Creating a New Mexico Sole Proprietorship

Since a sole proprietorship is the simplest type of business, one of my professors told us, "How do you start a sole proprietorship? Start doing it." The concept is true, but there are certain specifics which make this inaccurate at times. While there are differences between a hobby and a business that need to be investigated, if you are certain you need a business, use this guide to start your own proprietorship in the state of New Mexico.

Federal: Employer Identification Number
Generally, all employers must receive an EIN from the IRS. This can be done online or by phone and is a simple process to understand. Be prepared with your accounting method (cash or accrual; cash is easier and less accurate, while accrual is more accurate and much more difficult; taxes are paid on a cash basis), filing schedule, type of business (sole proprietorship in this case), and a name (your name works fine).

State: Tax Identification Number
The good news, here, is that there is no separate form to organize a sole proprietorship. Generally, though, all businesses in New Mexico are required to have a number from the New Mexico taxation and revenue department. New Mexico is one of a handful of states that taxes service businesses, so that includes most freelancing skill-based gigs. This also makes accounting more difficult for those using an accrual method, as gross receipts in New Mexico are determined on a cash basis.

State: Employers
If you will be hiring employees, you will need to register with the New Mexico Department of Labor and will be required to pay unemployment tax and withhold on employee salaries. You may also be required to pay into Workers' Compensation.

Local: Business License
Most businesses, service or otherwise, require a business license to operate. Check with your local city hall or courthouse to find out whether you will need one or not. The forms are usually available in either of those, a post office, or library, if your community has one. If your community does not issue their own business licenses, you will need a county-issued license, which may be quite a trip in rural areas. Call ahead to find out what you will need and how much you can do over the phone, online, or through the mail.

Optional: State: Trademark
There are two entities that grant trademarks in New Mexico: the Secretary of State and the New Mexico Public Regulation Commission - Corporations Bureau. They each hold separate databases, so it is generally recommended to register your trademark with both bodies for legal reasons.

Creating a sole proprietorship may seem like a complicated procedure, but it remains the simplest form of business. New Mexico has some interesting laws regarding business (like taxing service businesses) which you will need to look into. Ask your local Small Business Development Center for help, or call or write to the Small Business Administration for help in determining what kind of paperwork you will need to maintain and when your taxes will be due.