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What should I do if I receive a notice from the IRS or the state of Texas?

The most important thing is to not ignore it. A notice sitting unopened on your desk doesn’t go away. It escalates. Penalties grow, interest accrues, and your options narrow the longer you wait.

Open it, read it carefully, and identify three things: what the notice is about, what they’re asking you to do, and when the response is due. Every IRS notice has a notice number in the upper right corner (like CP2000 or LTR 531). That number tells you exactly what type of issue you’re dealing with. Write it down because you’ll need it if you call or if someone helps you respond.

Before you respond to anything, verify the notice is legitimate. IRS scams are common, especially through mail that looks official. You can verify any IRS notice by logging into your account at irs.gov or calling the IRS directly at the number listed on their website, not the number on the letter.

For Texas specifically, the notice is most likely about sales tax or franchise tax since Texas has no state income tax. The Texas Comptroller handles both. Sales tax notices often come from filing late, underreporting, or not filing at all. Franchise tax notices tend to involve missing annual reports or Public Information Reports. If your business didn’t file its franchise tax report, the state can forfeit your entity’s right to do business in Texas, which creates bigger problems than the original balance due.

Gather your records before you respond. If the IRS says you underreported income, pull your bank statements and tax return for that year. If Texas says you owe sales tax, pull your sales records and prior filings. Having documentation ready makes the process faster and gives you or your representative something concrete to work with.

Respond by the deadline even if you disagree with what the notice says. If you owe money and can’t pay the full amount, respond anyway. Both the IRS and Texas offer payment plans. Ignoring a balance due leads to liens and levies. Responding and setting up a payment arrangement stops the collection process from escalating.

If you’re not sure what the notice means or how to respond, get help. A Houston fractional CFO or tax professional who already knows your financial situation can often resolve the issue faster than you can on your own. They know what the agency actually wants and how to frame the response. OrangeLedger offers tax audit support that includes document preparation, response drafting, and guidance through the entire process.

Keep copies of everything you send. Mail responses with tracking so you have proof of delivery and the date it was received. If the issue comes back months later, you’ll want records showing you responded on time.

Most notices are not as bad as they feel when you first open the envelope. Many are simple corrections or balance adjustments that can be resolved with one response. The ones that turn into serious problems are almost always the ones that got ignored.

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More Questions

Does switching from an LLC to an S-Corp save money in Texas where there's no state income tax?

Yes, but the savings have nothing to do with state income tax. The S-Corp advantage is a federal self-employment tax strategy, so it works in Texas the same as it works anywhere else.

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What does tax resolution support look like for a small business?

Tax resolution support means someone works alongside you to respond to IRS or state notices, organize your records, draft responses, and guide you through the process until the issue is resolved. It can involve anything from cleaning up unfiled returns to negotiating payment arrangements.

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What does a clean set of books look like when it's time to file?

Clean books means every account is reconciled, every transaction is categorized correctly, personal and business expenses are separated, and your financial statements accurately reflect what happened during the year. Your tax preparer should be able to work from your reports without chasing down missing information.

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What is the Texas franchise tax threshold and do I still need to file if I'm under it?

The current no-tax-due threshold is $2.47 million in annualized total revenue. Even if your business falls under that amount and owes nothing, you are still required to file a franchise tax report with the Texas Comptroller.

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How does self-employment tax work and how do I reduce it?

Self-employment tax is 15.3% of your net business income, covering both Social Security and Medicare. You can reduce it by maximizing business deductions, electing S-corp status, and contributing to retirement accounts.

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What is the Qualified Business Income deduction and does my business qualify?

The QBI deduction lets owners of pass-through businesses deduct up to 20% of their qualified business income on their personal tax return. Most small business owners qualify, but income level and business type can limit or eliminate the deduction.

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