New Mexico LLC Taxes
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By default, New Mexico LLCs are taxed as pass-through entities. This means that the LLC doesn’t pay taxes; instead, the profits from the LLC pass-through to the taxes of the LLC members. Members will then pay taxes on their share of the LLC’s income at the self-employment rate of 15.3% (12.4% for Social Security and 2.9% for Medicare). LLC members will also pay New Mexico’s graduated income tax of 1.7% to 5.9% depending on their total income. We go over New Mexico taxes here.
In this article, we'll cover:
How Are New Mexico LLCs Taxed?
By default, single-member LLCs are taxed as sole proprietorships, and multi-member LLCs are taxed partnerships. To file federal taxes as either type, LLC members will need to file one of these tax forms:
- Single-member LLC—Form 1040 (usually Schedule C, but some SMLLCs file C-EZ, E, or F)
- Multi-member LLC—Form 1065
A New Mexico LLC can also elect to be taxed as an S-corp or C-corp. We’ll explain what that means for your LLC taxes.
New Mexico LLCs taxed as S-corp
LLCs have the option of electing to be taxed as S-corps. Like regular LLCs, S-corps are taxed as pass-through entities. This results in S-corps not having to pay the usual corporate income taxes. The benefit of the S-corp is that it can reduce the amount of self-employment tax (15.3%) an LLC owes. Whereas LLC members will be on the hook for the full amount of the LLC’s income, an S-corp can make distributions (payments) to its members. This can lower each member’s tax bill.
LLCs need to certain IRS requirements in order to be eligible for S-corp treatment. It’s also a good idea to consult with a CPA to see if it makes sense for your LLC to choose S-corp status. In order for your LLC to be taxed as an S-corp, you’ll file Form 2553 with the IRS. S-corps report their income to the IRS by filing Form 1120-S.
Learn more about what the S-corp election can do for your LLC.
LLCs taxed as C-corp
While it’s not very common for LLCs to elect C-corp status, some may find that they can benefit from C-corp tax deductions. C-corps are also more attractive to investors. C-corps file IRS Form 1120 to report their income and will pay the federal 21% tax rate. C-corps will also be required to pay New Mexico’s graduated corporate income tax.
New Mexico State Income Tax
If you’re filing under either default LLC or S-corp status, each member will pay individual income tax in New Mexico. Income tax rates range 1.7% to 5.9%. Here’s a look at individual income tax rates in New Mexico:
|Taxable Income, Filing Separate||Taxable Income, Filing Jointly||New Mexico Income Tax Rate|
|$0 – $5,500||$0 – $8,000||1.7%|
|$5,501 – $11,000||$8,001 – $16,000||3.2%|
|$11,001 – $16,000||$16,001 – $24,000||4.7%|
|$16,001 – $210,000||$24,001 – $315,000||4.9%|
|$210,001 and up||$315,001 and up||5.9%|
If your New Mexico LLC is taxed as a C-corp, each member will need to pay the corporate income tax of 4.8% on sales of $500,000 and below, or 5.9% on any sales above that. Each member will file Form CIT-1.
New Mexico Gross Receipts Tax
Instead of a sales and use tax like most states, New Mexico has a gross receipts tax (GRT). The GRT is imposed on anyone engaged in business in the state. The tax rate is 5.125%. This means for every $100 you make in sales, you’ll need to send $5.125 cents to the state. Most business owners pass the tax to the consumer as a regular sales tax.In order to remit taxes to the state, you’ll need to register your LLC online with New Mexico’s Taxation and Revenue Department or by filling out and submitting Form ACD-31015.
Local New Mexico Taxes
The state GRT tax isn’t the only tax you’ll face. Local municipalities can also levy their own GRT taxes. Depending on where your LLC does business, you may be expected to pay local GRT taxes as high as 3.8% in addition to the state GRT tax. Each municipality also has the power to levy taxes on short-term rentals, fuel, groceries, construction materials and more.
Other Taxes in New Mexico
Here’s a look at a few other taxes that your LLC may face in New Mexico.
New Mexico State Employer Taxes
You’ll need to budget for unemployment insurance and workers’ compensation premiums if your LLC has employees:
- Unemployment Insurance (UI) Tax— Unemployment tax rates for experienced employers range from 0.33% to 6.4%. New employers pay UI taxes ranging from 1% to 1.23%. UI rates can increase or decrease based on economic conditions. When unemployment is low, more businesses are paying into the state fund, which means tax rates generally drop. When unemployment rates go up, there are more people to pay out, and rates will rise.
- Workers’ Compensation—Workers’ compensation insurance covers medical expenses and wages for lost work for employees who are injured on the job. Mexico law states that your LLC must carry workers’ compensation insurance if it has three or more employees. It should be noted that New Mexico Workers’ Compensation Act requires employers to share in a quarterly supplemental fee of $4.30 ($2 is paid by the worker) to the Taxation and Revenue Department. This fee does not cover regular workers’ compensation payments.
To learn more about the taxes an New Mexico LLC may face, visit the New Mexico Department of Workforce Solutions website.
Industry Specific Taxes
Federal, state, and local taxes aren’t the only taxes your LLC will need to pay attention to. New Mexico’s Taxation and Revenue Department has a laundry list of industry-specific taxes that may effect your bottom line:
- Bingo and Raffle Tax
- Fuel Surcharge Tax
- Cigarette Tax
- Alcohol Excise Taxes
- Gaming Tax
- Oil and Gas Production Tax
- Natural Gas Processor Tax
Do foreign LLCs in New Mexico need to pay New Mexico taxes?
Yes. New Mexico foreign LLCs can expect to be taxed just like a domestic LLC. Foreign LLCs are LLCs that were formed outside of New Mexico, but have registered to do business in the state. A foreign LLC doing business in New Mexico will be expected to collect New Mexico gross receipts taxes and any other local taxes.