You transfer money from your business bank account to your personal account whenever needed. The LLC doesn't deduct this as a business expense, and you're not technically an employee. This is simply withdrawing your share of the LLC's profits.
Tax treatment: Owner's draws aren't taxable events themselves—you pay taxes on the LLC's entire net profit whether you take draws or not. In New Mexico, you'll pay the state income tax rate of 1.7% to 5.9% on LLC profits plus federal self-employment tax of 15.3%. New Mexico follows federal tax treatment for LLC income.
How to do it
Ensure your LLC has sufficient cash flow and retained earnings to cover the draw amount
Transfer money from your business bank account to your personal account using online banking or by writing yourself a check
Record the transaction in your accounting system as an owner's draw, not as a business expense
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Guaranteed Payment
The LLC makes regular payments to members for their services, similar to a salary. These payments are guaranteed regardless of whether the LLC is profitable. The LLC can deduct guaranteed payments as business expenses, reducing the overall taxable income.
Tax treatment: Guaranteed payments are subject to self-employment tax and are taxable to the recipient member. In New Mexico, you'll pay state income tax at rates from 1.7% to 5.9% on guaranteed payments. The LLC deducts these payments, reducing its taxable income distributed to all members.
How to do it
Document guaranteed payment amounts and schedules in your LLC operating agreement
Set up regular payment transfers from the LLC business account to the recipient member's personal account
Report guaranteed payments on your personal tax return and the LLC's tax return, ensuring the LLC deducts them as business expenses
3
Salary via S-Corp Election
Your LLC elects to be taxed as an S-Corporation with the IRS. You become an employee and must pay yourself a reasonable salary with payroll taxes. Additional profits can be distributed to you as an owner without self-employment tax.
Tax treatment: Your salary is subject to payroll taxes and New Mexico state income tax withholding. Distributions above your salary avoid the 15.3% self-employment tax but are still subject to New Mexico income tax. You must pay yourself a reasonable salary based on industry standards for your role.
How to do it
File Form 2553 with the IRS to elect S-Corp taxation and register with New Mexico Taxation and Revenue Department for payroll tax purposes
Set up payroll to pay yourself a reasonable salary with proper tax withholdings and file quarterly payroll tax returns
Take additional distributions through regular transfers from business to personal accounts, ensuring total compensation remains reasonable
New Mexico Tax Notes for LLC Owners
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Income Tax
New Mexico imposes state income tax on LLC profits at rates ranging from 1.7% to 5.9% depending on income level. LLC income passes through to your personal tax return and is taxed at these graduated rates.
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Self-Employment Tax
New Mexico LLC owners must pay federal self-employment tax of 15.3% on LLC profits, but New Mexico does not impose an additional state-level self-employment tax. The SE tax applies to your entire share of LLC profits regardless of whether you take distributions.
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Estimated Taxes
New Mexico LLC owners must make quarterly estimated tax payments if they expect to owe $500 or more in state income tax. Federal estimated taxes are required if you expect to owe $1,000 or more. Payments are due on the 15th of January, April, June, and September.
Common Mistakes to Avoid
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Mixing personal and business expenses by using the business account for personal purchases instead of taking proper owner's draws
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Failing to make quarterly estimated tax payments to New Mexico and the IRS, resulting in penalties and interest charges
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Not properly documenting owner's draws and guaranteed payments in your accounting records, creating problems during tax preparation
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Either taking too little money and creating personal financial stress or taking too much and leaving the LLC without adequate working capital