The Ins and Outs of the EIN…

During this time of year I get several questions from my coaching clients about employer identification numbers.  I suppose that this is because this is the season for all things taxes, but I digress.

Similar to an individual’s Social Security Number, the main purpose of a federal Employer Identification Number (EIN) is to identify a business for tax purposes. Also called a Federal Tax ID, the EIN is issued by the Internal Revenue Service (IRS).

Banks may require an EIN in order to open a business checking account. Also, you may need to list your EIN on business license, permit, and tax registration applications.

Read on to find out if your business needs an EIN, and if so, how to get one.

Corporations:  All corporations need an EIN, period. If your corporation doesn’t have one, you should apply for one ASAP.

Partnerships: All partnerships, both general and limited, need an EIN.

Limited Liability Companies (LLCs): If your LLC will hire employees–or will have multiple members–you’re going to need an EIN. A single member LLC with no employees is not required to obtain an EIN, although it is recommended that it do so. This will further establish the separation of your personal and business finances. If your single member LLC elects to be taxed as a Corporation you will need to obtain a separate EIN.

Sole-Proprietorships:  The sole-proprietorship is the only entity allowed to, and most likely to, use the social security number of its owner instead of a separate EIN.  Even though this is allowed it is NOT recommended. In addition, there are other factors that may require the sole-proprietorship to use a separate EIN.

Just a Tip:  It’s my personal opinion that ALL sole-proprietors should obtain a separate EIN for their business.It shouldn’t be rocket science why you don’t want to be handing your SSN out all over the place. Obviously, if your business is a small sideline thing and you only do work for people you know and trust, or well-known reliable companies, then the risks are lower. However, the fewer places you can give out your social as you go through life, the better.

 

If you can answer yes to any of the following questions, you are required to have an EIN for federal income tax purposes:

Do you have employees?

Do you file any of these tax returns: Employment, Excise, or Alcohol, Tobacco and Firearms?

Do you withhold taxes on income, other than wages, paid to a nonresident alien?

Do you have a Keogh plan?

Are you involved with any of the following types of organizations?

• Trusts, except certain grantor-owned revocable trusts, IRAs,  Exempt Organization Business Income Tax Return
• Estates
• Real estate mortgage investment conduits
• Non-profit organizations
• Farmers’ cooperatives
• Plan administrators

How About A NEW EIN?

If you already have an EIN, and the organization or ownership of your business changes, you may need to get a new number. Some of the circumstances under which a new number is required are as follows:

• An existing business is purchased or inherited by an individual who will operate it as a sole proprietorship;
• A sole proprietorship changes to a corporation or a partnership;
• A partnership changes to a corporation or a sole proprietorship;
• A corporation changes to a partnership or a sole proprietorship; or
• An individual owner dies, and the estate takes over the business.

How To Apply For An EIN

Online: You can apply for an EIN on the IRS website. Once the IRS is able to validate the information you enter, an EIN is issued immediately. You can apply online HERE.

Phone: You can apply for an EIN by calling 800-829-4933.  You should complete the application before calling since you will need to provide all information requested to the IRS rep.

Mail: You can complete IRS Form SS-4 and submit by mail.  The form may be downloaded at the IRS website. You should receive your EIN within four weeks.

Apply By FAX:  Taxpayers can fax the completed Form SS-4 application to the IRS.  Fax numbers are available at the IRS website.  If you provide your fax number is provided, a fax will be sent back with the EIN within four (4) business days.  Otherwise you’ll get your EIN in the mail.

And there you have it, the ins and outs of the EIN.

As always, thanks for reading BillOnBusiness.net, and please, leave your questions and comments below.  I love to hear from my readers.

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