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By The Wyoming LLC Attorney Team

Sep 01, 2022

New Mexico LLC Taxes

How to Start an LLC

Forming an LLC in New Mexico has many benefits including asset protection against personal liability. New Mexico is a great LLC state because of its simple requirements (for example, it doesn’t require an operating agreement), low formation cost, low annual report fee, and laws which allow single member LLCs and anonymous LLCs. This guide delves into the taxation of LLCs, covering topics from taxation for both single and multiple-owner LLCs, to self-employment tax implications, state income, and gross receipts taxes. Additionally, it examines the choice of opting for corporate tax status and identifies which expenses LLCs can deduct for tax purposes.

What Is an LLC?

When you start a business in the US, there are a number of ways you can choose to structure it. Each way has different costs and benefits and will inform the way the business does its taxes, and how the members operate within it. With an LLC (Limited Liability Corporation), the members are sheltered from any liabilities or lawsuits that may be filed against the business. This allows them to protect their personal assets while remaining a part of the business.

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How Are Limited Liability Companies Taxed?

All businesses must pay taxes and the legal structure of the business will determine how this happens. An LLC is considered a “pass-through entity,” since the money “passes through” the business and onto its members. The members will then report the business’ information on their personal taxes. Depending on the number of members, this can be split up by percentage according to the operating agreement.

Single Owner LLCs

If there is only one member of the LLC, that one member must report all business income taxes on their personal tax report and file a Schedule C report. For filing purposes, the member will be considered a sole proprietorship and is expected to pay income taxes on all of the LLC’s profits.

Multi Owner LLCs

If there are multiple members to an LLC, the declaration will be split among them and each member will include their share when filing their personal taxes. Per the operating agreement, the members should have laid out the percentages that each one takes of the business and this should inform how much of the LLC’s profits they will report. In cases of multi-member LLCs, they are considered a partnership for tax purposes.

There’s an option for an LLC to elect to be treated as a corporation, and in that case, the LLC would have to file its own tax return. There are benefits for some LLCs to go this route, but you should thoroughly investigate both options with a CPA before deciding on this.

Taxes New Mexico LLCs Are Required to Pay

Before starting an LLC it’s important to know the taxes that New Mexico LLCs are responsible for.

Income Taxes

income taxes in the state of New Mexico, depend on the number of members within the LLC.

Self-Employment Taxes

Since LLCs pass through the members’ personal taxes, when a member makes money from business transactions it is considered self-employment and is therefore subject to self-employment taxes that pay for Social Security and Medicare. The current rate is 15.3%. As mentioned above, declaring your LLC and S Corp can help lower these taxes in New Mexico.

State Income Tax

As a New Mexico LLC, you will also be subject to state income taxes on any money you pay to yourself. The current rates for New Mexico are dependent on your tax bracket and top out at 4.9%.

Gross Receipts Tax

In New Mexico, the sales tax that an LLC may have to pay is called a gross receipts tax. This is a tax on any consumer sales for taxable goods. Typically items that are deemed essential like medicine and groceries are not taxed. The tax rate ranges from 5.125% to 8.8125% and is determined by factoring in the state, county, and municipality rates.

Should LLCs Consider Corporate Taxation?

In some cases, an LLC can elect to be treated like an S Corporation (S Corp) when filing. To do this in New Mexico the LLC must file Form 8832 which allows the business to file its own tax return instead of relying on its members. It’s essential to understand the benefits and drawbacks of this before filing.

In the state of New Mexico, there can be benefits to choosing to file as an S Corp, chief among them is the reduction in self-employment tax. This allows you to split up how you declare your profits and stipulate some of it as “distribution and withdrawals” while the rest is considered salary.

However, in New Mexico, you will also have to pay a corporation income tax as well as a corporation franchise tax if you choose to file this way.

It is really best to speak with a certified public accountant about the specifics of your business before making a decision one way or another on filing. If you know your LLC will incur a large self-employment tax, then it may be a good idea to opt for S Corp filing status, but there may be other implications that could outweigh this benefit.

What Is Tax Deductible for an LLC?

There are a number of legitimate business expenses that you can write off when filing taxes. Taking full advantage of these will be essential to ensuring your personal liability is limited when declaring your company’s profits on your personal taxes.

In general, an LLC can deduct the following items and services, but as always you should consult with a CPA:

  • Any “ordinary and necessary” expenses
  • Office equipment and supplies
  • Travel expenses (check with the IRS for specifics)
  • Office space rental
  • Capital expenses (i.e. the cost of going into business and getting everything set up)
  • Legal and professional fees
  • Insurance
  • Interest
  • Charitable Contributions
  • Taxes
  • Education expenses pertinent to doing business

To seek guidance regarding your New Mexico LLC Taxes, get in touch with a qualified professional today! If you are looking to establish your New Mexico LLC and need personalized assistance, reach out to our paralegal team by filling out the contact form or calling +1 (307) 683-0983. We are here to guide you through the process.