The Quick Answer
Starting a business in New Mexico isn’t terribly complicated, but there are several registrations you want to get right from the beginning.
For most small businesses, I would start with these steps:
- Create your New Mexico LLC.
- Obtain an EIN from the IRS.
- Register with New Mexico Taxation and Revenue and obtain your New Mexico Business Tax Identification Number (NMBTIN).
- Set up your business bank account and accounting.
- If you have employees, register for New Mexico unemployment and federal payroll taxes.
- Make sure you understand New Mexico Gross Receipts Tax before you send your first invoice.
Let’s break those down.
Why This Confuses So Many New Business Owners
Starting the actual business is usually the easy part.
You’re a plumber, painter, consultant, retailer, landscaper, or maybe you’ve simply come up with a business idea you think will work.
Then someone starts asking you questions.
Are you an LLC?
Do you have an EIN?
What’s your NMBTIN?
Are you registered in TAP?
Do you have an unemployment account?
Are you charging Gross Receipts Tax?
Are you a Schedule C or an S Corporation?
Suddenly, starting a business doesn’t seem quite so simple.
The good news is that each of these things has a purpose, and once you understand what they do, the process makes a lot more sense.
Step 1: Should I Create an LLC in New Mexico?
For most small businesses operating in New Mexico, I recommend starting by creating a domestic Limited Liability Company (LLC) through the New Mexico Secretary of State.
An LLC creates a legal entity separate from you personally and can provide important liability protection when it is properly maintained.
It also gives you flexibility in how your business can eventually be taxed.
If you’re the only owner, your LLC will generally be taxed as a sole proprietorship by default.
If there are two or more owners, it will generally be taxed as a partnership by default.
Later, depending on profitability, you may decide to have the LLC taxed as an S Corporation.
Remember:
LLC = legal structure.
S Corporation = tax election.
Those are two different decisions.
What If I Already Have an LLC in Another State?
If you’ve already formed an LLC outside New Mexico and you’re going to conduct business in New Mexico, you may need to register that company with the New Mexico Secretary of State as a foreign LLC.
“Foreign” in this situation doesn’t necessarily mean another country.
An Arizona, Texas, Colorado, or other out-of-state LLC can be considered a foreign LLC when registering to do business in New Mexico.
Step 2: Do I Need an EIN?
Once your LLC is established, I generally recommend obtaining an Employer Identification Number (EIN) from the IRS.
Think of it as an identification number for your business.
It helps you avoid using your personal Social Security number for many business activities and may be needed for things such as:
- Opening a business bank account
- Running payroll
- Filing business tax returns
- Providing tax information to customers
- Establishing accounts in the business’s name
It’s another step toward separating you from your business.
Step 3: What Is a New Mexico Business Tax Identification Number?
Now we get to New Mexico.
You’ll need to register your business with the New Mexico Taxation and Revenue Department.
This gives you access to TAP—Taxpayer Access Point—and your New Mexico Business Tax Identification Number (NMBTIN).
TAP is where your business handles several New Mexico tax obligations.
Depending on your business, those can include:
- New Mexico Gross Receipts Tax
- Wage withholding
- Other state business tax filings
This is one of the steps I wouldn’t put off.
You don’t want to operate for a year and then discover that you should have been filing New Mexico Gross Receipts Tax returns all along.
Step 4: Do I Need a Separate Business Bank Account?
Yes.
Once you have your LLC and EIN, open a dedicated business checking account.
Don’t run the business through your personal checking account.
If the business makes $500, deposit $500 into the business account.
If you buy business supplies, pay for them from the business account.
Keeping business and personal finances separate makes bookkeeping easier, makes your financial statements more useful, and helps maintain the separation between you and your LLC.
This is one of those habits that’s incredibly easy to establish on day one and incredibly annoying to fix two years later.
Step 5: What If I’m Going to Have Employees?
Now we add a few more registrations.
If you’re going to run payroll, you’ll generally need to establish your New Mexico unemployment insurance account and obtain the appropriate employer account number for New Mexico unemployment tax reporting.
You’ll also need to handle New Mexico wage withholding through your state tax registration.
At the federal level, you’ll want to establish the ability to make federal payroll tax deposits electronically.
And remember that payroll isn’t simply writing an employee a check.
You’re dealing with:
- Federal income tax withholding
- Social Security
- Medicare
- New Mexico withholding
- New Mexico unemployment
- Federal unemployment
- Quarterly payroll returns
- W-2s
This is an area where I generally recommend getting payroll set up correctly from the beginning rather than trying to fix it later.
Step 6: Do I Have to Charge New Mexico Gross Receipts Tax?
This is the New Mexico question every new business owner needs to ask before the first sale.
New Mexico doesn’t have a traditional sales tax.
We have Gross Receipts Tax (GRT).
The tax is imposed on the seller, although businesses commonly pass the tax along to the customer.
Whether your receipts are taxable depends on what you’re selling, where you’re selling it, and whether a deduction or exemption applies.
If you’re a contractor—painter, plumber, electrician, HVAC contractor, landscaper, handyman, roofer, concrete contractor—or another service business providing services in New Mexico, don’t assume your services aren’t taxable.
Find out before you start invoicing customers.
Do I Need QuickBooks or Accounting Software?
I would establish your accounting system at the same time you’re establishing the business.
QuickBooks Online, Xero, or another accounting platform can work.
What’s more important is setting it up correctly.
Your Chart of Accounts should reflect your business. Your bank accounts should reconcile. Loans need to be recorded properly. Assets need to be tracked. Payroll needs to tie out.
You’re building the financial history of your company from the very first transaction.
Starting clean is much easier than cleaning it up later.
Should I Elect S Corporation Status When I Start?
Maybe, but don’t automatically file an S Corporation election just because you formed an LLC.
The decision should be based largely on profitability and reasonable compensation.
A new business making $10,000 isn’t in the same position as an established business consistently producing $100,000 in profit.
This is a conversation I’d have with a CPA when you start the business—even if the answer today is:
“Not yet.”
Then you know what numbers to watch as the business grows.
Where I See Business Owners Get Into Trouble
The biggest mistake isn’t usually failing to create the LLC.
It’s doing the first step and assuming they’re finished.
They create an LLC online and start doing business.
Six months later there’s no EIN.
There’s no business bank account.
Nobody registered for Gross Receipts Tax.
Personal and business transactions are mixed together.
An employee has been hired but payroll wasn’t properly established.
Or the business became profitable enough that an S Corporation should have been discussed, but nobody was watching.
That’s why I look at starting a business as building the foundation.
You don’t need to make it complicated.
You just want to build it correctly.
Questions Business Owners Ask Me
Do I need an LLC before I start making money?
You don’t necessarily need an LLC to earn business income, but for most businesses I prefer establishing the entity and business infrastructure before operations begin rather than trying to reorganize everything afterward.
Do I need an EIN if I don’t have employees?
There are circumstances where a single-member LLC isn’t federally required to have one, but I generally recommend obtaining an EIN anyway. It helps separate your business identity from your Social Security number and is useful for banking and other business purposes.
Does creating an LLC mean I’m an S Corporation?
No. An LLC is your legal entity. S Corporation status is a federal tax election.
Do I need to register for New Mexico Gross Receipts Tax if I don’t collect tax from my customers?
Don’t confuse collecting GRT from the customer with your responsibility for GRT. New Mexico generally imposes GRT on the seller. Whether you separately pass that cost along to your customer is a different question.
Should I hire an accountant before I start the business?
I think that’s the best time to have the conversation.
An hour spent getting the structure right before you open can prevent considerably more time being spent fixing things later.
Is New Mexico a Good Place to Start a Business?
I think New Mexico has more opportunity than people sometimes give it credit for—particularly outside the state’s largest markets.
Many smaller New Mexico communities need plumbers, electricians, HVAC contractors, healthcare professionals, restaurants, retailers, professional services, and other locally owned businesses.
That creates an interesting opportunity for entrepreneurs willing to look beyond Albuquerque and Santa Fe.
And when you’re deciding where to build a business, taxes aren’t the only consideration. The cost of operating the business, workforce, housing, education, childcare, quality of life, and the cost of raising a family all matter.
That’s a subject worth exploring separately because “Is New Mexico a Good State to Start a Business?” could become an excellent companion article to this one.
One Thing I’d Tell Every New Business Owner…
Start the accounting side of your business before you need it.
Don’t wait until you have employees to think about payroll.
Don’t wait until New Mexico sends you a letter to learn about Gross Receipts Tax.
Don’t wait until April to ask how your LLC is taxed.
And don’t wait until you have 18 months of transactions to decide you need bookkeeping.
You’re going to have enough things to figure out as a new business owner.
Get the LLC, EIN, state registrations, bank account, accounting system, payroll, and tax structure right at the beginning.
Then get back to the reason you started the business in the first place.
About Arsenault CPA Firm
Arsenault CPA Firm helps New Mexico business owners get the accounting side of their businesses established correctly from the beginning. We work with small businesses on entity selection, bookkeeping, payroll, New Mexico Gross Receipts Tax, tax planning, and ongoing accounting support.