SILVER CITY, N.M., Feb. 13, 2026 /PRNewswire/ -- What's the difference between an LLC and an S corp, and how do New Mexico business owners decide which structure is right for them? A HelloNation article featuring Mike Morones of Mike Morones & Associates, LLC in Silver City, NM, offers a clear, practical guide to understanding each business structure and how to make the right choice.

The article explains that both an LLC and an S corp provide liability protection and potential tax advantages, but the best option depends on the specific needs of the business. Each structure impacts how income is taxed, how owners are paid, and how much time must be spent on compliance and administration. Morones emphasizes that the decision is about more than just taxes; it's about aligning structure with business goals.

An LLC, or limited liability company, is often the simpler choice. The article points out that an LLC offers flexible profit distribution, fewer formal rules, and straightforward reporting. For many New Mexico business owners, this structure provides enough protection and ease of use, especially in the early stages of growth.

The S corp is not a separate legal entity but a tax election. An LLC or corporation can elect to be taxed as an S corp if certain requirements are met. This election changes how income is handled and how owners receive compensation. The article explains that an S corp can lower self-employment taxes by requiring owner-employees to take a reasonable salary, with the rest of the profits paid as distributions.

That reasonable salary is a key point. The article notes that the IRS expects S corp owners who are active in the business to pay themselves a fair wage. Underpaying can trigger penalties and audits. Understanding what qualifies as reasonable compensation helps New Mexico business owners stay in compliance while taking advantage of tax flexibility.

The article also covers payroll requirements. Unlike an LLC, which allows owners to take draws without formal payroll, an S corp must run payroll, withhold taxes, and file regular payroll returns. These additional responsibilities can increase complexity and cost. For some businesses, the tax savings from an S corp structure outweigh the burden. For others, the added effort may not be justified.

Profit level is another deciding factor. The article explains that when profits are modest, the tax advantages of an S corp may be minimal. As profits grow, the ability to divide income between salary and distributions can reduce overall tax liability, making the S corp more attractive over time.

Ownership flexibility also differs. S corps have stricter limits, such as restrictions on foreign ownership and multiple stock classes. LLCs allow more flexibility in how ownership and profits are divided, which can appeal to businesses with multiple members or custom agreements.

Morones also encourages New Mexico business owners to think about long-term planning. Some start with an LLC and later elect S corp status once profits justify the switch. Reviewing the business structure periodically ensures it remains aligned with changing needs, growth, or shifts in ownership.

Additional factors like fringe benefits, healthcare planning, and retirement options can also differ between the two structures. These benefits affect how total compensation is handled and should be part of the broader evaluation.

Choosing Between an LLC and S Corp in New Mexico features insights from Mike Morones, CPA of Silver City, NM, in HelloNation.

About HelloNation
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