How to Form an S Corporation in New Mexico

Introduction

If you’re looking to form an S corporation in New Mexico, read on. We’ll walk through the requirements and steps to get started.

Designate your Business as an S corporation

Form 2553 is available on the IRS website. It is a two-page form that you must submit to the IRS along with your business tax return (Form 1120S). You must file Form 2553 within 45 days of forming your corporation, but it’s best to file sooner than later. The form can be signed by all of the shareholders if they’re not going to be active participants in running the business. If any shareholder will be an active participant in running the business, then each shareholder must sign their own copy of Form 2553 and send it directly to an IRS office instead of filing it with their tax return.

Meet the Requirements for Regular Corporation for At least 75 days

In addition to meeting the requirements for being an S corporation, your business must have met the requirements for being a regular corporation for at least 75 days. If you have questions regarding whether your business qualifies as a regular corporation, please consult with an attorney who specializes in small business law.

To file as an S corporation, you must have filed a tax return as a regular corporation and also filed a tax return as an S corporation.

Your Business Must be Domestic

In order to form an S corporation in New Mexico, your business must be domestic. A domestic business is one that is:

• Incorporated under the laws of any state or place other than New Mexico
• Organized under federal law as a nonprofit corporation

You Need to Have Maximum 100 Shareholders

You must have no more than 100 shareholders who are individuals, estates and certain tax-exempt organizations. You also can’t have any nonresident aliens or corporations that are not eligible S corporations.

Individuals in the same family or group of related persons can’t be treated as one shareholder when determining whether you meet this requirement. The IRS calls this “family attribution.”

Ineligible Shareholders

You may not have any shareholders who are nonresident aliens or corporations that are not eligible S corporations.

• What is an S corporation? It is a business entity that has elected to be taxed as a pass-through entity under subchapter S of the Internal Revenue Code.
• What is a nonresident alien? A nonresident alien is someone who lives outside the United States and does not reside here for at least six months in any given year.
• What is a corporation? A corporation is an organization formed by one or more people to conduct business and make profits.

Changing or Terminating an Existing S Corporation Election

If you want to change or terminate an existing S corporation election, you must use Form 2553.

Here’s how:

• Go to https://www.irs.gov/pub/irs-pdf/f2553cbo.pdf and download the form.
• Complete the Important Reminders section at page 2 of the instructions on page 3 of Form 2553 (it’s not necessary, but it helps).
• Follow steps 5 through 10 on pages 4 through 6 of Form 2553 for making changes or terminating your S corporation election

Meet All of the Eligibility Requirements

Before you submit your S corporation election papers, make sure you meet all of the eligibility requirements.

• You must have met the requirements for a regular corporation for at least 75 days.
• You may not have more than 100 shareholders who are individuals, estates and certain tax-exempt organizations.
• You cannot have any shareholders who are nonresident aliens or corporations that are not eligible S corporations (see IRS Form 2553).

Conclusion

It’s easy to form an S corporation in New Mexico. All you need is a little bit of paperwork and some patience. The first step is to check out the eligibility requirements, which we’ve outlined above. Then, you can fill out IRS Form 2553 and submit it along with all of the required supporting documentation for your business. After that, it’s just a matter of waiting for IRS approval before your business becomes an official S corporation!