information report is still due, and letting it lapse forfeits the entity's right to sue a general contractor who is sitting on your money. That form is fifteen minutes and it is walked through in the Texas franchise tax report. Sales tax is a separate machine that runs on how your contracts are written rather than on what you earned, and it is sales tax for Texas contractors.

Everything else on this page is federal.

Four dates, and the money is yours in between

The IRS calls these quarterly payments and then hands you periods that are not quarters. Worth knowing, because the second one arrives two months after the first and the last one covers four months.

You owe estimated tax at all if you expect to be short by $1,000 or more after withholding and refundable credits. A contractor with no withholding anywhere reaches that on about $7,100 of net profit, on the self-employment tax alone, before a dollar of income tax is in the picture.

Two mechanics are worth using rather than just knowing. The January payment disappears if you file the 2026 return by 1 February 2027 and pay the balance with it, which suits an operator whose books close fast. And the dates are deadlines, not appointments. Nothing stops you paying on the Tuesday a $60,000 draw lands instead of waiting eleven weeks for the date. Send it through IRS Direct Pay or EFTPS, log it against the quarter, and you are not reaching in September for money that went into a truck in July.

That is the habit that separates contractors who find these dates boring from contractors who find them frightening. The tax comes off the draw as the draw arrives, the same way material comes off it. What is left in the account after that is genuinely yours.

The safe harbor turns a good year into free float

Here is the rule that stops the guessing, and it works in your favor rather than the IRS's.

There is no underpayment penalty if what you paid in reaches the smallest of these:

Take a contractor whose 2025 return showed $24,000 of total tax on AGI of $118,000. He pays $6,000 on each of the four 2026 dates. Then 2026 turns into the year the commercial work lands and profit hits $240,000. He is thousands short against the real bill, and there is no penalty, because he met the 100 percent test. He settles the difference on 15 April 2027, having held that money in the business for up to fifteen months at zero interest while a bank would have charged him for it.

That is not a trick. It is the design, and it is why a growing contractor should base the four payments on last year's number rather than on this year's optimism. The 90 percent test is the one to reach for in the other direction, when the year is going badly and last year's figure would have you overpaying a state you owe nothing to and an agency you owe less to.

Two things to do with what the safe harbor hands you. Park the deferred difference in a separate account where it can earn something for you, because it is still owed in April and inventory is a hard place to get it back out of. And a first year in business has no prior return to lean on, which puts you on the 90 percent test with a forecast you re-cut each quarter as the work lands.

Self-employment tax is the bigger bill, and half of it comes back

This is the line that surprises people who have only ever been employees, because on a working contractor's profit it is larger than the income tax.

Self-employment tax runs at 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare. It is charged not on your full net profit but on 92.35 percent of it, which is what Schedule SE line 4a does. The 12.4 percent half stops at $184,500 of combined wages and net earnings for 2026. The 2.9 percent Medicare half has no ceiling, and an extra 0.9 percent Additional Medicare Tax lands above $200,000 of income for a single filer, $250,000 filing jointly, $125,000 filing separately.

Then half of it comes straight back. One half of your self-employment tax is an adjustment to income on Schedule 1, which lowers the number your income tax is calculated on. It does not lower the self-employment tax itself, and it is not an itemized deduction, so you get it whether you itemize or take the standard deduction.

What that 15.3 percent buys is also worth naming, since it is the one thing putting Social Security quarters on the record of a man with no employer behind him. It is a retirement contribution with a tax label on it.

$145,000 of profit, worked to the check

Married filing jointly, spouse with no separate income, single-member LLC filing Schedule C, no employees, no other income. Tax year 2026.

Sit with the two tax lines. The income tax is $9,349 and the self-employment tax is $20,488, more than twice as much. The bill that runs a contractor's year is the one that does not have "income tax" in its name, and it is why a set-aside built off income tax rates alone lands short by more than the income tax itself.

Total federal tax on $145,000 of profit comes to 20.6 percent. Set aside 25 percent of every draw and you are covered with room to spare, which is a simpler rule to run a business on than a spreadsheet you update quarterly.

The 20 percent Congress hands to people who work for themselves

That $20,511 line in the table is section 199A, the qualified business income deduction, and it is the largest single thing standing between a contractor's profit and his tax bill. It is 20 percent of qualified business income, taken after AGI, available whether you itemize or not.

For 2026 the threshold amount is $403,500 married filing jointly and $201,750 on other returns. Under it, the calculation is one page on Form 8995 with no W-2 wage test and no property test. Over it, the deduction phases through a range that the One Big Beautiful Bill widened for 2026 to $150,000 joint and $75,000 otherwise, and the W-2 wage and qualified property limits come in on Form 8995-A. A construction trade is not a specified service business, so crossing the threshold limits the deduction rather than removing it.

Two things about the number itself catch people out.

Your QBI is smaller than your profit. It is reduced by the deductible half of self-employment tax, by self-employed health insurance premiums, and by contributions to a self-employed retirement plan. In the worked example, QBI is $134,756 rather than $145,000.

The deduction is capped by your taxable income. It cannot exceed 20 percent of taxable income before the QBI deduction, less net capital gain. In the example, 20 percent of QBI is $26,951 but 20 percent of the $102,556 left after the standard deduction is $20,511, and the smaller one wins. The standard deduction cost $6,440 of QBI deduction, which is worth knowing before you budget the deduction as a flat fifth of your profit.

New for 2026: if you have at least $1,000 of qualified business income from an active trade or business you materially participate in, there is a minimum deduction of $400. Small money, and it means a lean year still produces something.

Elect S corporation and part of the profit steps off the 15.3 percent line

Every dollar of Schedule C profit carries self-employment tax. That is the fact the S corporation election is aimed at.

Elect S corporation treatment and the business pays you a salary through payroll, subject to FICA, and what is left over reaches you as a distribution that carries no self-employment or FICA tax. The election is Form 2553, and to start with the current tax year it goes in by 15 March of that year. A late election can be requested within three years and 75 days of the intended effective date, which is a door rather than a plan.

Setting the salary is the only real decision in the election, and the standard for it is written down where you can aim at it. The IRS position is that payments to a corporate officer count as wages to the extent they are reasonable compensation for services rendered, and the test looks to the source of the corporation's gross receipts. For a contractor that translates cleanly: if the revenue comes from work you performed, estimated and supervised, the salary has to look like what you would pay a competent person to hold that job. Price that job the way you would price a hire, write the number down with the comparison you used, and everything above it distributes clean.

Then payroll appears, the same week the election does.

Run the same $145,000 through both structures, with a $75,000 salary on the S corporation side.

Only the employer half comes off the business profit, which is why the K-1 line reads $63,978 with the withheld half still sitting inside the $75,000 salary. Both halves land on the same person either way, so the comparison that matters is the $11,760 against the $20,488.

The election moved $7,295 back into the business on this profit. Notice where it did not come from. Wages are not qualified business income, so putting $75,000 on a W-2 cut the QBI deduction by $7,715 and pushed the income tax up by $1,433. The payroll-tax saving of $8,728 paid for that and left the difference. Against the $7,295 you carry a payroll service and a second tax return. Get a price on both before you file the election, because whatever those two quotes total for the year comes straight off the $7,295, and what is left is what the election is worth to you.

The gap narrows as profit falls, because the salary still has to be reasonable and there is less left to distribute behind it. Ask your accountant to run both columns on your own last two years before you file the election, because the crossover sits at a different number for a solo trim carpenter than for a mechanical sub with a crew. The entity question underneath it, LLC or nothing at all, is LLC versus sole proprietor in Texas, and the S election sits on top of whichever one you formed.

The receipts that turn a cost into a deduction

A deduction is not a number you write down. It is a number you can still prove eighteen months later, and the trade has three that carry real money.

Mileage. The 2026 business standard rate is 72.5 cents a mile through 30 June and 76 cents from 1 July, after the IRS revised the rate mid-year on fuel prices. A contractor logging 24,000 business miles split evenly across the year deducts $17,820. On the arithmetic above, that log is worth $2,518 of self-employment tax on its own, before any income tax on the same amount. What makes it survive is section 274(d), which wants the amount, the date, the place and the business purpose, recorded at the time. A figure reconstructed from memory in March is the first deduction to go when someone asks how it was arrived at.

The home office. The simplified method is $5 per square foot up to 300 square feet, so $1,500 at the top. No receipts, no allocation of the electric bill, no depreciation to recapture when you sell the house. An office and a plan table in a converted bedroom reach the cap.

Job-costed purchases. Supplier invoices tied to a job number, subcontractor payments matched to the 1099s you issue, tools and equipment, insurance, permits, dump fees, rentals. The point of the job number is not tidiness. It is that a cost attached to a job you were paid for answers the ordinary and necessary question by itself, and the same job costing feeds your bid file and your franchise tax cost of goods sold if you ever cross $2.65 million.

One habit underneath all three: a separate business bank account and card. That is not a tax rule, it is an evidence rule, and it is the difference between a deduction you can show and a deduction you can describe. Paying help off that account also puts you in reach of the 1099 obligations set out in running a 1099 crew in Texas.

Put the four dates where your money already lives

The system this page describes is small: a percentage set aside when a draw lands, four payments on dates already in the calendar, a safe harbor figure taken straight off last year's return so no forecast is needed, and records captured on the day rather than reconstructed in spring.

The number that makes the set-aside honest is your real cost per working hour, because a profit figure you guessed at produces a tax reserve you guessed at. Work it out in what an hour costs you in Texas, or put your own overhead and billable hours into the contractor hourly rate calculator and get the figure in a couple of minutes.

AEC Stack keeps your invoices, job costs, draws and the 15 May and 15 April dates in one place, so the quarterly payment is a figure you read rather than a night you spend. There is no monthly subscription. The platform fee is 2.5 percent of each invoice processed through the platform, collected on the payment due date, so the software gets paid after you do.

Then go and put more profit through the system: find work is the feed of Texas projects with a name, a date and somebody to call.