If you’re currently self-employed in the state of New Mexico, or if you’re looking to enter the world of one-person business ownership, you’ve probably looked into becoming a sole proprietor.
The sole proprietorship is the simplest business ‘format’ in America, but that doesn’t mean that there aren’t rules and regulations to follow when you operate one. In addition, there are some limits to the functionality of a sole proprietorship.
In this guide, we’ll walk you through the steps to setup a sole proprietorship properly, and help you determine whether or not a sole proprietorship is a good choice for your business.
When it comes to being a sole proprietor in the state of New Mexico, there is no formal setup process. There are also no fees involved with forming or maintaining this business type. If you want to operate a New Mexico sole proprietorship, all you need to do is start working.
However, just because it’s so easy to get started doesn’t mean there aren’t some additional steps you should take along the way. While these parts of the process aren’t strictly required, many sole proprietors find that they are in their best interests.
A doing business as (DBA) name is a crucial part of many sole proprietorships, as it enables you to use an assumed name for your business, rather than your own personal name. The advantages of acquiring a DBA start with image ― most customers feel that an assumed name is more professional and trustworthy than doing business with a company that uses its owner’s personal name instead.
That said, sole proprietors can sign up for a business bank account using their DBA name, which is another step that goes a long way toward making customers feel more comfortable doing business with you.
Unlike most other states, New Mexico currently does not require sole proprietorships to register their DBAs with the state. There is no registration process or requirements on either a state or local level.
Sole proprietors without employees usually don’t need to acquire a federal tax ID number (EIN), because as a one-person business, you can typically just use your own social security number for most things an EIN is used for. Still, if you would rather not use your SSN for privacy purposes, it would be a good idea to get an EIN regardless.
Beyond that, the nature of your business will determine which taxes apply to you as a sole proprietor.
Which taxes your business pays will largely depend on the goods or services it offers. To review all New Mexico taxes (and determine which you may owe) check out this comprehensive list compiled by the Tax & Revenue Department.
Additional information, all necessary forms, and full instructions on filing may be found here on the Business Taxpayers’ page of the New Mexico Taxation & Revenue Department.
There isn’t a requirement in New Mexico for sole proprietors to acquire a general business license, but depending on the nature of your business you may need other licenses and/or permits to operate in a compliant fashion.
Many licenses are industry-specific and determined by which goods or services your sole proprietorship offers. For example, businesses dealing with food will need to acquire health permits and those selling alcohol or tobacco will require tobacco permits.
For help determining which licenses are necessary for your business, the New Mexico Regulation and Licensing Department has compiled this list of agencies that dictate licensing requirements as resources for defining your sole proprietorship’s licensing requirements.
In addition, you should check to see if your business needs any licenses or permits on the local level.
In fact, most necessary licensing in the state happens at the local level. To ensure that your sole proprietorship meets all licensing and permit requirements for its municipality, you’ll want to consult the local government. A full list of counties and their contact information can be found here for this purpose.
As opposed to a corporation or limited liability company (LLC), the sole proprietorship is not a legal business entity. The sole proprietorship is a one-person business that is not considered to be a distinct entity from the person who owns it, and it is frequently operated using the owner’s personal name.
Because there’s no distinction between the owner and the business itself, sole proprietors don’t need to file business tax returns ― they instead simply claim any business profits or losses on their personal tax returns.
Sole proprietors are allowed to sign contracts using their personal name, and along those same lines, customers can write checks to the business by using the sole proprietor’s name.
The other big difference between sole proprietorships and more formal business structures is the fact that sole proprietors are allowed to commingle business and personal assets as much as they want to. With LLCs and corporations, ownership is required to keep their assets separate from those of the company. The downside of this aspect for sole proprietors is that if your business is sued, creditors are free to pursue your personal assets like your house, car, personal bank accounts, etc. For corporations and LLCs, creditors are limited to your business assets.
While the sole proprietor is such a simple business classification that New Mexico doesn’t even require a business registration process or any type of fees, depending on how you use your sole proprietorship and what industry you operate in, you still might have some important steps that need to be taken.
When it comes to issues of taxation, licenses and permits, or even the name you want to call your sole proprietorship, you do need to be vigilant to make sure you’re not overlooking anything.
We hope this guide helped you answer any questions you had for sole proprietorships in New Mexico, and we wish you success with your business!
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