How to Start an S-Corp in New Mexico

New Mexico, popularly known as The Land of Enchantment, offers a bunch of benefits for business owners, especially the state capital Santa Fe has a lot to offer to the rising entrepreneurs in the state. If you want to start a business in New Mexico, you must choose an appropriate corporate structure. You can have a corporation or a sole proprietorship or set up an LLC in New Mexico. There are a few guidelines that you should be aware of when it comes to starting an S-Corporation. In New Mexico, S-Corporation is businesses’ most common corporate structure, especially start-ups. It was developed in order to give companies limited liability protection while preserving the advantages of being a distinct legal organization.

In this article, you will learn about how to start an s-corporation in New Mexico. You will also learn whether an s-corporate business structure suits your business. Please read all the points carefully before starting your business in New Mexico.

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 both corporations and LLCs but in different ways. S-corp is similar to LLC, except that the IRS treats it as a corporation for tax purposes.

If you want an S corp status for your business, you can always form an LLC to protect your personal assets from business debts. It takes some basic steps to have a successful s-corporation in New Mexico. S-Corps do pay corporate income taxes, but they are still treated as disregarded companies for federal tax purposes.

S-corps pay corporate taxes that LLCs do not have to pay. If you want to have an S-corp status, then we would recommend you have an LLC instead. This will protect your personal assets from your business liabilities and you don’t have to pay any corporate taxes.

–LLCBuddy Editorial Team

Limitation and Requirements of S-Corp in New Mexico

As you have decided to have an S-Corp structure for your business, you must know the limitations and requirements to qualify for S-Corp status. We have listed some important points to consider following for your reference-

• Be a domestic corporation.
• Not be an ineligible corporation, such as specific financial institutions, insurance providers, or domestic corporations engaged in overseas sales.
• Have just one type of stock.
• Have a maximum of 100 shareholders or members.
• Have only permitted individuals, certain trusts, and estates as stockholders or members.

If you are qualified for the limitations and requirements, you can apply for an S-Corp in New Mexico.

How to Start an S-Corporation in New Mexico?

To create S-Corp in New Mexico, you must follow the below guidelines that include forming a business name, hiring a Registered Agent, filing your Articles of Organization, creating an operating agreement in New Mexico, requesting an EIN, filing a form 2553.

Step 1: Register a Business Name in New Mexico

After you have decided on the idea to start an S-Corp in New Mexico, deciding the name for your corporation is significant. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity.

If you want to set up an LLC, there is a complete guide on New Mexico LLC name guidelines for a proper LLC name. Here are some guidelines you must follow while naming your S-corp.

• Avoid profanities
• The name should be available, and no other entity should have the same name in New Mexico.
• Limit of restricted words that need a license in New Mexico, for example, doctors, attorneys, etc.
• Do not use a business name that sounds like a government agency or entity (like “police,” “county,” and “state”)

Step 2: Hiring the New Mexico Registered Agent

The next step in starting an S-corp in New Mexico is hiring a New Mexico Registered Agent, a person that accepts legal paperwork on behalf of your business. This person or business will receive important tax forms, legal documents (such as subpoenas), all notices of lawsuits, and other official government correspondence in New Mexico. Forming an LLC and an S-corp will be easier if you have Registered Agent in New Mexico.

Step 3: File Your New Mexico Articles of Organization

The Articles of Organization is an important document to start your limited liability company (LLC). New Mexico Articles of Organization is a simple document that contains the business name and address as well as the name and address of the person who received lawsuits on behalf of the organization. In order for the “Articles of Organization” to be filed, you need to pay a filing fee to the state. In New Mexico, the filing fee is $50.

In California, along with the Articles of Organization, you must send the Statement of Information to file your company. The statement of information is a mandatory document in California, but other states do not have this document.

Step 4: Creating an Operating Agreement in New Mexico

After you have filed your Articles of Organization in New Mexico, the next step is to create an LLC operating agreement in New Mexico. The New Mexico LLC operating agreement is essential and necessary since it will cover your corporation’s important documentation and rules. The operating agreements usually include the following-

• Article I: Organization
• Article II: Management and Voting
• Article III: Capital Contributions
• Article IV: Distributions
• Article V: Membership Changes
• Article VI: Dissolution

After creating the LLC operating agreement, you can benefit in several ways since it will discuss how decisions for the business will be made, including management and member voting structure. For more details about how an operating agreement works, please check Operating Agreement.

Step 5: Request for EIN in New Mexico

After documenting the operating agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website.

The application of an EIN in New Mexico can be through the following:

• Apply Online- You can apply for EIN online, the most desirable and fastest method for users.
• Apply by Fax- Another method of obtaining EIN is to fax Form SS-4 (PDF) after entering all the correct information to (855) 641-6935.
• Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
• Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

If you would like to be assisted in getting an EIN in the Internal Revenue Service, we can get your EIN for you. Our EIN service is quick and hassle-free. For more details about EIN for your business, check why you need EIN.

Step 6: File Form 2553 for Your S-Corp Business in New Mexico

Once you have obtained your EIN and Articles of Organization to form an S-Corp, you must file Form 2553, Election by a Small Business Corporation, to apply for S-corp status. 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 send your form 2553 to the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520 .

Advantages of Starting an S-Corporation in New Mexico

Filing an S-Corp in New Mexico has numerous benefits and advantages.

• Writing Off Losses: With S-corp, owners can deduct business losses from their individual income statements. If the company loses money in the first few years, it may balance its other sources of revenue. Even so, understand the shareholder loss limitations set by the IRS.

• Pass-Through Taxation: Starting an S-Corp is the widely known advantage in forming this kind of business structure since an s-corp uses a pass-through taxation structure. The company does not pay twice the tax in this kind of taxation. Because of this structure, most start-ups and entrepreneurs in New Mexico apply for an S-Corp LLC.

• Qualified Business Income Deduction: A qualified business income, or QBI, is the total of all qualified items of income, gain, deduction, and loss from any qualified trade or business, including S-Corp. With this, S corp owners may deduct up to 20% of their eligible earnings under the Tax Cuts and Jobs Act.

FAQs

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Why New Mexico S Corporation is So Important

One of the main reasons why the S Corporation is so important is its tax benefits. Unlike traditional corporations, which are subject to double taxation, S Corporations are considered pass-through entities. This means that the profits and losses of the business are passed through to the shareholders and reported on their individual tax returns. As a result, S Corporations are not taxed at the corporate level, which can result in significant tax savings for the business owners.

In addition to the tax advantages, the S Corporation also offers limited liability protection to its shareholders. This means that the personal assets of the shareholders are protected from the debts and liabilities of the business. While this protection is not absolute, it can provide a significant level of security and peace of mind to business owners.

Another key benefit of the S Corporation is its flexibility in terms of ownership. Unlike traditional corporations, which are limited to 100 shareholders, S Corporations can have up to 100 shareholders. This can make it easier for small businesses to raise capital and attract investors without the restrictions of a traditional corporate structure.

Furthermore, the S Corporation is often seen as more credible and professional than other business structures. This can be important when it comes to attracting customers, partners, and investors. Many people view S Corporations as more established and reputable, which can help a business to build trust and credibility in the marketplace.

Additionally, the S Corporation offers a great deal of flexibility in terms of management and operation. While traditional corporations are required to have a board of directors and hold regular meetings, S Corporations have much simpler requirements. This can make it easier for small business owners to manage and operate their businesses without the burden of excessive regulations and bureaucratic red tape.

Overall, the S Corporation is an important and valuable business structure for entrepreneurs in New Mexico. With its tax benefits, limited liability protection, flexibility in ownership, credibility, and ease of operation, it is easy to see why so many small business owners choose this structure for their businesses. By taking advantage of the benefits of the S Corporation, entrepreneurs can position their businesses for long-term success and growth.

Conclusion

In conclusion, starting an S-corp in New Mexico is a strategic choice for entrepreneurs seeking the benefits of limited liability and favorable tax treatment. One can successfully establish an S-corp by following the outlined steps, including selecting a unique name, filing the Articles of Incorporation, obtaining necessary licenses, and adhering to state-specific regulations. Ultimately, this corporate structure offers a strong foundation for business growth and protection, making it a worthwhile consideration for those looking to launch a venture in New Mexico.