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New Mexico Corporation
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- Shareholders have limited liability for the corporation's debts or judgments against the corporations.
- Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.)
- Corporations can raise additional funds through the sale of stock.
- A corporation may deduct the cost of benefits it provides to officers and employees.
- Can elect S Corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.
- A corporation pays 15% federal income tax on taxable income up to $50,000; 25% tax on income from $50,001 - $75,000; 34% tax on income from $75,001 - $100,000; 39% tax on income from $100,001 - $335,000; and 34% tax on income over $335,000.
- A sole proprietor who filed a federal income tax return under the status of married, filing jointly, would pay 15% federal income tax on taxable income up to $35,800; 28% tax on income from $35,801 to 86,500; and 31% tax on income over $86,501.
Disadvantages of a Corporation
- The process of incorporation requires more time and money than other forms of organization.
- Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations.
- Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible form business income, thus this income can be taxed twice.
Federal Tax Forms for Regular or "C" Corporations
- Form 1120 or 1120-A: Corporation Income Tax Return
- Form 1120-W Estimated Tax for Corporation
- Form 8109-B Deposit Coupon
- Form 4625 Depreciation
New Mexico’s Business Tax Climate Ranks 40th
New Mexico ranks 40th in the State Business Tax Climate Index, which measures the impact on business of five major elements of the tax system: the percentage of income taken by all taxes, the individual income tax rates, the corporate income taxes, the sales tax rate, and the complexity of the tax system. Neighboring states ranked as follows: Utah (26th), Arizona (19th), Texas (4th), Oklahoma (14th) and Colorado (8th).
New Mexico’s State/Local Tax Burden Under National Average
In the early nineties, New Mexico’s tax burden was substantially above the national average. Since peaking at 11.6% in 1993, however, the state has seen its figure fall significantly. Individual incomes in the state have risen faster than state/local tax collections. Estimated in 2004 at 9.7% of income, New Mexico’s state/local tax burden percentage is ranked 29th nationally and just under the national average of 10.0%.
New Mexico’s Individual Income Tax System
New Mexico’s personal income tax system consists of seven brackets and a top rate of 8.2% kicking in at an income level of $65,000. New Mexico’s top rate of 8.2% is 7th highest among states levying personal income taxes. New Mexico's 2002 individual income tax collections were $531 per person (35th highest nationally).
New Mexico’s Corporate Income Tax Rate and Collections among the Nation’s Highest
New Mexico’s corporate tax structure consists of three brackets in which all income under $500,000 is taxed at 4.8%, income between $500,000 and $1 million is taxed at 6.4% and all income over $1 million is taxed at 7.6%. This upper tax rate ranks the New Mexico 20th highest among states levying corporate income taxes. In 2001, corporate tax collections reached $104 per capita ($159,338,000 total), good for 18th highest nationally.
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