New Mexico LLC Taxes

There are many misconceptions relating to New Mexico LLCs and how they are taxed. This is due to the flexibility Limited Liability Companies have when selecting their form of taxation. It is also because providers in other states are promising benefits they cannot deliver.

For example, many consider forming a Nevada or a Wyoming LLC because those states offer no income tax. However, a majority of clients will never see this benefit because LLCs are usually have pass through status. This is something the other incorporation providers dont tell you while they are busy trying to sell you.

What is Pass Through Taxation?

A pass through election is when the company's earnings flow directly onto your personal income statement. In short, this means you record the company's earnings as if they are your own. If you live in Ohio, this means you pay Ohio's personal income rate. If you live in Georgia or Washington, then you pay that state rather than where you incorporated. For this reason, it doesn't matter where you create your company or where your registered agent is. What matters, for LLC taxation, is where you live.

This means limited liability companies avoid the dreaded "double taxation" that corporations experience.

New Mexico LLC Taxation - Pass Through by IRS Default

Forms of Pass Through Taxation

The Pass through classification is the default for limited liability companies. If you are a single-member LLC, then your company will be considered a disregarded entity. If you have multiple-members, then the company will be treated as a partnership. In a partnership, the company will issue a K-1 report to the IRS with the owners in turn reporting that income on their personal statement's. The K-1 is required to ensure the owner's stay honest about their share of earnings. The company does not pay any taxes itself.

There is also the option of electing for Subchapter-S, or S-Corp, taxation for an LLC. This is just another pass through election and is not inherently better than being a disregarded entity or partnership. Your accountant can tell you which is better for your situation and the answer may change year to year.

Changing Your Default Classification

The Internal Revenue Service assigns you a default classification when you apply for your Employer Identification Number. If you want to change it, then you must submit either form 2553 for S-Corp taxation or form 8832 for everything else. We can assist you with filing these forms if needed.

You have 75 days after obtaining your EIN for submit the above forms and have them be retroactive. After that period, you may change your classification once every five years and the change will not be retroactive.

Interested in Learning More?

Thank you for reading our section on New Mexico LLC taxes. Did you know LLCs in New Mexico are anonymous? The Secretary of State does not request to know who the owners are. To make our life easier, we also offer free mail forwarding and virtual offices for those needing more. Please reach out today with any questions.

If you're self-employed, you've felt the 1099 pinch in April more times than you can count. It's an unfortunate truth of being self-reliant and running a business that's just your own. Self-employment taxes are rough because they're developed to encourage people to work for companies. Why? Companies are simply easier to keep track of for government needs. If they incentivize you to work for a company, it makes their job easier.

It doesn't necessarily mean that they're getting more funding from it. Let's take a look at how an LLC can benefit you, your business, and your taxation bracket. We'll be talking about federal taxes only in this article. If you're interested in local taxes or state taxes, we recommend looking through our library of articles in your state. We're sure to have one specifically made for you.

How You Are Taxed

When you place your business in the hands of an LLC, you are no longer taxed for your business as a private business owner. Instead, the LLC is taxed. You are only taxed for your earnings as a single person, employed by your LLC. For taxation purposes, your LLC will be as large a company as any other in its tax bracket.

You'll also have the option of choosing from two different taxation scales. We won't get too into those in this article, but we have several available about C and S taxation as an LLC. Each one can benefit your LLC based on its earnings, its losses, and exactly where it is in the evolution of existing as a business.

Your Wages or Your Assets

One tricky way of lowering your taxes is keeping your assets involved in the company, or having the company pay for necessary items. This doesn't mean that you use company funds to enjoy your trip to Disney World unless there's a verifiable business reason (such as a convention based around your business) to do so. It does mean that you can write off your new truck purchase if you are a farm and you require the truck to conduct business. Simple, right?

Many small or single-person LLCs use this all the time to avoid high taxes during a particularly successful business year. You get write-offs for your needed business-connected purchases rather than having to worry about them on your own tax reports. We'll talk more about some other ways to do this legally in a minute.

Leasing Option

Your home office? You can lease that from yourself, deduct the lease from your personal income, and essentially create a totally legal tax circle. You make no income from the lease because you are the person leasing it, yet your business can write off everything in seconds.

You can also do this if you need a more substantial business structure or perhaps if you need to rent equipment for an event, a repair, or something else. If you can legitimately tie the daily function of your business into the situation, you can certainly use it as a write-off during tax season. Renting rather than buying (and being responsible for the upkeep of the equipment long-term) may be a bit more costly, but it also ends up being another wonderful deduction for you. Weigh it appropriately.

Other Various Business Expenses

If you are supporting the LLC as you are conducting your daily regimen, you can write it off. Though we suggest that you don't get too excited writing off things like your daily lunch, you certainly could do that if you were out on a business supplies trip and had to grab food.

Avoid extravagance and daily minutia if you can. Let the little things pile up, like business supplies and that scissor lift you had to rent to remove a tree from your house/place of business, instead.

The Line Between

The difference between an extreme number of tax write-offs and those which fall into a "smart" category varies greatly depending on your business. It's impossible to tell you, personally, where that line is. After all, a cattle farmer will have much different deductions than someone whose LLC is inflatable bounce house rentals for kid's birthday parties. Simply remember that you can be audited at any time and required to provide proof of purchases, leases, and other such documentation.

And the IRS doesn't play nice with those who don't give them what they want and what they need to process your audit. We recommend keeping at least 5 years worth of documentation in a safe location at all times.

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