S corporations (also known as Subchapter S corporations) are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.
To qualify for S corporation status, the corporation must meet the following requirements:
Be a domestic corporation
• Have only allowable shareholders
o may be individuals, certain trusts, and estates, and
o may not be partnerships, corporations, or non-resident alien shareholders
• Have no more than 100 shareholders
• Have only one class of stock
• Not be an ineligible corporation (i.e., certain financial institutions, insurance companies, and domestic international sales corporations).
In New Mexico, as in other states, an S corporation is a type of corporation that meets specific Internal Revenue Service (IRS) requirements. The requirements include being a domestic corporation, having only allowable shareholders (which include individuals, certain trusts, and estates, but not partnerships, other corporations, or non-resident alien shareholders), having no more than 100 shareholders, having only one class of stock, and not being an ineligible corporation (such as certain financial institutions, insurance companies, and domestic international sales corporations). S corporations in New Mexico benefit from pass-through taxation, where income, losses, deductions, and credits are passed through to shareholders and reported on their personal tax returns. This structure avoids the double taxation typically experienced by C corporations, as S corporations are taxed only at the shareholder level for most income, although they are taxed at the entity level for certain gains and passive income. It's important for corporations in New Mexico considering S corporation status to ensure they meet all the IRS criteria and to maintain compliance with both federal and state tax regulations.