LLC vs S-Corp | What Entrepreneurs Need to Know in New Mexico

by
LLC vs S-Corp in New Mexico

When starting a small business in the New Mexico, one of the most important decisions you’ll make is choosing the right legal structure. Two popular options for small businesses are electing for S Corporation (S-Corp) or forming an LLC in New Mexico. Both offer certain advantages and drawbacks, making it crucial to understand their differences and determine the best fit for your business. 

If you want to know more about LLC vs. S-Corporation, which is better and suitable for the business you will form, you should consider a few things. Before we get through this article, you should understand LLC vs. S-Corporation in New Mexico. 

Webinarcare Editorial Team will help you define and understand the difference, and you must be guided by all the factors gathered in this article.

LLC Vs. S-Corporation in New Mexico

LLC vs. S-Corporation: Definition

A limited liability company is a type of business structure that guards against the impact of business liabilities on your personal assets. However, while not a typical business structure, the S Corp is a tax status you can register with the IRS. Unlike an LLC, an S-Corp does not offer personal asset protection. The two are explained in detail here:

What is an LLC in New Mexico?

A legal corporate organization that protects personal assets is a limited liability company (LLC). With this setup, the LLC member or owner can protect their personal assets if their company faces financial difficulties or becomes the subject of legal action. In some unique circumstances, the opposing party may pursue your personal assets if your firm is sued in court. When you are held personally accountable for the company’s debt, this is called “piercing the corporate veil.”

By creating an LLC in your state, you can take advantage of the pass-through tax benefit, which means that your personal income will be used to determine your income tax obligations rather than the revenue generated by your firm. 

We reviewed some of the Best LLC Services and provided features as an add-on with their packages for you to check out.

LLC Service

Rating & Pricing

Top Features

Learn More

#1 Recommendation

$0 + State fee

  • Free LLC Formation

  • Legal Support

  • Highly Reputed Company

Learn More

$299 + State fee

  • Single LLC formation package

  • Flat price for all services

  • Legal consultation

Learn More

What is an S-Corp in New Mexico?

Unlike a limited liability company (LLC) or other business structures, New Mexico S-Corporation is not a type of corporate entity. It’s a tax classification that, though in various ways for corporations and LLCs, might lead to considerable financial savings. S-Corporations are similar to LLCs, except that the Internal Revenue Service recognizes them as corporations for taxation purposes. 

A well-known alternative to the LLC is the S-corp. In contrast to a traditional C-corp, an S-corp is better suited for small and medium-sized firms, such as those with 100 total stockholders. 

LLC Vs. S-Corporation in New Mexico

Creating a business in New Mexico requires careful consideration, especially when deciding whether a state LLC or an S-Corporation is more advantageous. An LLC is a legal corporate structure, but an S-Corporation is a tax categorization which some small firms are eligible for. Forming New Mexico Corporations and LLCs can elect S-Corporation taxation by filing paperwork with the Internal Revenue Service (IRS). Making an S-Corporation may be less formal than establishing an LLC, and it typically offers less security. Additionally, S-Corporation in New Mexico does not offer the same safeguards that business owners seek in an LLC. When starting a business, thinking about your alternatives from a legal and tax perspective is important.

It is suggested that you speak with a legal professional before you begin setting up an LLC. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC in New Mexico.

– WEBINARCARE EDITORIAL TEAM

Tax Difference Between LLC and S-Corp in New Mexico

There is a distinction between an LLC and an S-Corporation regarding taxation. Based on the differences in Federal and State taxes, you can determine whether S-Corporation or LLC in New Mexico is best 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 regarding 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 must 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 following scenario: you are the sole owner of an LLC in New Mexico with a $200,000 annual profit. And $150,000 is a fair wage in your area for someone doing the same job as you. Under the default LLC taxation, you must pay self-employment taxes on the entire $200,000 profit. However, if your business is taxed as a state S-corp, you must only pay payroll taxes on the standard wage of $150,000. The remaining $50,000 will still be subject to income tax.

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, which can be paid to the NY Department of State. Of course, before forming the whole LLC, you must pay the initial fee of $50 to the New Mexico Secretary of State.

LLC Vs. S-Corp Ownership Comparison

LLCs and S-Corporations in New Mexico have different ownership requirements that can impact your choice of business structure. Here’s a comparison of the key ownership requirements for each structure:

1. Number of Owners

New Mexico LLC: An LLC can have any number of owners, called members, from starting New Mexico Single Member LLC to multiple members LLC. There is no upper limit on the number of members an LLC can have.

New Mexico S-Corporation: An S-Corporation is limited to a maximum of 100 shareholders (owners). This restriction can be a limiting factor for businesses that plan to have many owners or seek outside investment.

2. Type of Owners

New Mexico LLC: An LLC can have various owner types, including individuals, corporations, other LLCs, trusts, and estates. Non-resident aliens can also be members of an LLC, like forming a Foreign LLC in New Mexico.

New Mexico S-Corporation: S-Corporations have more restrictive ownership requirements. Only U.S. citizens and resident aliens can be shareholders of an S-Corporation. Additionally, other corporations, LLCs, and certain types of trusts and estates are not eligible to be S-Corporation shareholders.

3. Classes of Ownership

New Mexico LLC: An LLC offers flexibility regarding ownership classes. Members can have varying levels of management rights, profit distribution rights, and voting rights, creating different classes of membership interests.

New Mexico S-Corporation: S-Corporations are limited to only one class of stock. While shareholders’ voting rights may differ, all shareholders must have equal rights to profit distribution and liquidation proceeds.

4. Profit Distribution

New Mexico LLC: Profit distribution in an LLC is flexible, allowing members to allocate profits and losses in any proportion they choose. This can be outlined in the New Mexico Operating Agreement.

New Mexico S-Corporation: Profits and losses in an S-Corporation must be distributed to shareholders based on the percentage of shares each owns. This can be less flexible than the profit distribution options available to an LLC.

New Mexico LLC offers more flexibility in ownership requirements, allowing for a greater variety of owner types, multiple classes of membership interests, and flexible profit distribution. In contrast, an S-Corporation has more restrictive ownership requirements, limiting the number and type of shareholders, allowing only one class of stock, and requiring proportional profit distribution based on share ownership. Consider these differences when deciding which business structure best fits your needs and goals.

Which is easier to incorporate in New Mexico: LLC or S-Corp?

Filing an LLC or S-Corporation in New Mexico requires planning and time. Even though it is not as simple as it appears, something manageable keeps it from being too difficult. LLC and S-Corporations can be formed using Registered Agent. To establish an LLC in New Mexico, you must submit the Articles of Organization to the New Mexico Secretary of State. Your Articles of Organization must include information about your New Mexico LLC, as well as payment of the associated filing fee.

Furthermore, you must submit additional papers to make the New Mexico S-Corporation election. Fill out Form 8832 to notify the Internal Revenue Service that you prefer to tax your LLC as a corporation rather than a partnership. Then you’ll submit Form 2553 to select S-Corporation status.

Remember that you must file annual tax returns and reports after forming your LLC to remain legally compliant.

Who Pays More Taxes in New Mexico: LLC or S-Corp?

Taxes for LLCs and S-Corporations in New Mexico depend on the tax purposes and the profit generated. LLCs are typically taxed at personal rates, and LLC owners can be treated as separate companies with their own federal tax identification numbers. You can check the New Mexico LLC Cost for detailed information.

New Mexico S-Corporation owners, on the other hand, must be paid a salary that includes Social Security and Medicare taxes. On the other hand, the owner can receive dividend income or some of the leftover profits without being classified as an employee and thus will not be subject to Social Security and Medicare taxes on that money.

Should I Incorporate New Mexico LLC as an S-Corporation?

Forming an LLC may be advantageous because your business assets are separate from your personal assets if you are a sole proprietor. You are not restricted from converting your LLC to an S-Corporation. Although an S-corporation must have a board of directors, a maximum of 100 shareholders, and follow more regulations, it is ideal for larger companies with more shareholders.

How do you convert LLC to S-Corporation in New Mexico?

You must submit Form 2553, Election by a Small Business Corporation, to the IRS to elect S-corp taxes if you want to form an LLC as an S-Corporation in New Mexico. A Form 2553 must be submitted by 75 days following the creation of your S-Corp or by 75 days following the start of the tax year in which the election is to be effective. 

You must also submit Form 8832, Entity Classification Election if your LLS-Corp has passed the deadline of 75 days and you wish to elect to be taxed as a corporation. You would collectively transmit Forms 2553 and 8832 via certified mail from the USPS. You can send your Form 2553 to the Department of the Treasury Internal Revenue Service Center – Ogden, UT 84201 Fax: 855-214-7520​ in New Mexico.

FAQs

What is the main difference between LLC and S-Corp in New Mexico?
The main difference between LLC and S-Corp in New Mexico is their taxation structure.
What are the taxation requirements for an LLC in New Mexico?
LLCs in New Mexico are generally pass-through entities, which means that owners report their share of the company’s income or losses on their personal tax returns.
How are S-Corps taxed in New Mexico?
S-Corps in New Mexico are also pass-through entities, but they have specific tax requirements imposed by the state.
What is the process for starting an LLC in New Mexico?
To start an LLC in New Mexico, you will need to file Articles of Organization with the New Mexico Secretary of State and pay a filing fee.
Can non-residents form an LLC in New Mexico?
Yes, non-residents can form an LLC in New Mexico as long as they meet the requirements set by the state.
What is the minimum number of members required for an LLC in New Mexico?
There is no minimum number of members required for an LLC in New Mexico.
Can an LLC elect to be taxed as an S-Corp in New Mexico?
Yes, an LLC can elect to be taxed as an S-Corp in New Mexico.
What are the advantages of forming an S-Corp in New Mexico?
Some advantages of forming an S-Corp in New Mexico include limited liability protection and potential tax benefits.
Are there any disadvantages to forming an S-Corp in New Mexico?
Some disadvantages of forming an S-Corp in New Mexico include additional paperwork requirements and limited ownership flexibility.
Is it possible to convert an LLC to an S-Corp in New Mexico?
Yes, an LLC can be converted to an S-Corp in New Mexico by filing a formal election with the IRS.
What are the incorporation fees for an S-Corp in New Mexico?
The incorporation fees for an S-Corp in New Mexico vary by state, but generally include filing fees and possibly franchise taxes.
How long does it take to incorporate an S-Corp in New Mexico?
The timeline to incorporate an S-Corp in New Mexico depends on the state’s processing times, but it usually takes approximately 1-2 weeks.
What are the recordkeeping requirements for an LLC in New Mexico?
LLCs in New Mexico are required to maintain records that document financial transactions, company resolutions, membership interest transfers, and other important company information.
Can an LLC hold an annual meeting in New Mexico?
There is no requirement for an LLC in New Mexico to hold annual meetings, though it may be beneficial to do so.
What is the personal liability protection for an S-Corp in New Mexico?
Like LLCs, S-Corps in New Mexico offer personal liability protection to owners.
Is a business license required to incorporate an S-Corp in New Mexico?
Yes, S-Corps in New Mexico are required to obtain a business license, which may include state, county, and/or city licenses.
Are there any restrictions on the ownership of an S-Corp in New Mexico?
Yes, there are restrictions on the ownership of an S-Corp in New Mexico, including limits on the number of shareholders and qualification requirements.
What are the annual fees for an LLC in New Mexico?
The annual fees for an LLC in New Mexico vary by state, but generally include franchise taxes and/or registration fees.
Can an S-Corp have multiple classes of stock in New Mexico?
No, S-Corps in New Mexico are prohibited from having multiple classes of stock.
What are the maintenance requirements for an S-Corp in New Mexico?
S-Corps in New Mexico are required to maintain detailed records of their company activities, including annual meetings and shareholder resolutions.
What type of entity suits a small business structure in New Mexico?
The choice between LLC vs. S-Corp in New Mexico will depend on the specific needs of your small business.
What is the time limitation to suing an LLC in New Mexico?
There is generally a three-year statute of limitations for suing an LLC in New Mexico.
What is a registered agent in New Mexico?
A registered agent in New Mexico is a third-party service that helps businesses receive legal notices and other important documents.
Does an LLC or S-Corp in New Mexico need a registered agent?
Yes, both an LLC and S-Corp in New Mexico are required to have a registered agent.
Can a corporation also be taxed jointly as an S-Corp and LLC in New Mexico?
No, a corporation cannot elect to be taxed jointly as both an S-Corp and an LLC in New Mexico.
How much does it cost to hire a registered agent in New Mexico?
The cost of hiring a registered agent in New Mexico varies by provider, but generally ranges from $100 to $200 per year.
Are there any exemptions to the minimum franchise tax in New Mexico?
Yes, there are limited exemptions to the minimum franchise tax in New Mexico, such as for non-profit organizations.
What is an LLC?
An LLC stands for Limited Liability Company. It is a type of business entity that provides limited liability protection for its owners.
What is an S-Corporation?
An S-Corporation is a type of corporation that is taxed as a pass-through entity, which means that the company’s profits and losses are passed through to its owners.
Are there any specific regulations for LLCs and S-Corps in New Mexico?
Yes, there are specific regulations and laws that apply to LLCs and S-Corps in New Mexico. It’s important to research and understand these regulations and obtain all required licenses and permits.
What are the tax implications of forming an LLC or S-Corp in New Mexico?
LLCs and S-Corps are both considered pass-through entities for tax purposes in New Mexico, which means that the company’s profits and losses are passed through to its owners.
What are some advantages of forming an LLC in New Mexico?
LLCs offer limited liability protection, flexibility in management structure, and relatively easy startup requirements in New Mexico.
Will forming an LLC or S-Corp limit my personal liability?
Yes, both LLCs and S-Corps offer some level of personal liability protection for its owners. However, this protection is not absolute and may vary depending on the circumstances.
Are there any restrictions on who can form an LLC or S-Corp in New Mexico?
No, there are no specific restrictions on who can form an LLC or S-Corp in New Mexico, as long as the requirements for formation are met.
What is required to form 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, and meet any other additional requirements for your specific industry or business.
What is required to form an S-Corporation in New Mexico?
To form an S-Corporation in New Mexico, you must first form a regular C-Corporation, and then file Form 2553 with the IRS to elect S-Corporation status.
Are there any annual fees or reports required 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, and pay any required fees.
Can an LLC or S-Corp have foreign owners or members in New Mexico?
Yes, both LLCs and S-Corps can have foreign owners or members in New Mexico, as long as they comply with any additional legal requirements or regulations.
Can an LLC or S-Corp be taxed as a C-Corp in New Mexico?
Yes, both LLCs and S-Corps can elect to be taxed as a C-Corporation in New Mexico, although there may be certain tax implications to consider.
Can an LLC or S-Corp be converted to another type of business entity in New Mexico?
Yes, both LLCs and S-Corps can be converted to another type of business entity in New Mexico, however there may be legal and tax implications to consider.
Are there any limitations on the number of owners or members an LLC or S-Corp can have in New Mexico?
No, there are no specific limitations on the number of owners or members an LLC or S-Corp can have in New Mexico, as long as the requirements for formation are met.
What are some disadvantages of forming an LLC in New Mexico?
Disadvantages of forming an LLC in New Mexico may include higher taxes or legal fees, and increased administrative requirements compared to other business entities.
What are some disadvantages of forming an S-Corporation in New Mexico?
Disadvantages of forming an S-Corporation in New Mexico may include higher legal and administrative fees, or difficulties in meeting eligibility requirements.
How long does it take to form an LLC or S-Corp in New Mexico?
The time it takes to form an LLC or S-Corp in New Mexico will vary depending on the complexity of your business structure and specific legal requirements.
Can an LLC or S-Corp operate in multiple states, including New Mexico?
Yes, both LLCs and S-Corps can operate in multiple states, including New Mexico, as long as they comply with the specific legal requirements and regulations for each state.
Can an LLC or S-Corp have an unlimited lifespan in New Mexico?
Yes, both LLCs and S-Corps in New Mexico can have an unlimited lifespan, as long as they comply with any legal or regulatory requirements or restrictions.
Can an LLC or S-Corp be dissolved voluntarily in New Mexico?
Yes, LLCs and S-Corps in New Mexico can both be voluntarily dissolved by their owners or members, although there may be legal and tax implications to consider.
Can an LLC or S-Corp be dissolved involuntarily in New Mexico?
Yes, both LLCs and S-Corps in New Mexico can be dissolved involuntarily in certain circumstances, such as bankruptcy or failure to comply with legal or regulatory requirements.
Can an LLC or S-Corp be owned by another business entity in New Mexico?
Yes, both LLCs and S-Corps in New Mexico can be owned by another business entity, although there may be legal or tax implications to consider.
Are there any industry-specific regulations or requirements for forming an LLC or S-Corp in New Mexico?
Yes, certain industries in New Mexico, such as healthcare or construction, may have additional regulations or requirements for forming an LLC or S-Corp.

Also Read

Conclusion

Ultimately, choosing an LLC and an S-Corp in New Mexico will depend on your business goals, management preferences, and tax considerations. It’s essential to consult with a legal or financial advisor to determine which structure is best for your business in New Mexico and help you navigate the formation process. Making an informed decision will set your business up for success and ensure you’re well-positioned for growth and profitability.

Leave a Comment