File a New Mexico S Corp

Considering launching an S corporation in New Mexico? This tax status might be the key to unlocking potential tax savings for your business. Especially for those operating a limited liability company (LLC) in the Land of Enchantment, choosing an S corp could mean a more favorable tax scenario. Typically, profits from an LLC are hit with self-employment taxes, but by opting for S corp status, business owners have the opportunity to change how they pay these taxes. In an S corp, owners can receive a salary from the business’s profits, and only this salary portion is subject to self-employment taxes. The remaining profits, which may be distributed as dividends, are not taxed in the same way, potentially allowing owners to keep more of their earnings.

This guide aims to navigate you through the process of setting up an S corp in New Mexico, showing how this choice can help ensure your business takes advantage of tax efficiencies while meeting all legal requirements.

S Corporation Requirements and Limitations

Creating an S Corporation isn’t as simple as merely filing for the election. Your business must also meet the IRS’s following requirements:

• Be formed in the United States
• Have no more than 100 shareholders
• Have no more than one class of stock
• Not be an ineligible corporation (e.g., insurance company, certain financial institutions, or international sales corporation)
• Have only allowable shareholders 

All shareholders must unanimously consent to the S Corporation election. If you’re still not sure whether a New Mexico S Corporation is right for you, it’s a good idea to speak to legal and financial professionals about your best business options.

The timeframe to file Form 2553 is either:

• Within the first two and half months of the year that you form the underlying entity if the election is to be effective in the first tax year, or
• Any time during the tax year before you want the S Corporation status to take effect.  

You can’t file for S Corp status before forming your corporation. 

What to know before creating an S Corporation in New Mexico

As discussed above, you need to create a business entity before filing for an S Corporation election. When you form a corporation, the entity is a C Corporation by default and is taxed as such. To benefit from the tax treatment of an S Corporation, you have to go through the New Mexico S Corporation filing requirements. 

What’s the difference between an S Corporation and a C Corporation?

The main difference between S Corporations and C Corporations is their tax treatment. C Corporations are taxable entities that pay double income taxes, and S Corporations don’t. The way it works is when a C Corporation generates income, it pays corporate income tax, and then when the shareholders receive distributions, they also pay income tax on their dividends. S Corporations avoid the corporate tax altogether and pass their income directly to the shareholders, who report the income on their individual returns. 

What are the requirements to create an S Corporation? 

To form an S corporation, you must create an entity that satisfies the IRS’s requirements listed above, and then timely file Form 2553 with the IRS. 

How to Set Up an S Corp in New Mexico

If you’re ready to learn about filing as an S corporation in New Mexico, we’ll walk you through the process. First, we’ll show you how to form an LLC in New Mexico and how to form a New Mexico corporation. Then we’ll explain how to file for S corp status as either an LLC or corporation.

S-Corp Election Steps for LLCs

For detailed formation steps, see our New Mexico LLC formation guide.

• Step 1 – Choose a Name 
• Step 2 – Choose a Registered Agent
• Step 3 – Choose Directors or Managers 
• Step 4 – File Formation Documents with the New Mexico Secretary of State
• Step 5 – Apply for S Corp status with IRS Form 2553

S-Corp Election Steps for Corporations

For detailed formation steps, see our New Mexico Corporation formation guide.

• Step 1 – Name Your New Mexico Corporation
• Step 2 – Appoint Directors
• Step 3 – Choose a New Mexico Registered Agent
• Step 4 – File the New Mexico Articles of Incorporation
• Step 5 – Create Corporate Bylaws
• Step 6 – Draft a Shareholder Agreement
• Step 7 – Issue Shares of Stock
• Step 8 – Apply for Necessary Business Permits or Licenses
• Step 9 – File for an EIN and Review Tax Requirements
• Step 10 – Submit Your Corporation’s First Report
• Step 11 – Apply for S Corp status with IRS Form 2553

File Form 2553 to apply for S Corp status

Submit the form to apply for S corporation status. Once your LLC or C corporation formation is approved by the state, you need to file Form 2553, Election by a Small Business Corporation, to apply for S corp status. 

The IRS requires that you complete and file your Form 2553: 

• Within 75 days of the formation of your LLC or C corporation, or no more than 75 days after the beginning of the tax year in which the election is to take effect

OR

• At any time during the tax year preceding the tax year the election is to take effect.

One note for LLCs filing as an S corp: If your LLC is past the 75-day election deadline, you’ll also need to file Form 8832, Entity Classification Election, to elect to be taxed as a corporation. Then you would file both Form 8832 and Form 2553 together via USPS-certified mail. 

For more information on filing Form 2553, visit the IRS’s website.

Pros and Cons of Creating an S Corp in New Mexico

S Corporations don’t work for every business, so it’s important to look at both the pros and cons. A legal or tax professional can also help you decide if a New Mexico S Corp is beneficial for your business. 

Pros

There are many benefits of an S Corp, including:

• Asset protection 
• Elimination of double taxation
• Use of the cash method of accounting

What makes S Corporations so attractive is the tax savings they provide. S Corporations pass income, losses, credits, and deductions through to the shareholders, so income tax is paid on the individual level, which is typically lower than the corporate rate. The other tax benefit is the flexibility for S Corporations to qualify distributions as either dividends or salaries. Dividends are not subject to self-employment tax, like salaries. The result of this is a lower tax bill at the end of the year. 

Cons

S Corporations have their disadvantages too. Consider the following:

• Can be expensive and time-consuming to form and maintain
• Not all businesses will meet the IRS’s requirements
• Lack of flexibility with profit and loss sharing
• Closely scrutinized by the IRS

Our list of pros and cons is not exhaustive. We recommend that you talk to a professional about whether an S Corporation will align with your business needs and goals. 

S Corp Tax Calculator

The S Corporation tax calculator below lets you choose how much to withdraw from your business each year, and how much of it you will take as salary (with the rest being taken as a distribution.) It will then show you how much money you can save in taxes.

Disclaimer: The savings estimate provided by this tool is for informational purposes only and should not be considered financial, tax, or legal advice. Actual savings may vary depending on individual circumstances and other factors. We recommend consulting with a qualified tax or legal professional before making any decisions regarding your business entity. ZenBusiness, Inc. is not responsible for any actions taken based on the information provided by this tool. Use of this tool does not establish any client relationship with ZenBusiness, Inc.

Get help establishing a New Mexico LLC with S corp tax election

If you think your business can benefit from electing S Corporation status, then let’s get started! With our S Corporation Service, we can help you get the job done quickly. If you’re in the beginning stages where you still need to form a corporation, our experts are happy to assist.  

As you continue on your journey as a business owner, know that we’re here with the tools, products, services, and resources you need. Our goal is to help entrepreneurs create, run, and grow their dream business.