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Swyft Filings is committed to providing accurate, reliable information to help you make informed decisions for your business. That's why our content is written and edited by professional editors, writers, and subject matter experts. Learn more about how Swyft Filings works, our editorial team and standards, what our customers think of us, and more on our trust page.
There’s more to starting a business than meets the eye. If you’re an entrepreneur looking to form an S corporation in New Mexico, remember that it’s not as simple as making a declaration. S corp status lets business owners pass business income, losses, deductions, and credits to shareholders for federal tax purposes.[1] This guide will help walk you through forming an S corp in New Mexico.
S Corporation in New Mexico: Key Points
An S corp is not a business structure so much as it is a specific tax classification that a New Mexico LLC or C corporation can elect.
S corporations in New Mexico must pay a corporate franchise tax.
Before selecting S corp status, business owners must start a typical business structure, such as an LLC or C corporation.
Unlock tax savings and ensure compliance with critical regulations with our assistance.
What is an S Corporation?
Electing S corp status means choosing a tax classification for your business entity to follow when filing taxes annually. As mentioned earlier, S corps allow business owners to pass all business income, losses, deductions, and credits to shareholders for federal tax purposes. Even though S stands for “standard,” an easy way to remember it is by thinking of S for “shareholders.”
Unlike a limited liability company (LLC), an S corp is a tax classification, not a business structure. Business owners can look into different types of business structures. For example, you can form an LLC and then elect a tax classification, like an S corporation or C corporation, to determine how your business will file its taxes. Note that an S corp is a pass-through entity, but a C corp is not.[1]
Due to state and federal law enforced by the IRS, businesses must file corporate taxes each year. As mentioned, S corps are pass-through entities. This means that instead of filing corporate taxes separately, taxes pass through to the business’s shareholders. Shareholders then file business taxes on their personal tax returns, assessed at individual tax rates.
Tax Considerations for an S Corporation in New Mexico
Remember that because S corp status is a tax classification and not a business structure, it’s essential to consider how your business pays taxes and what this means for shareholders. An S corp has its own set of rules when it comes to filing taxes on a federal level, and New Mexico has state laws that business owners and shareholders need to follow.
S corp shareholders report the business’s income and losses on their personal tax returns. The IRS assesses taxes at the shareholders’ individual income tax rates. A benefit for small business owners is that S corps can avoid double taxation on their corporate income. However, S corps are responsible for paying tax on certain gains and passive income at the entity level.[1]
New Mexico Tax Treatment of S Corporations
According to the Taxation and Revenue Department of New Mexico, pass-through entities in the state must file an income tax return.[2] Pass-through entities include both S corps and limited liability companies (LLCs). Even though an S corp is a tax classification and an LLC is a business structure, both are classified as pass-through entities and must follow the state’s tax laws.
S corps in New Mexico can file and pay their taxes using the Annual Withholding of Net Income From a Pass-Through Entity Detail Report, also known as Form RPD-41367.[2] The State Department passed new legislation in 2022 that allows businesses with elected S corp status to file their taxes directly.[3] The form can be filed and paid online through the department’s website.[2]
New Mexico Franchise Tax for S Corporations
Any domestic or foreign business in New Mexico must pay a corporate franchise tax. All corporations, whether actively engaged in business or not, must pay the tax if they hold corporate franchises in the state. S corporations are included in this requirement.[4]
The Taxation and Revenue Department defines a corporation that exercises its corporate franchise as one that “seeks treatment as a legal entity or person who is subject to the jurisdiction of, and privileges provided, by state law.”[4] If you are unsure if this applies to your LLC, S corp, or another entity type, consider consulting a tax professional who can offer more guidance and clarity.
Examples of entities that exercise corporate franchise can include:
Registering a trade name
Appointing a registered agent
Appointing any agent to carry on activity in New Mexico
Registering with any regulatory agency of the state, like the New Mexico Secretary of State
Using the New Mexico judicial system to collect debt or enforce contracts
Filing legal documents for public notice with any New Mexico county clerk
Owning property in New Mexico[4]
Pass-Through Taxation
The tax treatment of S corps differs from that of a shareholder’s income tax. Any pass-through entity registered to do business in New Mexico needs to file corporate income tax. This requirement also applies to entities that have transactions in, into, or from the state, as well as ones that receive any income from property or employment within the state.[2]
Not only do pass-through entities in New Mexico need to file their tax returns by the federal due date, but they also need to consider other legal requirements. For example, the United States internal revenue code states that S corps must deduct and withhold tax from each non-resident owner’s allocable share of net income. This withheld tax is remitted to the state department annually.[2]
Requirements for Forming an S Corporation in New Mexico
From Santa Fe to Albuquerque, any business owner who wants to form an S corporation in New Mexico needs to follow the same process. This section will review the different requirements a business must meet to qualify for S corp status. Unfortunately, not all companies are eligible. Swyft Filing’s online filing service can help ensure you don’t miss any of the essential steps.
Electing S corp status means that shareholders must take on their entity’s business-related taxes on both state and federal levels. While this tax classification appeals to small businesses like LLCs, not every company can elect S corp status.
According to the IRS, businesses must meet the following requirements to qualify for S corp status:
Be a domestic corporation, i.e., operate in the United States
Have only allowable shareholders
Allowable: individuals, certain trusts, U.S. citizens, or estates
Not allowable: partnerships, corporations, or non-resident aliens
Have no more than 100 shareholders
Have only one class of stock
Not be an ineligible corporation, such as certain financial institutions, insurance companies, or domestic international sales corporations[1]
Filing as an S Corp in New Mexico
The process for filing an S corp varies from state to state. Be sure to follow state-specific laws and other federal rules when electing S corp status. These will differ for each state in which the business operates. Let Swyft Filings help you with your S corp formation to save money and time. We prepare the required legal documents and file them directly with the Secretary of State.
Once you’ve checked that your business can elect S corp status, you can proceed with the filing. Multiple filing requirements exist, from choosing your unique company name, hiring a registered agent, and applying for an Employer Identification Number (EIN).
Step 1: Choose a Business Name
The first step is to choose a name for your entity. While the New Mexico Secretary of State website has information and resources on how to start a business, the state’s online Business Portal is where to go to get started in the process. Your business name should not only be unique and memorable for your S corporation in New Mexico, but it also needs to follow a few key steps before going live.
First, conduct a business name search to make sure it’s available. You can do this using the Business Portal’s online database of business names. It’s essential to do this to make sure that the name you choose for your entity applies to your entity only. If the name has already been registered in the state, you could risk legal trouble if your S corp operates under the same name in New Mexico.
There are four different ways to register your business name, each with various protections:
Entity name
Trademark
Doing business as (DBA)
Domain name[5]
Registering your entity name at a state level means that no other business in New Mexico can operate with the same name. But what happens if you want more protection? In this case, you could consider trademarking your name, which protects it at a federal level.[5] To trademark your name, head to the United States Patent and Trademark Office.
If you have a name in mind but aren’t ready to form your S corp, the Secretary of State lets business owners reserve their name. Names of domestic LLCs can be held for 120 days by filling out an online form and paying a $20 filing fee. Before doing this, make sure to see the name is available. Check the guidance on reserving a name, which includes information on how to mail in a form.
Step 2: Appoint Directors and a Registered Agent
State law requires all businesses operating in the state to have a New Mexico registered agent. Otherwise, they risk not being in good standing and compliant. A registered agent can be either an individual or corporation that is authorized to accept service of process on behalf of the entity.[6]
In addition to accepting service of process, registered agents also serve as the address linked to the business, keep certain information about the companies they represent and more. For example, if the business is sued, your agent would receive the legal documents in a lawsuit case. They keep your entity in good standing and help relieve administrative burdens and legal headaches.
To find a New Mexico Registered Agent, check out Swyft Filings’ registered agent service to help you find a professional agent that fits your business’ needs.
Step 3: File Articles of Organization
Also known as “Articles of Incorporation,” this is a crucial document to forming your business. It contains essential information so that the state recognizes the entity as fully formed, in which case, the state will issue a Certificate of Organization. Copies of these business formation documents, among others, can be saved online through an individual’s account.[7]
Each state is different, but at a minimum, your New Mexico Articles of Incorporation should contain the following:
The name of the business
The professional services your business offers
The business’ registered address
The name and address of each business owner
The filer’s name and contact information
Signature and date
The document can be filed online or printed and mailed to the New Mexico Secretary of State. Applications require a filing fee ranging from $100 to $1,000, which depends on the number of your business entity’s authorized shares. The form offers more guidance on how much to expect to pay, as well as who to make the check or money order payable to.[8]
Also, remember that because S corp status is a tax classification, it’s likely that business owners will have to file for an LLC before applying for S corporation status. Consider another structure if an LLC isn’t the right fit for your business needs. The New Mexico Business Portal offers guidance on other structures, like a sole proprietorship, partnership, or corporation.
Step 4: Create an S Corp Operating Agreement
Consider creating an S corp operating agreement. While not required by state law, it is a legal document that acts as the sole governing document for your business. Its primary purpose is to define who has decision-making powers.
Creating an operating agreement helps establish who has ownership over the company. These individuals should be involved in financial and functional decisions, like making rules and provisions. It also helps guide the entity’s internal operations according to the business owners’ needs while outlining each owner's responsibilities to keep the business running.
When drafting your operating agreement, you could include the following:
A description of the business structure
The names of the business owners
A brief explanation of owners’ responsibilities and management styles
Step 5: Apply for an Employer Identification Number
An Employer Identification Number (EIN) is similar to an individual social security number (SSN). The IRS uses this unique number to identify your business when you file your taxes annually. Most businesses need an EIN to do meaningful and valuable tasks, like open a business bank account, get a credit card, apply for required licenses, and report your taxes.[9]
In addition to an EIN, all owners of New Mexico businesses also need a New Mexico CRS Tax ID number. Head to the Taxation & Revenue website to get a state CRS number. Note that you need an EIN before applying for a state CRS number, as well as your business registration number from the Secretary of State.[10]
Step 6: File Form 2553 for S Corporation Election
Last but not least, business owners must officially register their S corp. This is how the IRS recognizes a business entity with S corp status, granting it as a pass-through entity. Remember that electing S corp status means choosing a tax classification, not a business structure like an LLC. Choosing this election is what permits pass-through tax benefits when filing.
To complete your S corp election, complete Form 2553 (Election by a Small Business Corporation) online with the IRS. Be sure to make this election at any time during the tax year before the tax year you want it to apply to.[11] This can’t be done any later than two months and 15 days after the tax year starts. However, there is relief for late elections if you aren’t able to file your form on time.
You need to file your form within 75 days of forming the business. If you file past the deadline, you will need to file an additional form. Known as Form 8832 (Entity Classification Election), this allows the business entity to be taxed as a corporation, and must be done together with Form 2553. For more information, contact the Department of the Treasury at the IRS Center in Utah or see here.
New Mexico S Corp vs. New Mexico LLC
Rather than simply filing for a New Mexico LLC and leaving it at that, S corp election has pros and cons regarding liability protection, tax purposes, and more.
Advantages of Starting an LLC in New Mexico
Forming an LLC is an attractive option for small business owners because it is relatively cheap and easy to create compared to other business structures, offers personal liability protection and flexible taxation, and can come with flexibility in ownership and management. If you’re a business owner looking to start an LLC, you can do so in minutes — and for free — with Swyft Filings’ online LLC filing service.
Disadvantages of Starting an LLC in New Mexico
On the other hand, there are some downsides to forming an LLC. Because it’s a business structure, the IRS doesn’t recognize LLCs as a tax classification. This means filing for an LLC, or settling for the default, sole proprietorship taxation if there is only one owner, or partnership taxation if there is more than one. From there, you can elect S corp status, which takes more time and requires more work.
Advantages of Forming an S Corporation in New Mexico
One of the most popular reasons business owners might form an S corp is to get beneficial tax treatment. As mentioned, S corps are pass-through entities. This means shareholders report the company’s income and losses on their personal tax returns. Filing on a personal return allows the IRS to recognize individual income tax rates. It prevents shareholders from having to file twice.
Disadvantages of Forming an S Corporation in New Mexico
Alternatively, S corps also have their cons. For example, things might get complicated when choosing a tax classification or managing members.[12] This is why establishing an operating agreement early on is essential. Electing S corp status also means your LLC will face stricter administrative requirements than sole proprietorships or limited partnerships.
Ready to File for S Corp Status in New Mexico?
Forming an S corporation in New Mexico takes time, money, and energy. If you’re looking for a solution to getting S corp status with the process done successfully from start to finish, try using Swyft Filings as a service. Each step needs to be done correctly to ensure your business gets up and running and to ensure that you follow legal requirements on state and federal levels.
Entrepreneurs and small business owners can use our S-corp filing service to free themselves of administrative headaches. We check S Corp limitations early on, guarantee efficient turnaround times, and let you focus on what’s important: running your business. You can trust that everything is done correctly by letting us handle the paperwork.
Maximize Tax Benefits: Experience pass-through taxation with New Mexico S corp status and avoid double taxation.
Access a One-Stop Solution: Establish an LLC or C corporation easily and then transition to S corp status, all within our platform.
Stay Compliant: Our compliance alerts help keep you up-to-date on all the complex compliance requirements of an S corp so you can stay on the government’s good side.
Frequently Asked Questions
What is an S Corporation in New Mexico?
A New Mexico S corp is a business that operates as a pass-through entity, meaning any business-related income, losses, deductions, or credits pass through to shareholders. Shareholders then file business taxes on their personal tax returns using their individual tax rates. This makes it a desirable option for small business owners for federal tax purposes.
Does New Mexico recognize S corporations?
Yes, the state recognizes S corps once they are filed successfully with the IRS. After registering your business, you can elect S corp status as its tax designation with the IRS using Form 2553.
What is the turnaround time for filing for S corp status with the IRS?
On average, business owners will be notified of their business entity’s S corp status within 60 days after filing Form 2553.[13]
What is the difference between an S corp and an LLC?
An LLC is a business structure that needs to elect a tax classification. An S corp is a type of tax classification. An LLC can be filed with the New Mexico Secretary of State, whereas the S corp election goes through the IRS. Business formation as an LLC is done on the state level while electing the tax classification is on the federal level.
What are the requirements for an S corporation in New Mexico?
Entities must fit specific requirements to qualify, according to the IRS. S corp election is a federal-level tax treatment, meaning entities must operate domestically in the U.S. In addition, S corps must appoint only allowable shareholders (individuals, certain trusts, or estates), have no more than 100 shareholders, and have only one class of stock, among other requirements.
Are taxes for LLCs and S corps the same?
No, an LLC is a business structure that must elect a tax classification. Four tax classifications exist: S corp, C corp, partnership, or sole proprietorship. Only some of these are pass-through entities, while others are not. Each tax classification serves a different purpose and comes with pros and cons.
What is the S corp tax rate?
It depends. Since S corps are pass-through entities — meaning shareholders report the business’ profits and losses on their own, individual tax return — taxes will be assessed at that individual’s tax rate. However, S corps in New Mexico must also report income tax. The state’s corporate income tax rate ranges from 4.8% to 5.9%.[14]
How do I dissolve an S corporation in New Mexico?
To dissolve your New Mexico S corp, request a Corporate Certificate of No Tax Due from the state Taxation & Revenue Department. Tax filings must be current to avoid state fees or other penalties. For more information, contact the Secretary of State at (505) 827-3600 or check the Taxation & Revenue Department’s online guidance on how to close your business.
Bibliography
Internal Revenue Service. “S Corporations.” Accessed May 8, 2023.
Taxation & Revenue: New Mexico. “Pass-Through Entity.” Accessed May 12, 2023.
Taxation & Revenue: New Mexico. “Department clarifies instructions for pass-through entities.” Accessed May 12, 2023.
Taxation & Revenue: New Mexico. “Corporate Income & Franchise Tax Overview.” Accessed May 12, 2023.
U.S. Small Business Administration. “Choose Your Business Name.” Accessed May 13, 2023.
New Mexico Secretary of State. “Limited Liability and Corporation FAQ’s.” Accessed May 13, 2023.
New Mexico Business Portal. “Business Formation Documents.” Accessed May 13, 2023.
State of New Mexico: Secretary of State. “Domestic Profit Corporation Application Checklist.” Accessed May 13, 2023.
Internal Revenue Service. “Employer ID Numbers.” Accessed May 13, 2023.
New Mexico Business Portal. “Obtain Tax Numbers.” Accessed May 13, 2023.
Internal Revenue Service. “Instructions for Form 2553 (12/2020).” Accessed May 13, 2023.
Upcounsel. “Disadvantages of an LLC: Everything You Need to Know.” Accessed May 13, 2023.
Internal Revenue Service. “Instructions for Form 2553 (12/2020).” Accessed May 13, 2023.
Tax Foundation. “Taxes in New Mexico.” Accessed May 13, 2023.
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