A sole proprietorship is a business run by a single person without a formal business entity. Many hobbies and works of love start out this way — not everyone who kicks off a business in New Mexico venture forms an LLC or a corporation right away. Often, the company is related to the owner’s own hobbies. But remaining a sole proprietorship is not necessarily in your company’s best interest. There are many advantages to forming a a New Mexico LLC at one point or another. Starting a company brings tax, asset protection and enhanced privacy benefits.
So, why do some owners decide to continue as a sole proprietorship, and why is it better to form an LLC in New Mexico?
Staying a Sole Proprietorships
Starting a business as a sole proprietorship is simple. In fact, all you really have to do is start earning money for products or services. There are many opportunities for sole proprietorships, but not all will have a good return. However, they are so easy and straightforward, many people fall into them almost by accident.
Some business owners like that sole proprietorships let them have the sole say in their business. If you follow the law, you can call the shots on everything from employees to products and services to office space. As for your profits, they are yours to use as you like. You can even pay yourself — and your employees — daily. The only requirements are supplying the correct information to the IRS.
If your sole proprietorship is just you and you do not have employees, you do not even need a bank account with a Federal Tax Identification Number. Instead, you can simply use your social security number — even though taxes are simpler when you use a federal tax number. The bottom line: Your business and your personal life, including finances, are entirely intertwined as long as you want them to be.
What is more, you can choose how big or small you want your business to be. Some owners want to go big, while others see no reason to grow if they are satisfied with their earnings as a small company. Many business owners find managing a small business much easier.
On top of all this, there is nothing complicated about ceasing business whenever you want. If your company is solvent, you can stop when, where, and how you wish. If this means you find a new job, you can dissolve your business instantly. Additionally, if you have an opportunity to sell, you can take advantage of that.
Why Form an LLC?
So, with these moderate benefits, why is it a better idea to incorporate your small business?
For one thing, your company’s records will thank you for it. You will likely end up having someone else keep your business and financial records. You and your employees all have recorded paychecks. This means that your taxes are monitored and then paid at the correct time. You will have all the forms you need, as well as expense records. In short, everything will be on the record.
What is more, you likely will be sending your business tax forms to a CPA. This serves as an extra boost to monitoring for accountability. As a company owner, you have the responsibility of maintaining all these records off your shoulders. You will be free to focus on more important work.
This is not just a boost for you — the increased productivity will help your company thrive. Outside of forming an LLC you will only need to obtain an EIN. Most industries do not require a business license.
And this is not the only benefit. There are also legal benefits to incorporating your business. These will protect you in the event of a legal issue. If you have a lawsuit arise against your company, it will not touch your personal assets — as it would in the case of a sole proprietorship. Protecting a business against lawsuits is a huge priority among business owners, making this an attractive aspect of incorporation.
On top of all this, there is something to be said for the reputation of a business. As a company, you will command much more respect from clients and other business owners alike. Being able to claim a Federal Identification Number puts your company solidly in a new level of businesses. In addition, incorporation is highly affordable. Find a fuller discussion of advantages here and whether an anonymous LLC is for you here.
Forming an LLC in New Mexico also offers advantages during tax season as well. Recent tax laws have changed opportunities for pass-through companies, with more deductions and lowered rates. In fact, if you are concerned about paying for incorporation, remember that you will earn that back after filing your taxes.