How to File LLC Taxes in New Mexico? (A Complete Guide)

To maintain a good standing with the local, state, and federal governments, a New Mexico LLC has to meet its tax obligations and requirements.

To ensure this, we convened our LLC-savvy staff with decades of joint hands-on experience in the industry.

We spent the past month researching official government websites to compile the most accurate and up-to-date information on tax compliance for New Mexico LLCs.

Quick Summary

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How Are LLCs Taxed in New Mexico?

LLCs in New Mexico are taxed as pass-through entities by default. The LLC's revenue is passed through to its members, who report taxes on their personal income tax returns.

The Internal Revenue Service (IRS) assigns default classifications for Employer Identification Numbers (EINs), which means that by default, an LLC is treated as a pass-through entity.

A New Mexico LLC files state, local, and federal taxes. Here's how.

Pass-Through Taxation

1. Understanding Pass-Through Taxation

Pass-through taxation is a beneficial tax classification for many businesses, including limited liability companies (LLCs), S corporations, and partnerships.

This system allows the income of the business to be “passed through” to the owners, who then report the income on their personal tax returns.

Essentially, the business itself is not taxed on its income; instead, the owners are taxed on their share of the business’s income.

In New Mexico, pass-through entities must file an informational income tax return with the New Mexico Taxation and Revenue Department (TRD).

This return is due by the same date as the entity’s federal return for the tax year. Additionally, if any owner is not a New Mexico resident, the entity must deduct and withhold that owner’s share of the income using Form RPD-41367.

2. Forms of Pass-Through Taxation

There are several forms of pass-through taxation, each suited to different business structures:

• Sole Proprietorship: A business owned by one individual, where the business income is reported on the owner’s personal tax return.
• Partnership: A business owned by two or more individuals, with the business income reported on the partners’ personal tax returns.
• S Corporation: A corporation that elects to be taxed as a pass-through entity, with the business income reported on the shareholders’ personal tax returns.
• Limited Liability Company (LLC): An LLC can elect to be taxed as a pass-through entity, allowing the business income to be reported on the owners’ personal tax returns.

State Taxes for New Mexico LLCs

New Mexico LLC owners will incur state income taxes on personal income, with rates based on individual tax brackets.

Additionally, New Mexico imposes a corporate franchise tax, which typically amounts to $50 per year, in addition to a corporate income tax based on the business's net income.

New Mexico Taxation and Revenue Department differentiates the following LLC structures:

1. Single-Member LLCs

All single-member LLCs in New Mexico are taxed as a sole proprietorship. The owner is expected to report income tax on federal Form 1040 and a state personal income tax return Form PIT-1.

Single-member LLC owners must pay estimated taxes throughout the year based on their expected income and profit.

The New Mexico state income tax rate varies from 1.7% to 5.9%, depending on your taxable income [1].

2. Multi-Member LLCs

LLCs with two or more members get taxed as a partnership. Each member will file a federal 1065 partnership form and pay state income tax from 1.7% to 5.9% based on your taxable income. 

3. LLCs taxed as S-corp

A New Mexico LLC can elect to be taxed as an S-corporation. Most LLCs choose this filing status due to its benefits. As an S-corp, your LLC won't pay self-employment taxes, thus increasing your tax savings.

An S-corp files federal Form 1120-S to report its income. To elect, file Form 2553 with the IRS.

4. LLCs taxed as C-corp

Some LLCs choose to be taxed as C-corps by filing Form 8832. All C-corps undergo double taxation but can benefit from massive tax deductions.

New Mexico LLCs taxed as C-corps pay a 21% federal income tax and a New Mexico-graduated corporate income tax.

Each member of the C-corp pays 4.8% on sales of $500,000 and below or 5.9% on sales above $500,000 [2]. All members must file Form CIT-1.

Other Taxes

LLCs also file other business taxes in New Mexico, including:

1. New Mexico Gross Receipts Tax

Most states have a sales and use tax, but New Mexico levies a gross receipts tax (GRT). Anyone conducting business within the state is subject to the GRT at a 5% to 9.3125% tax rate [3].

Like regular sales tax, most business owners pass the tax on to the customer. You must file Form ACD-31015 or register your LLC online with the New Mexico Taxation and Revenue Department to pay gross receipts tax to the state.

2. New Mexico Franchise Tax

An LLC that has, or exercises, its corporate franchise in New Mexico is liable to the state-imposed franchise tax, even if the entity is not actively operating in business in New Mexico or is owed no New Mexico Corporate Income Tax.

The $50 annual franchise tax must be reported by taxpayers using form CIT-1, corporate income, and franchise tax return [4].

3. Local New Mexico Taxes

Local governments may also impose their own GRT levies. You can be required to pay municipal GRT taxes as high as 3.8% in addition to the state GRT tax, depending on where your LLC conducts business.

Additionally, each municipality has the authority to impose taxes on fuel, groceries, building supplies, and short-term leases.

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4. New Mexico State Employer Taxes

Employers in New Mexico pay the following taxes:

• Withholding Tax: Employers in New Mexico must pay income taxes to the state. To begin with, you must deduct and pay employee income taxes to the TRD. Withholding tax reports must be submitted either monthly or quarterly using Form CRS-1. Using Form RPD-41072, you should also keep a yearly summary of employee withholding.
• Unemployment Insurance Tax: For experienced employers, unemployment tax rates range from 0.33% to 6.4% [5]. UI taxes for new employers range from 1% to 1.23%. UI rates might change depending on the state of the economy. When unemployment rates go up, there are more people to pay out, and rates will rise. When unemployment is low, more companies contribute to the state fund, resulting in generally lower tax rates.
• Worker’s Compensation: Workers' compensation insurance covers treatment costs and wages for absence from work for employees who suffer injuries on the job. New Mexico law stipulates that an LLC must hold workers' compensation insurance if it has at least three staff members. Further, the New Mexico Workers' Compensation Act mandates employers provide a $4.30 quarterly supplemental charge to the Taxation and Revenue Department [6].

"Employers do not have to provide coverage for real estate salespeople, federal employees covered by federal programs,  and private domestic workers."
- New Mexico Workers' Compensation Administration

5. Industry Specific Taxes

Depending on their location, industry, and staff count, businesses may be required to pay various state-specific taxes, which the New Mexico Taxation and Revenue Department collects.

Here are a few of these extra taxes: 

• Alternative Fuel Tax
• Bingo and Raffle Tax
• Boat Excise Tax
• Liquor Excise Tax
• Mineral Extraction Tax
• Motor Vehicle Excise Tax

Annual Report and Tax Filing Requirements

New Mexico LLCs are required to file an annual report with the New Mexico Secretary of State’s office.

This report is due on the last day of the month in which the LLC was formed. The report must include essential details such as the LLC’s name, address, and the names and addresses of its managers or members.

In addition to the annual report, New Mexico LLCs must also file a tax return with the TRD. This tax return is due by the same date as the LLC’s federal return for the tax year.

The LLC must report its income, deductions, and credits on the tax return and pay any taxes due.

Electing to File and Pay Entity-Level Tax

Pass-through entities in New Mexico have the option to elect to file and pay entity-level tax.

This means the entity itself will pay tax on its income at the entity level, rather than passing the income through to its owners.

To make this election, the entity must file the required return for New Mexico and pay the tax due.

The entity-level tax rate in New Mexico is 4.9% of the entity’s taxable income. Additionally, the entity must pay a franchise tax, which is a tax on the entity’s privilege of doing business in New Mexico, at a rate of $50 per year.

While estimated tax payments are not required for entity-level tax, the entity must make a payment of the tax by the due date of the required New Mexico return.

Furthermore, the entity may file a composite income tax return on behalf of its non-resident owners, reporting and paying the owners’ income tax at the highest marginal rate.

What is Tax-Deductible for an LLC in New Mexico?

Tax-deductible for an LLC in New Mexico includes medical care expenses, insurance, contributions to the New Mexico Education Fund, and LLC start-up costs in New Mexico.

Additionally, New Mexico offers various tax credits to LLCs who meet certain requirements for each credit listed below:

• Personal income tax credits
• Conservation and preservation tax credits
• General industry incentive tax credits
• Specific industry incentive tax credits
• Employment enhancement tax credits
• Gross receipts tax credits

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