5 mistakes new LLC owners make

Forming the LLC is the first step. Maintaining it correctly is what separates serious operators from those who lose their structure within a year. These are the 5 most common mistakes.

None of these mistakes is dramatic during the first month. They all come due when a tax audit arrives, a bank requests beneficial owner verification, or a $25,000 penalty shows up for failing to file Form 5472. The LLC does not protect you because it exists — it protects you because you operate it like a real company.

1. Mixing personal and LLC accounts

Mistake number one. If you use your personal account to receive LLC payments, or pay personal expenses from Mercury, you are piercing the "corporate veil". That means you legally lose limited liability protection.

Fix: one account for the LLC, one for you. Withdrawals from the LLC to your personal account are recorded as distributions. If you don't have a business account yet, our guide to open a Mercury account walks through the process step by step.

2. Ignoring the Registered Agent

One of New Mexico's biggest advantages is that it does not require an Annual Report, unlike most other states. But you do have one mandatory obligation: keep an active Registered Agent with a physical US address. If your RA stops operating or fails to renew, the state can flag your LLC as "not in good standing" and eventually administratively dissolve it.

Fix: make sure your Registered Agent is active and pay the annual renewal. At Devil Club we manage your RA automatically.

3. Skipping the tax filing

Form 5472: the obligation that catches people off guard

Even if your LLC owes no US taxes, you still have to file an informational return with the IRS. For a single-member non-resident LLC, that means Form 5472 + pro-forma 1120. The penalty for not filing is $25,000.

Fix: file every year before the deadline. At Devil Club we handle it for you with the Tax Filing service. Many people think they can do it themselves until they hit the DIY Form 5472 trap.

4. Not having an Operating Agreement

New Mexico does not legally require it, but it is a fundamental best practice. The OA defines the rules of operation for your LLC: who decides what, how profits are split, what happens if a partner joins. Some banks, contracts or investors may request it as part of the verification process.

Fix: have an OA signed from day one. We generate it automatically with your LLC. And if you want to know what it should contain, we go over the key clauses of an Operating Agreement — especially important when there are several members, something we compare in single-member vs multi-member LLC.

5. Using the LLC for everything

The line between deductible expense and evasion

Your LLC is not a personal account with a fancy name. Don't put clothes, vacations or personal dinners through the LLC. The IRS can interpret it as tax evasion.

Fix: only business-related expenses go through the LLC. Software, hosting, professional services, advertising, work tools.

Bonus: not documenting corporate decisions

Your LLC makes decisions every month: hires, client contracts, vendor changes, account openings. If nothing is in writing, your company looks like a personal extension of you in an audit, not an independent legal entity. That is exactly the argument tax authorities use to reclassify your LLC as a shell company.

Fix: documented corporate minutes + Governance Ledger with SHA-256 hash + signed decisions. With Manager Plan ($3,600/year) it all gets generated automatically; without it, at minimum create a simple monthly signed document with the key decisions.

The LLC is a powerful tool, but only if you use it correctly. The difference between legal tax optimization and evasion is the rigor with which you operate.

Early warning signs

These 5 signs appear in the first 6 months and predict serious problems within a year:

• Mercury asks you for additional documentation you don't have
• You can't remember when you filed the last Form 5472 (or you don't know what it is)
• Your RA sends you reminders you ignore because "you don't understand the forms"
• You pay personal subscriptions (Netflix, Spotify) from the LLC account
• You can't prove, on paper, who made the last important business decision

If you recognize yourself in 2 or more, it's time to clean up before an audit or a penalty hits.

Another critical point that goes hand in hand with tax filing: make sure your EIN is correctly in place before each filing. If you have any doubts about the process, see our full guide on getting your EIN. Real ongoing compliance for foreign-owned LLCs today rests on three parts: Form 1120 + 5472 with the IRS, FBAR (FinCEN 114) if you accumulate more than $10,000 in foreign accounts at any point during the year, and the BEA's BE-13 survey when you form the LLC. That's what gets penalized if you ignore it — there are no shortcuts. And before comparing provider prices, it's worth understanding the real cost of your LLC over a full year, not just the formation price.

Frequently asked questions

What do I have to renew each year for a New Mexico LLC?

At the state level, New Mexico doesn't require an Annual Report: the only obligation is keeping your Registered Agent active (with its annual renewal). If the RA lapses, the state can mark your LLC "not in good standing" and dissolve it. At the federal level, ongoing compliance is three parts: Form 1120 + 5472 with the IRS, FBAR (FinCEN 114) if you accumulate more than $10,000 in foreign accounts at any point in the year, and the BEA's BE-13 survey when you form the LLC.

Can I pay personal expenses from the LLC account?

No. Paying for clothes, vacations or personal subscriptions from the LLC account breaks the corporate veil (you lose limited-liability protection) and the IRS can read it as evasion. Only business expenses run through the LLC (software, hosting, services, advertising); what you take out for yourself is recorded as a distribution, not an expense.

Do I need an Operating Agreement if I'm the only member?

New Mexico doesn't require it by law, but you should have one signed from day one: banks, contracts and investors may ask for it during verification, and it reinforces the separation between you and the entity. It defines who decides what and how profits are split — especially important with multiple members. We cover the key clauses in their own guide.