LLC vs. S Corp in New Mexico 2024: A Comprehensive Comparison

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LLC vs. S Corp in New Mexico: Understanding the Differences

Embarking on the entrepreneurial journey in New Mexico, also known as The Land of Enchantment, is an exciting and transformative experience. New Mexico LLC and S Corporation are two popular options that often top the list of considerations for entrepreneurs. This article serves as your comprehensive guide, comparing LLC vs. S Corp in New Mexico and ultimately assisting you in determining the best fit for you.

Dive into business formation with confidence and clarity as LLCBase expert analysis simplifies the complexities of LLCs and S Corps, shedding light on their unique advantages and drawbacks. So, let’s explore the fascinating world of LLCs and S Corps and set your business on the path to success in New Mexico.

Compare LLC and S-Corp

What are an LLC and an S-Corp

A Limited Liability Company (LLC) is a popular legal business structure that offers a combination of benefits from both corporations and partnerships. It is specifically designed to provide personal asset protection to its owners, known as members. This protection ensures that the owner’s personal assets are separate from the business liabilities, such as debts and lawsuits.

In New Mexico, forming an LLC involves several steps, including paying an initial filing fee. Additionally, LLCs in New Mexico are required to pay an annual fee of $0 because it is not mandatory to maintain their legal status and stay compliant with the state regulations.

An LLC in New Mexico offers an attractive option for entrepreneurs seeking a flexible business structure with added liability protection and favorable tax treatment.

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On the other hand, an S-Corporation, or S-Corp, is not a separate legal business entity like an LLC. Rather, it is a tax classification that existing corporations and LLCs can elect. A business can bypass double taxation by opting for this tax status, as the profits and losses are directly passed through to the owner’s personal tax return. Starting an S Corp in New Mexico  allows business owners to report and pay taxes on their business income as part of their individual income tax filings, eliminating the need for separate corporate taxes.

In New Mexico, it is crucial for business owners considering this tax classification to fully understand the implications and requirements of being an S-Corp in New Mexico. This includes adhering to specific rules and regulations related to ownership, shareholder limits, and tax filing deadlines. If you want to start an S-Corp, LegalZoom will help you every step of the way!

LLCs and S-Corporations Comparison

Let’s explore the comparison between LLCs and S-Corporations to help you make an informed decision.

1. Taxation Differences in New Mexico

One of the main differences between LLCs and S-Corporations in New Mexico lies in how they are taxed. LLCs are typically subject to pass-through taxation, meaning the business profits and losses are reported on the owner’s personal tax return. In contrast, S-Corporations must adhere to specific tax requirements, including distributing salaries to shareholders and adhering to the state’s income tax rate.

  • Federal Taxes: When choosing between an LLC or S-Corporation in New Mexico, it’s essential to consider several federal tax factors. These factors include differences in Pass-Through Taxes and Self-Employment Taxes.
  • Pass-Through Taxes: Both LLCs and S-Corporations in New Mexico benefit from pass-through taxation at the federal level. Due to pass-through taxation, these entities do not pay federal income taxes as separate legal entities. Instead, their owners are required to pay federal income taxes on their share of the business income. This type of taxation prevents the company from being taxed twice. In contrast, C-Corporations in New Mexico are subject to double taxation, meaning they must pay federal taxes at the entity level and their owners’ taxes.
  • Self-Employment Taxes: Many LLC owners in New Mexico opt for S-Corporation taxation to reduce their self-employment taxes. An S-Corporation owner is not considered self-employed; they can become an employee of the company and receive regular salary benefits. Conversely, an LLC member must include their guaranteed payments and a portion of the LLC’s earnings when calculating their self-employment tax. Share distributions determine the corporate income of S-Corporation shareholders. For example, suppose you are the sole owner of an LLC in New Mexico with an annual profit of $150,000 and a fair wage for someone in your location doing the same job as you is $100,000. Under the default LLC taxation, you must pay self-employment taxes on the $150,000 profit. However, if your company is taxed as an S-Corp in New Mexico, you would be responsible for paying payroll taxes only on the $100,000 standard wage. Income tax would still apply to the remaining $50,000.
  • New Mexico State Taxes: No major tax differences exist between regular LLCs and S-Corporation LLCs at the state level. For filing an annual report in New Mexico, it costs $0 because it is not mandatory, which can be paid to the NY Department of State. Additionally, before forming the LLC, you must pay $50.

On the other hand, if you form an S-Corporation in New Mexico, you will also need to pay taxes. This includes the S-Corp filing fee and an annual report fee after establishing your S-Corp for one year. You must also go to the NY Department of State to make these payments.

2. Liability Protection

LLCs and S-Corporations in New Mexico provide liability protection for their owners. This means that the owner’s personal assets are protected from business debts and lawsuits. However, S-Corporation status does not offer the same level of protection as an LLC, as it is primarily a tax designation.

The following factors exclude certain individuals and entities from becoming shareholders in an S-Corporation in New Mexico:

  • Insurance businesses
  • Domestic international sales corporations
  • Partnerships
  • Corporations
  • Unauthorized immigrants
  • Specific financial institutions

While understanding the ownership requirements of LLCs and S-Corporations in New Mexico is essential, seeking legal counsel when establishing your business is still advisable. For assistance with your New Mexico LLC or New Mexico S-Corp, consider consulting with professionals.

3. Ownership Requirements and Restrictions

LLCs and S-Corporations in New Mexico have specific ownership requirements and restrictions. For instance, an LLC can have unlimited members, while an S-Corporation is limited to 100 shareholders. Additionally, S-Corporations can only have one class of stock and must follow strict rules regarding shareholder eligibility.

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

While filing an LLC or S-Corporation in New Mexico requires time and preparation, proper planning can make the process manageable. Both LLCs and S-Corporations can be filed through the New Mexico Registered Agent.

To start an LLC in New Mexico, you must submit the Articles of Organization to the New Mexico Secretary of State. This document should contain all the necessary information for your LLC, along with the payment of the associated filing fee.

On the other hand, if you want to elect S-Corporation status for your New Mexico LLC, you will need to submit additional paperwork. First, file Form 8832 with the Internal Revenue Service (IRS) to indicate your preference to tax your LLC as a corporation rather than a partnership. Next, submit Form 2553 to choose S-Corporation status.

Remember, maintaining legal compliance is crucial for your LLC. This means submitting annual tax returns and reports after establishing your business entity.

With that, we’ve carefully curated a list of the best LLC services in New Mexico to support and guide you through filing an LLC and S-Corp. Check them out!

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Filing Process for LLCs vs. S-Corporations in New Mexico

Forming an LLC in New Mexico involves several crucial steps. To start, you must file Articles of Organization with the New Mexico Secretary of State and pay the associated filing fee of $50. Once your LLC is established, you must comply with annual reporting and tax requirements.

On the other hand, if you want to elect an S-Corporation status for your existing LLC or corporation, the process is slightly different. Firstly, you must file Form 8832 with the Internal Revenue Service (IRS) to classify your LLC as a corporation for tax purposes. Then, you must submit Form 2553 to the IRS to choose S-Corporation status. In New Mexico, the S-Corporation filing fee is Minimum $100 to maximum $1000 for filing online or by mai. It depends on the amount of shares..

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The LLC formation and S-Corporation election processes can be completed through two methods, online and by mail. Online incorporation is available at Create an account/Log in to the SOS site, get the online form, fill it, and submit online, while offline incorporation can be done at Send the form by mail to Business Services Division, 325 Don Gaspar, Suite 300 Santa Fe, NM 87501.. It is essential to stay up-to-date with any ongoing reporting and tax requirements for your chosen business structure.

The filing process for LLCs and S-Corporations in New Mexico varies slightly, with each requiring specific forms and fees. It’s essential to consider the unique requirements of each business structure before making a decision. Consulting with a legal or financial advisor can provide valuable guidance on which structure best suits your business in New Mexico.

FAQs

Which one is better for starting a business in New Mexico?
The decision between an LLC and S Corp depends on many variables unique to your situation. Consulting with an attorney can be helpful in making this decision.
Is there an advantage to forming an LLC over an S Corp in New Mexico?
The main advantage of an LLC over an S Corp in New Mexico is greater flexibility in how profits and losses are allocated and the ability to customize the management structure.
Which one is more common in New Mexico?
LLCs are generally considered to be more common business structures in New Mexico, but both LLCs and S Corps can offer unique benefits.
Why do some business owners choose to form an S Corp in New Mexico?
One advantage of forming an S Corp in New Mexico is that it might result in a lower tax bill for the owners by passing through the tax benefits to the individual returns.
What is the filing process for forming an LLC in New Mexico?
To form an LLC in New Mexico, you must file Articles of Organization with the New Mexico Secretary of State.
How much does it cost to form an LLC in New Mexico?
It costs $50 to file Articles of Organization for an LLC in New Mexico with the Secretary of State.
How is an LLC taxed in New Mexico?
In New Mexico, an LLC can be taxed as a sole proprietorship, partnership, or corporation.
Can an LLC in New Mexico have employees?
Yes, an LLC in New Mexico can hire employees.
How is an S Corp taxed in New Mexico?
In New Mexico, an S Corp is not taxed on its income, but its shareholders will be taxed on their personal income.
Can an S Corp in New Mexico have employees?
Yes, an S Corp in New Mexico can hire employees.
Can one be both an LLC and S Corp in New Mexico?
No. But, an LLC can choose S Corp taxation status.
What is the difference between LLC and S Corp in terms of lawsuits?
In New Mexico, both LLCs and S Corps can provide limited liability protection against lawsuits, meaning that the owners of the business are not personally liable for the business’s debts or legal concerns.
Can an LLC issued stocks in New Mexico?
No, only corporation issues stocks, not LLC.
Can I convert an LLC to an S Corp in New Mexico?
Yes, it is possible to convert an LLC to an S Corp in New Mexico by filing a form with the Internal Revenue Service (IRS).
Does New Mexico offer any unique considerations for forming an LLC or S Corp?
New Mexico has specific laws and regulations that govern the formation and operation of LLCs and S Corps.
Can a foreign S Corp operate in New Mexico?
Yes, a foreign S Corp can operate in New Mexico with the proper registration and licenses.
As an owner of an LLC in New Mexico, what taxes will I have to pay?
The taxes LLC owners may have to pay in New Mexico will depend on the taxation system that they choose (sole proprietorship, partnership, or corporation) and their individual tax circumstances.
What is the process for electing S Corp status in New Mexico?
To elect S Corp status in New Mexico LLCs, businesses must file an IRS form with the appropriate tax documents.
What types of businesses are best suited for S Corporations in New Mexico?
The type of business that is most suited for an S Corporation in New Mexico depends on individual circumstances and business goals.
Can a joint venture be an LLC or S Corp in New Mexico?
Yes, a business that is a joint venture may choose to be an LLC or an S Corporation as a legal entity in New Mexico.
Does New Mexico charge franchise taxes for LLCs or S Corps?
No, LLCs and S Corps are not generally subject to franchise taxes in New Mexico.
Are there any unique requirements for foreign LLCs and S Corps to operate in New Mexico?
Yes, foreign LLCs and S Corps will need to register as an entity with the New Mexico Secretary of State to lawfully operate in the state.
Which entity is better suited for pass-through taxation in New Mexico – LLC or S Corp?
Both LLCs and S Corps enable pass-through taxation in New Mexico. The selection between the two is subjective and hinges on business goal.
How does personal protection differ between LLCs and S Corps in New Mexico?
Generally speaking, both business entities protect owners from personal liability in New Mexico.
Does New Mexico recognize single-member LLCs or S Corps?
Yes, New Mexico recognizes both single-member LLCs and single-shareholder S Corporations.
What is an LLC in New Mexico?
An LLC in New Mexico is a limited liability company that operates as a separate legal entity from its owners.
What is an S Corp in New Mexico?
An S Corp in New Mexico is a type of corporation that offers pass-through taxation for its shareholders.
Can a non-resident own an LLC in New Mexico?
Yes, a non-resident can own an LLC in New Mexico.
Can a non-resident own an S Corp in New Mexico?
Yes, a non-resident can own an S Corp in New Mexico.
How are LLCs taxed in New Mexico?
LLCs in New Mexico are taxed as pass-through entities, which means the income is passed through to the owners and is taxed on their personal tax returns.
How are S Corps taxed in New Mexico?
S Corps in New Mexico are also taxed as pass-through entities.
Is there a fee to form an LLC in New Mexico?
Yes, there is a fee to form an LLC in New Mexico.
Is there a fee to form an S Corp in New Mexico?
Yes, there is a fee to form an S Corp in New Mexico.
Is there a minimum number of members or shareholders required to form an LLC or S Corp in New Mexico?
No, there is no minimum number of members or shareholders required to form an LLC or S Corp in New Mexico.
Can an LLC or S Corp have just one member or shareholder in New Mexico?
Yes, an LLC or S Corp can have just one member or shareholder in New Mexico.
Is there a limit on the number of members or shareholders an LLC or S Corp can have in New Mexico?
No, there is no limit on the number of members or shareholders an LLC or S Corp can have in New Mexico.
How is the management structure different between an LLC and S Corp in New Mexico?
LLCs in New Mexico are typically member-managed, which means all members have authority to make decisions. S Corps in New Mexico are typically director-managed, which means the directors are responsible for making decisions.
Are there annual reporting requirements for LLCs or S Corps in New Mexico?
Yes, both LLCs and S Corps in New Mexico are required to file an Annual Report with the New Mexico Secretary of State.
Can an LLC or S Corp elect to be taxed differently in New Mexico?
Yes, both LLCs and S Corps in New Mexico can elect to be taxed differently by filing certain forms with the IRS.
How is liability protection different between an LLC and S Corp in New Mexico?
Both LLCs and S Corps in New Mexico offer liability protection for their shareholders or members, which means their personal assets are protected from business debts or lawsuits.
Can an LLC have foreign investors in New Mexico?
Yes, an LLC can have foreign investors in New Mexico.
Can an S Corp have foreign investors in New Mexico?
Yes, an S Corp can have foreign investors in New Mexico.
What is the annual fee for an LLC in New Mexico?
The annual fee for an LLC in New Mexico is $50.
What is the annual fee for an S Corp in New Mexico?
The annual fee for an S Corp in New Mexico is also $50.
Is it possible to convert an LLC to an S Corp in New Mexico?
Yes, it is possible to convert an LLC to an S Corp in New Mexico by filing Form 2553 with the IRS.
Is it possible to convert an S Corp to an LLC in New Mexico?
Yes, it is possible to convert an S Corp to an LLC in New Mexico by filing Articles of Organization with the New Mexico Secretary of State.
What is the maximum number of shareholders that an S Corp can have in New Mexico?
The maximum number of shareholders that an S Corp can have in New Mexico is 100.
What is the New Mexico statute governing LLCs?
The New Mexico statute governing LLCs is the Limited Liability Company Act.
What is the New Mexico statute governing S Corps?
The New Mexico statute governing S Corps is the New Mexico Business Corporation Act.
Are foreign S Corps allowed to do business in New Mexico?
Yes, foreign S Corps are allowed to do business in New Mexico, but they must register with the New Mexico Secretary of State.
Are foreign LLCs allowed to do business in New Mexico?
Yes, foreign LLCs are allowed to do business in New Mexico, but they must also register with the New Mexico Secretary of State.
Can members or shareholders of an LLC or an S Corp be personally liable for business debts and lawsuits in New Mexico?
Generally no, members or shareholders of an LLC or S Corp are not personally liable for business debts and lawsuits in New Mexico, but there are some exceptions.

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Conclusion

Navigating the world of business structures and filings may seem daunting, but with the right information and guidance, you can confidently make the best decision for your unique entrepreneurial journey. Remember, the path to success is paved with well-informed choices and a clear understanding of your business goals. So, take the time to research, consult with professionals, and weigh the pros and cons of LLCs and S-Corporations in New Mexico.

As you embark on this exciting adventure, remember that a strong foundation built on sound legal and financial principles will be the backbone of your thriving enterprise. Embrace the challenge, stay curious, and always remember your passion and vision. Visit LLCBase today to access valuable resources, expert guidance, and personalized support tailored to your needs. Don’t wait any longer – let us help you realize your entrepreneurial dreams. 

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