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When starting a company, you may think your business structure choices are limited to a corporation, a limited liability company (LLC), or a partnership. But there’s another option: an S Corporation in New Mexico. Although not a formal type of business structure, S Corporations are a tax election you make with the IRS. If approved, the IRS allows you to pass all business income, losses, deductions, and credits to the shareholders who pay the income tax at their personal rate. There’s plenty of information about S Corporations on our S Corporation information page.
We’ll walk you through each step in how to form a New Mexico S Corporation. Since you need an underlying entity to make an S Corporation election, it’s important for you to understand how to first set up a corporation or LLC. With our New Mexico Corporation Formation Service and New Mexico LLC Formation Service, we can take care of this step for you.
After creating your business, we’ll be there to support you with all the different products and services we offer for small businesses. Whether you want to write a business plan or need help keeping up with compliance obligations, we’ve got you covered.
Carefully select a name that reflects your business and complies with state law. For example, New Mexico requires that businesses include certain words in their name.
If you need help searching for a business name or reserving one, we can do that for you.
You must appoint a registered agent to receive important paperwork for your business. This can be an individual or entity.
Directors (for corporations) and managers (for LLCs) are responsible for keeping the business running day to day. It’s important to select directors or managers you trust and who are capable of handling the business operations. LLCs can choose a member to serve in this role or hire someone from outside the LLC to do so.
When you’re ready to form your corporation or LLC you must file the formation documents. Depending on the business structure, you will file either Articles of Incorporation for corporations or Articles of Organization for LLCs. Once accepted by the Secretary of State, your business is official!
Your corporation or LLC will need an Employer Identification Number (EIN) to do things like file taxes, open a bank account, get financing, and hire employees. You’ll need this number to file an S Corporation election. Let us get your business EIN for you with our EIN Service.
To make the S Corporation election, you need to file Form 2553 with the IRS. If you have an LLC, it’s important that you change the tax election to a corporation first and then make an S Corporation election.
Creating an S Corporation isn’t as simple as merely filing for the election. Your business must also meet the IRS’s following requirements:
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:
You can’t file for S Corp status before forming your corporation.
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.
There are many benefits of an S Corp, including:
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.
S Corporations have their disadvantages too. Consider the following:
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.
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.
S Corporations are small business entities that elect to pass their corporate income, losses, credits, and deductions to their shareholders, avoiding corporate double taxation.
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.
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.
Absolutely! LLCs can file for an S Corporation election to take advantage of all the tax benefits.
Visit our page on Tax Information for Limited Liability Companies to learn more!
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.
Disclaimer: The content on this page is for information purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
S Corporations offer significant tax benefits and allow business owners to take advantage of:
A New Mexico S Corp also protects the shareholder’s personal assets from being used to satisfy business liabilities.
An S Corporation’s name should reflect the products or services of the business, but more importantly, meet the state’s requirements.
Choosing an S Corporation election for your LLC depends entirely on your business’s situation. Keep in mind, not all LLCs can qualify as an S Corporation. It may be best to speak with a legal and/or tax professional to help you make this decision for your business.
S Corporations pass all income, losses, deductions, and credits through to the shareholders to report on their individual income tax returns. Although New Mexico S Corporations avoid federal corporate income tax, they’re still subject to the state’s corporate franchise tax.
Read our article on how to Calculate Your S Corporation Taxes and consider hiring a tax professional to help you calculate correctly.