While starting a business can be an exciting venture, it also can seem incredibly overwhelming. If you plan to operate in New Mexico, the state makes starting and growing your business easy. Entrepreneurs can benefit from New Mexico’s many advantages and incentives, such as low taxes, increased privacy, and lower operating costs.
While you may benefit from low operating costs in this state, how you structure your business can affect your overall tax burden. By setting up your business as an S corporation (S corp), you can potentially save a significant amount of money at tax time. You can elect S corp status for a business in any industry, whether you plan to operate in the booming manufacturing sector or start a restaurant.
This guide covers all the information you need to form your New Mexico S corp along with tips to help you maintain it in good standing for years to come.
Not in New Mexico? Check out our other How to Start an S Corp guides to learn more.
We recommend using a professional formation service like Tailor Brands to get your S corp up and running in no time.
Factors to Consider Before Starting an S Corp in New Mexico
Before forming an S corp, you have to consider the following factors:
- Is an S corporation the best strategy for your business?
- S corporation restrictions
- Are S corp tax advantages right for you?
Is an S Corporation the Best Strategy for Your Business?
For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.
S Corporation Restrictions
S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read our What Is an S Corporation guide for full details.
Are S Corp Tax Advantages Right for You?
An S corporation is a tax designation that can be elected by an LLC or corporation. With an S corp, business owners are considered employees of the company and must receive a reasonable salary. Since all S corps technically have employees, the s corp must run payroll.
In order to benefit from a New Mexico S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take large distributions in addition to their salary.
How to Form a New Mexico S Corp
There are two main ways to start an S corp:
- By forming an LLC and electing S corp tax status from the Internal Revenue Service (IRS) when you request your employee identification number (EIN)
- By forming a corporation and electing S corp status from the IRS
We recommend forming an LLC because it’s simpler and more cost-effective.
Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.
Steps for Forming an LLC and Electing S Corp Status in New Mexico
Starting a New Mexico LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Tailor Brands to guide you through this process.
There are five basic steps to start an LLC and elect S corp status:
Step 1: Name Your LLC
Step 2: Choose a Registered Agent
Step 3: File the Articles of Organization
Step 4: Create an Operating Agreement
Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status
Step 1: Name Your LLC
Choosing a company name is the first and most important step in starting your LLC in New Mexico.
Be sure to choose a name that complies with New Mexico naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a New Mexico LLC:
- Your name must include the phrase “limited liability company” or “limited company” or one of their abbreviations (LLC or L.L.C., LC, or L.C.). The word "limited" may be abbreviated as "ltd.," and the word "company" may be abbreviated as "co."
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Restricted words (e.g., Bank, Attorney, University) may require additional paperwork and a licensed individual, such as a doctor or lawyer, to be part of your LLC.
- Your name must be distinguishable from any existing business in the state. This includes New Mexico reserved names.
You can also read the New Mexico state statute about LLC naming guidelines for more information.
2. Is the name available in New Mexico? You can use the business search on the New Mexico Secretary of State website to see if your desired LLC name is available.
3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.
Find a Domain Now
Step 2: Choose Your New Mexico Registered Agent
You must elect a registered agent for your New Mexico LLC.
An LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Articles of Organization.
Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.
New Mexico Registered Agent Consent to Appointment
Registered agents in New Mexico must consent to their appointment by completing a Statement of Acceptance of Appointment form. The statement of consent should include:
- The registered agent’s name
- Your LLC’s name
- The registered agent’s signature
The completed form must be uploaded during the online formation process.
Step 3: File the New Mexico LLC Articles of Organization
The New Mexico Articles of Organization is used to officially register an LLC.
Step 4: Create an LLC Operating Agreement
An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.
For more information, read our New Mexico LLC Operating Agreement guide.
Our operating agreement tool is a free resource for business owners.
Step 5: Get an EIN and Complete Form 2553 on the IRS Website
An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS.
Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.
Visit our Form 2553 Instructions guide for detailed help with completing the form.
This is the form to elect S corp tax status for your LLC:
Ready to start saving on your taxes?
We recommend using a formation service to start your New Mexico S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your New Mexico S Corp Compliant
After establishing your New Mexico S corp, you’ll need to keep it in good standing by following the state’s guidelines and laws. New Mexico doesn’t require S corps to file a biennial report, but you’ll need to ensure you pay your taxes annually to remain in compliance.
New Mexico S Corp Biennial Report
While New Mexico does require corporations to file biennial reports, it treats S corps more like LLCs in terms of its business regulations. This means small businesses, such as S corps and LLCs, that operate in the state don’t have to file a biennial report. Most states require businesses to file some sort of regular report, but New Mexico’s lack of this requirement can save you some stress and money.
You will, however, need to file an initial report within 30 days of forming your S corp in New Mexico. This initial report should include information about your business and contact details for you and any other business managers. The filing fee is $25 for regular businesses and $10 for nonprofits. You can simplify this process by filing your initial report when you file the paperwork to form your S corp.
New Mexico S Corp Taxes
S corporations benefit from pass-through taxation, meaning the business’s profits pass-through to S corp owners’ individual tax returns. S corp owners make money from their reasonable salary and distributions, and New Mexico S corp owners can expect to pay the following taxes:
Federal Self-Employment Taxes
Self-employment taxes cover social security and medicare. The self-employment tax rate is 15.3%, and money you take as salary will be subjected to the self-employment tax. However, distributions are not subjected to this tax.
Federal Income Taxes
Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets as well as the percent owed will change each year. Both your salary and distributions are subjected to federal income tax.
New Mexico Income Taxes
New Mexico has a graduated corporate income tax, ranging from 4.8% to 5.9%. A graduated income tax means your tax rate increases as your business’s net income increases.
For taxable years after Jan. 1, 2018, if your New Mexico S corp’s net income is:
- Less than $500,000, its income tax rate is 4.8% of that net income.
- More than $500,000, its income tax rate is $24,000 plus 5.9% of its net income in excess of $500,000.
While New Mexico does have an income tax, it’s still an attractive state in which to start a business given its low property taxes, lower real estate costs, and other incentives.
New Mexico Sales and Use Tax
New Mexico doesn’t have a sales tax and instead imposes a gross receipts tax, ranging from 5% to 9.3125%. Your business’s gross receipts tax rate will depend on its location, and it covers money received from:
- Selling a property in New Mexico
- Leasing or licensing property employed in New Mexico
- Granting a right to use a franchise employed in New Mexico
- Performing services in and outside of the state if the product is initially used in New Mexico
- Selling research and development services performed outside New Mexico — the product of which is initially used in New Mexico
Instead of a use tax, New Mexico has an excise tax imposed on businesses that use property or services in New Mexico. The tax is 5% on services and 5.125% on specific properties.
Additional State Taxes
The New Mexico Taxation and Revenue Department provides details on all taxes businesses should understand to ensure they meet their tax obligation to the state. Some additional taxes your business may have to pay in New Mexico include:
- Oil, Natural Gas, and Mineral Extraction Taxes
- Liquor Excise Tax
- Franchise Tax
- Cigarette Tax
- Motor Vehicle Excise Tax
Visit the New Mexico Taxation and Revenue Department website for more information.
New Mexico Local Taxes
The state of New Mexico allows individual municipalities to designate their own local taxes, which may apply to your business. Check with your local government to ensure your business complies with all local laws.
Start a New Mexico S Corp FAQ
What is an S corp?
An S corporation (S corp) is a tax designation that an LLC or a corporation can elect.
Are taxes for LLCs and S corps the same?
No. The default taxes for an LLC and taxes for an S corp are not the same.
With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.
With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.
What is a reasonable salary for an S corp?
S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.
What is a distribution?
A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.
Can I still use my DBA name if I elect to be an S corp?
LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.
Which kind of New Mexico businesses can register as an S corp?
Many major industries call New Mexico home, including mining, ranching, energy, logistics, and more. You can start an S corp in New Mexico within any industry as long as you meet the requirements set by the IRS.
Is New Mexico a good state for an S corp?
New Mexico is one of the most competitive states in which to start a business. With the state’s graduated income tax, low energy costs, affordable real estate, and more, you can save a lot of money as a business owner in New Mexico.