What Taxes Are Owed on Business Income in New Mexico?
When determining what type of tax applies to your income, generally it’s the entity structure of your business that will be the major factor. For example, most states implement a corporate income tax, so if your business is a C-corporation, you’ll be impacted. On the other hand, S-corporations and LLCs that enjoy pass-through taxation will be impacted by the state’s personal income tax.
These corporate and personal income tax rates can differ from state to state. Note that corporate income tax rates tend to be flat rates, meaning that they’re consistent regardless of income amount. Whereas personal income tax rates tend to fluctuate based on the individual’s amount of income.
Not all states have a corporate income tax, though most do (including New Mexico). In addition to taxes levied on corporate or personal income tax, many states have an additional tax for certain businesses called a franchise tax (also known as a privilege tax). The franchise tax is levied simply for the privilege of conducting business in the state and tends to be either a flat rate or based on the net worth of the business.
In the state of New Mexico there is a corporate income tax that applies to C-corporations, a franchise tax that applies to C-corporations and S-corporations, and a personal income tax that will apply to pass-through entities. We’ll take a look at these three tax types below.
New Mexico Entity Tax Breakdown
C-Corporation: If your business is a C-corporation, you will be subject to the corporate income tax and the franchise tax.
S-Corporation: If your business is a S-corporation, you will be subject to the franchise tax and shareholders will be subject to personal income tax.
LLC: If your business is a limited liability company (LLC), LLC members will be subject to personal income tax. Note that in the event that your LLC has elected to be classified as a corporation, then the corporate income tax would apply, as well.
Partnership: If your business is a partnership, individual partners will be subject to personal income tax.
Sole-Proprietorship: If your business is a sole-proprietorship, you will be subject to personal income tax.
New Mexico Corporate Income Tax
In the state of New Mexico, the corporate income tax is applied in a series of marginal rates. While these rates are subject to change, the current rates are the following:
- If your corporation’s total net income does not exceed $500,000 = 4.8% tax.
- If your corporation’s total net income exceeds $500,000 = $24,000 + 5.9% for income over $500,000 threshold.
In certain cases, New Mexico will allow your corporation to pay an alternate tax of 0.75% on annual gross receipts rather than on the corporation’s income. In order to be eligible for this, your corporation must meet these requirements:
- Your corporation’s only activity in the state of New Mexico is sales.
- Your corporation does not rent or own real estate in the state of New Mexico.
- Your corporation’s annual gross sales in New Mexico are no more than $100,000
Your corporate income tax will be due on April 15th. If you need to file an extension, you must do so by this date.
New Mexico Franchise Tax
In the state of New Mexico, the franchise tax, also known as a privilege tax, is a flat fee of $50 paid annually. The franchise tax applies to all New Mexico corporations, which includes both C-corporations and S-corporations, and is levied as a charge for operating in the state. Like the corporate income tax, your franchise tax will be due on April 15th.
Personal Income Tax
In the state of New Mexico, the personal income tax is applied at varying marginal rates, which can range from 1.7% to 4.9% based on the level of income. Personal income tax applies to any entity in which the company income passes-through to the owner and is then reported on the owner’s tax return. This applies to S-corporations, limited liability companies (LLCs), partnerships, and sole-proprietorships.
Here are the income brackets used to determine which income tax rate applies to you:
- Income of $5,500 or less = 1.7%
- Income between $5,501 and $11,000 = $93.50 + 3.2% of income exceeding $5,500 threshold
- Income between $11,001 and $16,000 = $269.50 + 4.7% of income exceeding $11,000 threshold
- Income that exceeds $16,001 = $504.50 + 4.9% of income exceeding $16,000 threshold
- Income of $8,000 or less = 1.7%
- Income between $8,001 and $16,000 = $136 + 3.2% of income exceeding $8,000 threshold
- Income between $16,001 and $24,000 = $392 + 4.7% of income exceeding $16,000 threshold
- Income that exceeds $24,001 = $768 + 4.9% of income exceeding $24,000 threshold