LLC vs S-Corp in New Mexico

Making choices as an entrepreneur is a big challenge, especially when choosing what business structure to form in New Mexico. When it comes to a business structure, you can choose whether to have a C-corporation, S-corporation, Sole Proprietorship or an LLC in New Mexico. Before you start New Mexico LLC filing, you must compare which structure suits you. You might be considering two popular options: a Limited Liability Company (LLC) or an S Corporation (S-Corp). Both of these structures offer distinct advantages and protections, but selecting the right one depends on various factors, including your business goals, tax preferences, and management style.

If you are confused with New Mexico LLC vs. S-Corporation, and thinking which one is better and more suitable for the business that you will form, there are a few things that you should consider. Before we get through this article, you should understand what an LLC and S-Corporation mean in New Mexico.

LLC vs. S-Corp: Definition

While forming an LLC, you must follow some major steps. It is a business structure that protects your personal assets from getting affected by business liabilities. On the other hand, the S Corp is not a conventional business structure, but it is tax status that your can file with the IRS. S Corp does not provide personal asset protection like an LLC. Here are the detailed definitions of the two-

What is an LLC in New Mexico?

A limited liability company (LLC) is a formal business structure that provides personal asset protection. Under this structure, the LLC owner/member can save his/her personal assets in case the business is in debt or is being targeted with a lawsuit. In some special cases, if your company is legally sued, the other party can go after your personal assets. This is called piercing the corporate veil, where you become personally liable for the company’s debt.

Forming an LLC in New Mexico gives you a pass-through tax benefit where you don’t have to pay an income tax based on your business revenue; instead, the income tax will be calculated based on your personal income.

What is an S-Corp in New Mexico?

An S-Corporation (S-corp) is not a type of corporate entity, unlike a limited liability company (LLC) or other business structures. It’s a tax classification that might result in significant financial savings for corporations and LLCs but in different ways. S-Corporation is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

S-corp is a prominent alternative to the LLC. Unlike a conventional C-corp, S-corp is more suitable for small and medium businesses, such as businesses with 100 shareholders.

LLC Vs. S-Corporation: Which is More Preferable in New Mexico?

In New Mexico, forming a business is crucial since you need to be adequate in your decision, especially when you think if New Mexico LLC or an S-Corporation in New Mexico is preferable. An S-Corporation is a tax classification that some small businesses are qualified for, whereas an LLC is a legitimate company form. By submitting a document to the Internal Revenue Sector (IRS), corporations and LLCs can choose S-Corporation taxation. An S-Corporation can be less formal than forming an LLC and doesn’t normally provide the same protection. Also, unlike LLC, S-Corporation in New Mexico doesn’t provide the same protections entrepreneurs seek from an LLC. It’s important to consider your options when launching a business from a legal and tax point of view.

It is better to consult a legal professional before you set up an LLC or S-corp. We shared basic differences and how you can form an LLC and S-corp. But it is always recommended to consult a professional before making any decision.
– LLCBuddy Editorial Team

Tax Difference Between New Mexico LLC and S-Corp in New Mexico

There is a difference between LLC and S-Corporation when it comes to paying taxes. Based on Federal and State Tax differences between the two, you can determine if S-Corporation or LLC in New Mexico is suitable for your business.

Federal Taxes: There are a few federal tax factors to consider when selecting whether to operate an LLC or S-Corporation in New Mexico. Tax differs in terms of Pass-Through Taxes and Self-Employment Taxes.

Pass-Through Taxes: LLC and S-Corporation in New Mexico are the same in terms of pass-through taxation at the federal level. LLCs and S-Corporations do not pay federal income taxes as separate legal entities because of pass-through taxation. Only their owners are required to pay federal income taxes on their portions of the business income. The company does not pay twice the tax in this kind of taxation. Unlike LLCs and S-Corporations, C-Corporations in New Mexico are mandated to have double taxation. It means that they must pay federal taxes at the entity level.

Self-Employment Taxes: Most LLC owners choose S-corporation taxation in New Mexico to reduce their self-employment taxes. This is because if you own an S-corporation, you are not required to be self-employed. Instead, you can join the company as an employee and receive regular salary benefits. On the other hand, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings in calculating their self-employment tax. Distribution of shares defines S-Corporation shareholders in terms of their corporate incomes.

Consider the scenario where you are the only owner of an LLC in New Mexico with a $150,000 annual profit. And let’s say that $100,000 is a fair wage in your location for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $150,000 profit. But, if your company is taxed as a New Mexico S-Corp, you will only be responsible for paying payroll taxes on the standard wage of $100,000. Income tax will still apply to the remaining $50,000.

New Mexico State Taxes: At the state level, there aren’t any significant tax differences between regular LLCs and S Corporation LLCs. In terms of the annual LLC fee in New Mexico, it costs $0 because it is not mandatory that can be paid to the NY Department of State. Of course, before forming the whole LLC, you must pay the initial fee of $50.

On the other hand, you also need to pay taxes if you form an S-Corporation in New Mexico; besides, you must pay the S-Corp filing fee and an annual report fee after a year of establishing your S-Corp. You must also go to the NY Department of State to pay this.

How do New Mexico LLCs and S-Corporations Handle Liability Protection?

In New Mexico, you have no personal responsibility for the financial and legal liabilities of an LLC you will form. An S-Corporation does not provide liability protection because it is a tax designation rather than a distinct business entity. Whatever liability defense an S-Corporation provides is provided by the underlying business entity that chose the tax status. You will have the liability protection the LLC offers if it chooses S-Corporation status for tax purposes.

LLC Vs. S Corporation Ownership Requirements Comparison

Strict ownership requirements exist for LLCs and S-Corporations in New Mexico. LLC ownership regulations are strict because a new member can only be accepted with the approval of all existing members. On the other hand, S-Corporation ownership regulations are also strict because only specific people are permitted to become shareholders. Also, an S-Corporation can’t have more than 100 shareholders and needs one class of stock.

The following are the reasons why some cannot be shareholders in the S-Corporation in New Mexico.

Insurance business
Domestic and International sales corporations
Partnerships
Corporations
Unauthorized Immigrants
Certain financial institutions

Although you know most of the reasons regarding the ownership requirements of both LLC and S-Corporation, you should still seek legal advice in preparation for your business and it is best to visit LLCBuddy for your New Mexico LLC or New Mexico S-Corp.

Which is Easier to File in New Mexico: LLCs or S-Corporations?

Filing an LLC or S-Corporation in New Mexico takes time and preparation. Even though it is not as easy as it seems, something manageable still makes it not difficult. LLC and S-Corporation can be filed by New Mexico Registered Agent. However, in order to establish an LLC in New Mexico, you must submit a Articles of Organization to the New Mexico Secretary of State. Your Articles of Organization must contain information for your LLC, along with payment of the associated filing fee.

In addition, you need to submit more papers to make the New Mexico S-Corporation election. File a Form 8832 to inform the Internal Revenue Sector (IRS) that you prefer to tax your LLC as a corporation rather than a partnership. Then you will then submit Form 2553 to choose S-Corporation status.

Do not forget that you must submit annual tax returns and reports after creating your LLC in order to maintain legal compliance.

Important Information

Who Pays More Taxes, an LLC or S-Corporation?

Taxes differ for LLC and S-Corporation in New Mexico because it depends on the tax purposes and how much profit will be generated. Usually, LLCs are frequently taxed at personal rates and LLC owners can elect to be treated as a separate company with its own federal tax identification number.

On the other hand, owners of S-Corporations must receive a salary that includes Social Security and Medicare taxes. The owner, however, can get dividend income or some of the leftover profits, but not as an employee; thus, they won’t be subject to Social Security and Medicare taxes on that money.

Should I Convert an LLC to S-Corporation?

Since your business assets are separated from your personal assets if you’re a sole proprietor, it may be advisable to form an LLC. You are not restricted to modifying the structure of your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and adhere to more regulations, it would be ideal for more companies with more shareholders.

How to Structure an LLC to S-Corporation?

To structure an LLC to S-Corporation in New Mexico, you must submit Form 2553, Election by a Small Business Corporation, to the IRS in order to choose S-corp taxation. Filing a form 2553 should be done 75 days after the formation of your S-Corp, or not more than 75 days after the beginning of the tax year in which the election is to take effect.

If your LLS-Corp has passed the deadline of 75 days, you must also file Form 8832, Entity Classification Election, in order to opt to be taxed as a corporation. Then you would send Form 2553 and Form 8832 jointly by certified mail from the USPS. In New Mexico, you can file your form 2553 in the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .

FAQs

What are the differences between an LLC and an S-Corp in New Mexico?

An LLC provides limited liability protection, while an S-Corp is a corporation that provides limited liability protection and allows for income pass-through taxation. An LLC can be owned by one or more individuals, whereas an S-Corp must have at least one shareholder. Additionally, an LLC in New Mexico is generally treated as a disregarded entity for federal income tax purposes, while an S-Corp is generally treated as a separate entity for federal income tax purposes.

What is the filing fee for forming an LLC or S-Corp in New Mexico?

The filing fees for forming an LLC in New Mexico are $50 for domestic LLCs and $100 for foreign LLCs. The filing fees for forming an S-Corp in New Mexico are $50 for domestic corporations and $100 for foreign corporations.

What are the annual reporting requirements for an LLC or S-Corp in New Mexico?

LLCs in New Mexico must file an Annual Report with the Secretary of State every year. S-Corps in New Mexico must file an Annual Report with the Secretary of State, as well as an annual franchise tax report with the New Mexico Taxation and Revenue Department.

How long does it take to form an LLC or S-Corp in New Mexico?

It typically takes five to seven business days to form an LLC or S-Corp in New Mexico.

What is the minimum number of shareholders or members required to form an LLC or S-Corp in New Mexico?

An LLC in New Mexico can be formed with one or more members, while an S-Corp in New Mexico must have at least one shareholder.

Do LLCs or S-Corps in New Mexico need to elect a board of directors?

LLCs in New Mexico do not need to elect a board of directors, while S-Corps in New Mexico must have a board of directors.

What are the tax implications for an LLC or S-Corp in New Mexico?

An LLC in New Mexico is generally treated as a disregarded entity for federal income tax purposes, meaning that the income and losses of the LLC are reported on the owner’s individual income tax return. An S-Corp in New Mexico is generally treated as a separate entity for federal income tax purposes, meaning that the income and losses of the S-Corp are reported on the corporate income tax return.

Are there any restrictions on the types of businesses that can form an LLC or S-Corp in New Mexico?

There are no restrictions on the types of businesses that can form an LLC or S-Corp in New Mexico.

Are there any special requirements for owners of an LLC or S-Corp in New Mexico?

LLCs and S-Corps in New Mexico must have at least one member or shareholder, respectively. Additionally, LLCs in New Mexico must appoint a registered agent who is located in the state and S-Corps in New Mexico must appoint a statutory agent.

Do LLCs or S-Corps in New Mexico need to file separate state tax returns?

LLCs in New Mexico generally do not need to file a separate state tax return, as the income and losses of the LLC are reported on the owner’s individual income tax return. S-Corps in New Mexico must file an annual franchise tax report with the New Mexico Taxation and Revenue Department.

How much does it cost to maintain an LLC or S-Corp in New Mexico?

The filing fee for the annual report for an LLC in New Mexico is $50 and the filing fee for the annual report for an S-Corp in New Mexico is $50. Additionally, an S-Corp in New Mexico must pay an annual franchise tax of $50.

Are there any other requirements for LLCs or S-Corps in New Mexico?

LLCs and S-Corps in New Mexico must keep accurate records of their financial activities, including income and expenses. Additionally, LLCs and S-Corps in New Mexico must keep copies of the documents filed with the Secretary of State.

What are the LLC and S-Corp filing requirements in New Mexico?

To form an LLC in New Mexico, you must file Articles of Organization with the Corporations Bureau of the New Mexico Public Regulation Commission. To form an S-Corp in New Mexico, you must file a Certificate of Formation with the Secretary of State.

Is an LLC allowed to issue stock in New Mexico?

No, an LLC in New Mexico is not allowed to issue stock.

Are LLCs in New Mexico subject to double taxation?

No, LLCs in New Mexico are not subject to double taxation.

How are LLCs in New Mexico taxed?

LLCs in New Mexico are pass-through entities and are not subject to double taxation. Income earned by an LLC is passed through to the owners and taxed at the individual level.

How are S-Corps in New Mexico taxed?

S-Corps in New Mexico are pass-through entities and are not subject to double taxation. Income earned by an S-Corp is passed through to the shareholders and taxed at the individual level.

Are LLCs in New Mexico required to have an annual meeting?

No, LLCs in New Mexico are not required to have an annual meeting.

Are S-Corps in New Mexico required to have an annual meeting?

Yes, S-Corps in New Mexico are required to have an annual meeting. The meeting must be held in New Mexico or in a state that allows for New Mexico corporations to hold meetings there.

Are LLCs in New Mexico allowed to appoint directors?

No, LLCs in New Mexico are not allowed to appoint directors.

Are S-Corps in New Mexico allowed to appoint directors?

Yes, S-Corps in New Mexico are allowed to appoint directors. The directors must be appointed in accordance with the provisions of the company’s articles of incorporation.

What are the liability protection benefits of an LLC in New Mexico?

LLCs in New Mexico offer limited liability protection to their owners. This means that the personal assets of the owners are not at risk in the event of a lawsuit or other legal action.

What are the liability protection benefits of an S-Corp in New Mexico?

S-Corps in New Mexico offer limited liability protection to their shareholders. This means that the personal assets of the shareholders are not at risk in the event of a lawsuit or other legal action.

Are LLCs in New Mexico required to have operating agreements?

Yes, LLCs in New Mexico are required to have operating agreements. The operating agreement should outline the internal management and ownership of the company.

Are S-Corps in New Mexico required to have operating agreements?

No, S-Corps in New Mexico are not required to have operating agreements.

Are LLCs in New Mexico required to pay state taxes?

Yes, LLCs in New Mexico are required to pay state taxes. The taxes are calculated based on the total income of the LLC.

Are S-Corps in New Mexico required to pay state taxes?

Yes, S-Corps in New Mexico are required to pay state taxes. The taxes are calculated based on the total income of the S-Corp.

Is an LLC in New Mexico required to register with the state?

Yes, an LLC in New Mexico is required to register with the state. The registration is done through the Corporations Bureau of the New Mexico Public Regulation Commission.

Is an S-Corp in New Mexico required to register with the state?

Yes, an S-Corp in New Mexico is required to register with the state. The registration is done through the Secretary of State.

Are LLCs in New Mexico required to have a registered agent?

Yes, LLCs in New Mexico are required to have a registered agent. The registered agent must be a resident of New Mexico or a business entity authorized to conduct business in the state.

Are S-Corps in New Mexico required to have a registered agent?

Yes, S-Corps in New Mexico are required to have a registered agent. The registered agent must be a resident of New Mexico or a business entity authorized to conduct business in the state.

Why New Mexico LLC Vs S Corp is So Important

One of the major reasons why the choice between a New Mexico LLC and an S Corp is so important lies in the differing characteristics of each entity. Limited liability companies (LLCs) are known for their flexibility and simplicity in management. They provide liability protection to their owners, known as members, shielding personal assets from business debts and lawsuits. An LLC also offers pass-through taxation, meaning the profits or losses of the business are reported on the members’ individual tax returns.

On the other hand, S Corporations are a popular choice for small businesses seeking tax advantages and certain benefits not available to LLCs. S Corps allow for pass-through taxation as well, similarly to LLCs, while also allowing owners to pay themselves a reasonable salary and receive distributions, potentially lowering their overall tax burden. Moreover, S Corps can offer protection from self-employment taxes on certain portions of income, making them an attractive option for entrepreneurs wanting to maximize tax savings.

Another critical aspect to consider when choosing between a New Mexico LLC and an S Corp is the impact on the business’s credibility and growth potential. Depending on the industry and target market, operating as an LLC or an S Corp can convey different levels of professionalism and stability to potential clients, partners, and investors. Some industries may prefer dealing with corporations over LLCs, as they are often seen as more established and reliable entities.

Moreover, the structure of an S Corp can make it easier to attract investors and raise capital, as they have a more defined management structure and ownership rights compared to LLCs. Additionally, the regulatory requirements for S Corps, such as holding regular shareholder meetings and maintaining detailed financial records, can help instill confidence in stakeholders and position the business for future growth and expansion.

In conclusion, the choice between a New Mexico LLC and an S Corp may seem like a minor detail at the outset of starting a business, but it can have significant implications for the success and longevity of the company. By carefully considering the unique characteristics and benefits of each entity, entrepreneurs can make an informed decision that aligns with their goals, protects their interests, and positions their business for growth and prosperity. Ultimately, understanding the differences between an LLC and an S Corp is crucial for aspiring business owners looking to set a solid foundation for their ventures.

Conclusion

Even though you can choose a different corporate structure, consider whether it will primarily assist your organization. Striking the perfect balance between corporate benefits and legal protection that suits your particular needs is important. In forming an LLC or S-Corp in New Mexico, you must be aware that every detail is well-formed so that starting your business will be successful. And, if you would like us to help you form a New Mexico LLC and S-Corp in New Mexico, read our other business guides.