What is an LLC?
An LLC is a Limited Liability Company. It is a business structure that allows its members and owners to protect their personal assets from any liabilities or lawsuits that may be filed against their business. It also allows flexibility in that the member or members can use their personal taxes to record the business income, or they may choose to elect to be treated as a corporation, s-corp, or partnership in which case the business itself will file a tax return.
What is a Single Member LLC?
When an LLC only has one member or owner it is considered a Single Member LLC (SMLLC). By default, any SMLLCs are considered to be “disregarded entities” legally which mean that the business is automatically treated as part of their personal tax filings. In order for this to change, you must file Form 8832 to be treated as a corporation or s-corp for tax purposes.
Single Member LLC Benefits
There are many benefits to forming a SMLLC and it is usually recommended to go this route instead of a sole-proprietorship for protection, professionalism, and tax flexibility.
Ease of Start up
It is relatively easy to start a SMLLC though the exact requirements will vary by state. In New Mexico you will have to prepare initial filings along with a $50 fee, but after that there are no requirements for annual reports or fees which make it a popular state to form LLCs in.
Potential tax savings
Although a SMLLC and a sole-proprietorship are taxed the same way by default, a SMLLC has more flexibility and options for electing to be taxed as c-corp or s-corp for potential tax savings.
Protects the owner
A SMLLC structure shields its owner from any lawsuit or liability that affects the business, thereby protecting the individual’s assets from litigation.
It’s possible to form a SMLLC without using the owner’s name. The registered agent as well as the manager can be a business entity or anonymous, providing more security and privacy.
More professional than a sole-proprietorship
A Single Member LLC designates your business as legitimate and will be taken more seriously in the eyes of consumers and the business community.
How to Form a Single Member LLC
in New Mexico
Forming a SMLLC in New Mexico follows the same guidelines as forming a multi member LLC. You will first have to pick a business name that is not currently in use by another New Mexico LLC, then file your Articles of Organization along with a $50 filing fee with the state. In this document you will need to stipulate a registered agent who is responsible for receiving all state communication as well as a manager (if applicable). If there is only one member, as is the case for SMLLCs, this may all be the same person which will make filing a bit easier.
By classifying your business as a SMLLC you are designating it as a legitimate business, and are setting up your business for future adjustments like expansion or passing the business on to another owner. Since the SMLLC forms a separate business entity, it can be easier to distinguish between your personal affairs and those of your business.
How are New Mexico
Single Member LLCs Taxed?
Since SMLLCs are classified as “disregarded entities” for tax purposes, all business information will be filed along with the sole member’s personal taxes though their Schedule C form, and the business and the person will be treated as one entity.
If the owner wishes to be taxed as a c or s-corp, they can do so by filing Form 8832 with the federal government. It is recommended that you consult with your CPA before doing this, though there could be significant tax benefits by filing this way. Note that a SMLLC cannot be taxed as a partnership, since that would require more than one member. Only a multi-person LLC can elect to be taxed as a partnership.
Taxes Single Member LLC are required to be paid
- Federal income tax - The owner of a SMLLC will have to report the business income on their personal taxes through a Schedule C.
- State income tax - In New Mexico, LLCs are required to pay state income tax which ranges from 1.7% to 4.9% depending on your income bracket. If the business sells taxable goods to consumers, they will also be required to pay a gross receipts tax (sales tax).
- Self-employment tax - Because you will be paying yourself from the profits of the business, this income is considered self-employment and is therefore subject to self-employment taxes like Medicare and Social Security.
Do Single Member LLCs need an EIN?
An EIN stands for Employer Identification Number, and is used by the federal government as a way of classifying and keeping track of businesses, much like social security numbers work for individuals.
Technically, a SMLLC does not need to obtain an EIN and instead can use the owner’s SSN and TIN (Taxpayer Identification Number - used only for individuals, not businesses) for tax filing purposes. However, it can be helpful for the LLC to obtain an EIN.
One benefit to using an EIN is increased safety against identity theft. Many individuals do not wish for their SSN to be used or listed anywhere it doesn’t have to be, and an EIN allows for further separation of individual and business. An EIN also allows the LLC to expand in the future and enables them to elect to be considered a c-corp or s-corp for filing purposes. If the LLC will have to file any excise taxes, you will also need an EIN. Lastly, most banks will not allow you to open a banking account or give business loans without an EIN.
To obtain an EIN you will file Form SS-4 with the federal government.