By The Wyoming LLC Attorney TeamJun 24, 2022
An LLC in New Mexico offers numerous advantages over a sole proprietorship, including tax savings, liability protection, privacy, and professionalism. While sole proprietorships have lower initial costs, they come with higher taxes and unlimited liability. The choice between an LLC and a sole proprietorship depends on your business's size and goals
A limited liability company (LLC) is a business structure in the United States set up so that the members are not personally liable for the company's debts or liabilities.
There aren’t a lot of disadvantages to starting an LLC aside from a little more paperwork, fees, and filing with the state. In New Mexico, however, there is no requirement that LLCs file annual reports or pay annual fees.
A sole proprietorship, sometimes called a sole trader or a proprietorship, is a business structure in which there is only one owner who has to pay personal income tax on profits earned from the business and the business remains unincorporated.
On the surface, there are potentially a lot of disadvantages to having a sole proprietorship, though depending on the purpose and structure of your business, their effect may be negligible.
While both an LLC and a Sole Proprietorship are simple ways to set up and structure your business, they should not be thought of as interchangeable. Generally speaking, a sole proprietorship is good for a single person with a hobby or small business without much prospect of growth or adding employees. It is very easy to set up a sole proprietorship in New Mexico and can be done without filing legal paperwork with the state.
On the other hand, an LLC must be applied for with the state, and you are required to keep up with any fees and requirements to stay in compliance. In New Mexico, however, there are no annual maintenance fees or filing requirements for LLCs. LLCs are good for businesses that want to have a more professional face, who have or may have more than one member, and whose members want to protect their personal assets from the liability of the business.
To start a sole proprietorship in New Mexico there’s really not much you have to do. If you want to choose a business name that is different from your name, you should file it as a trademark with the Secretary of State. If your business name is just your name or last name (ex: Jane Smith’s Tree Services), you can just start using it. If you plan on having employees or if you want to err on the side of safety, you can obtain an EIN (Employer Identification Number) to file taxes with.
To start an LLC in New Mexico you must choose a name and ensure no other LLC in the state has the same name, choose a registered agent who will be responsible for receiving all communication from the state, and draft and submit Articles of Organization with the state along with a filing fee of $50.
With both an LLC and a Sole Proprietorship you may file your business taxes through your personal taxes. In a sole proprietorship, the money you make from your business is viewed as self-employment income, and all your business income is considered personal income. An LLC’s income can also be passed through a member’s personal taxes, but they also have the option to elect to be taxed as a corporation, s-corp, or partnership. This designation allows the LLC to take corporate benefits that an LLC cannot such as reducing self-employment taxes. benefits that an LLC cannot such as reducing self-employment taxes.
If you are a single person with a hobby that you’re interested in making money off of, or if you have a small part-time business where you are the only employee, it might make sense to start a Sole Proprietorship for the ease of maintenance and tax filing.
If you have or want to have a more established business with potentially more employees, it’s best to start an LLC to shield yourself from any future liabilities. Even if you are the only member of your LLC, it can benefit you. The extra costs for setting it up and maintaining it will usually pay for themselves in the tax benefits.
Are you ready to set up your New Mexico LLC? If you have any questions or need assistance, please don't hesitate to contact us through our contact form or call +1 (307) 683-0983. Our team of experienced paralegals is here to help you navigate the process.