Steps to Pay Your New Mexico Small Business Taxes
Most small businesses in New Mexico will have to pay state taxes during the course of its operations. Failure to comply with your New Mexico tax obligations can result in various financial and legal penalties for your business. Thus, although it may feel intimidating, understanding your tax obligations is a crucial part of owning and operating your business.
Gathering these materials ahead of time is often one of the best things you can do to simplify the process of filing your taxes. While it may feel tedious at the time, it can save a great deal of time and stress in the long run. An easy way to do this is through the ZenBusiness Money App. This app allows you to easily send custom invoices, accept credit card and bank transfer payments, and manage your business documents from an easy-to-use dashboard.
Before You Get Started
If you’re not sure where to begin, don’t worry. Use our guide below to learn more about how to file small business taxes in New Mexico. You’ll also learn what we can do to help you keep your business legally compliant. If you need more comprehensive compliance help, our Worry-Free Compliance Service keeps track of your business’s required filings such as annual reports. It will also keep your business documents organized in an easy-to-use dashboard.
Step 1: Establish your New Mexico business’s corporate income tax obligations
Before you actually move forward with filing your taxes, there are a few important steps you should take. First, you’ll want to determine what corporate tax obligations your business may be subject to. For example, your business might be subject to what’s called a corporate income tax.
In New Mexico, any corporation that has the requirement to file a federal corporation income tax return and generates income from activities or sources in New Mexico is also subject to a New Mexico corporate income tax. This New Mexico corporate income tax is a tax on the net income of any corporation that is either employed or engaged in the transaction of business in the state or has income from property or employment within the state.
For the purposes of New Mexico’s corporate income tax, a “corporation” can include any of the following:
- Domestic corporations
- Foreign corporations
- Joint-stock companies
- Real estate trusts organized and operated under the Real Estate Trust Act
- Financial corp
- Banks or other business associations
- Limited liability companies or partnerships that are taxed as a corporation under the United State Internal Revenue Code
As of 2021, the New Mexico business tax rate on corporate income is 4.8% if the business’s total taxable income doesn’t exceed $500,000. However, for businesses with a total taxable income greater than $500,000, the corporate income tax rate is $24,000 plus 5.9% of any excess over $500,000.
In New Mexico, corporate income tax returns are due on the 15th day of the fourth month following the close of the tax year.
Pass-Through Entity Tax Obligations
Additionally, it’s important to note who is responsible for paying taxes for your business. However, this will depend on the particular type of business entity you form.
For example, in pass-through entities, tax obligations will typically “pass” to the individual owners of the business. Thus, those individuals will be responsible for paying their allocable share of the net income of the business. Pass-through entities in New Mexico include business associations other than:
- Sole proprietorships
- Estates or trusts that don’t distribute income to beneficiaries
- Corporations, limited liability companies, partnerships, or other entities other than a sole proprietorship that are taxed as a corporation for federal income tax purposes
- Partnerships that are organized as investment partnerships in which the partners’ income comes solely from interest, dividends, and sales of securities
- Single-member limited liability companies that are treated as disregarded entities for federal income tax purposes
- Publicly-traded partnerships as defined under the Internal Revenue Code
If your business is a pass-through entity, your New Mexico tax return due date is the same as the due date for your yearly federal tax return.
Step 2: Determine your New Mexico business’s employment taxes
Next, you should determine whether your business is subject to any employment tax obligations. In New Mexico, this is referred to as a wage withholding tax.
In most cases, if your business has employees, you’ll likely need to pay withholding taxes. An employee, for purposes of New Mexico wage withholding taxes, is any New Mexico resident who performs services either within or outside the state for an employer. It can also include certain nonresidents who perform services within the state for an employer.
A withholding tax is essentially a percentage of an employee’s wages that is withheld by the employer and paid directly to the state. However, the precise amount of tax to be withheld will vary depending on how many allowances an employee claims and how frequently wages are paid.
Not sure how to stay compliant? Learn more about legal compliance for small business owners.
Step 3: Establish your New Mexico business’s additional state tax obligations
While income and withholding taxes are certainly important, they are likely not the only taxes your business will need to pay. For example, some states impose a sales tax. While New Mexico doesn’t have a specific sales tax, it does impose what’s called a gross receipts tax.
This is a tax imposed on persons and entities engaged in business in the State of New Mexico. The precise gross receipts tax rate varies throughout the state from 5.125% to 8.8675% depending on the location of the business.
Another type of tax your business may be subject to is unemployment insurance contributions. This is a state program that requires employers to contribute to an unemployment reserve fund to support eligible unemployed workers. For new employers with less than two years of experience in the unemployment insurance program, the contribution rate is the greater of 1% or the industry average unemployment insurance contribution rate.
Other taxes your business may have to pay will depend on the goods and services you provide. Some examples include:
- Compensating tax
- Workers compensation
- Oil, natural gas, and minerals extraction taxes
And as always, check for any additional tax requirements that may apply in any local municipalities where you operate.
Step 4: Prepare to file and pay your New Mexico small business taxes
Next, you’re almost ready to move forward with filing your business taxes in New Mexico. Before actually doing so, however, make sure that you have all of the information you’ll need organized and available, information such as:
- Your business EIN
- Any business accounting records
- Business-related invoices and receipts
- Legal documents related to the business and its operations
Now, once you’ve gathered everything you’ll need, you’re ready to move forward with filing your New Mexico small business taxes. You can do so electronically through the New Mexico Taxation and Revenue Department’s Taxpayer Access Point (TAP) system. You can set up an account online to safely and efficiently file your business taxes with the state.
Do I need an accountant?
Lastly, you might be wondering whether you need to hire an accountant to help with filing your taxes. If this is a question you have, you’re not alone.
In short, there’s no law requiring businesses to engage an accountant in the course of running the business and filing taxes. However, the fact remains that most businesses, regardless of their size or experience, will benefit a great deal from having professional accounting help.
Filing taxes timely and correctly is crucial to the success of any New Mexico business. And while you might feel tempted to save money by doing your business’s taxes yourself, the potential benefits of hiring a certified tax professional can often outweigh any cost concerns.
Furthermore, failure to properly and timely file your tax returns can result in severe consequences for your business. Thus, to better prevent issues from arising, it’s generally recommended to seek assistance from an experienced tax professional.
How we can help
Owning and operating a business requires a lot of hard work and dedication. Having to worry about your tax obligations can add more work to your already full plate. Fortunately, however, you don’t have to handle it all on your own.
When you need help starting, managing, or growing your business, we’re here to help. We’ve made it our mission to help make things easier for business owners throughout the business lifecycle. With our ZenBusiness Money App, you can simplify your business’s finances and ensure you have all the right documents when tax time rolls around.
If your small business is still in the formation phase, our New Mexico LLC Formation Services or Corporation Formation Services can help you get started. If you’re looking for information about federal taxes, head over to our page on federal taxes for small businesses.
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.
- How much can a New Mexico small business make before paying taxes?
All New Mexico businesses that generate income must pay taxes. However, the rate will vary
depending on how much total net income the business generates.
- What percentage does a New Mexico small business pay in taxes?
In short, it depends. The current income tax rate is either 4.8% or 5.9% depending on the total amount of net income of the business. However, there may be other taxes your business will have to pay as well.
- How does a New Mexico small business pay taxes?
You can pay taxes for your New Mexico business through the New Mexico Taxation and Revenue Department’s secure Taxpayer Access Point online portal.
- Do I have to file taxes for my small business in New Mexico?
Most New Mexico businesses will have to file taxes, no matter how small the business is. If you have questions about your specific tax obligations, be sure to consult with a certified tax professional.